Fiscal Deficit Remains Root Cause of Cedi Instability – Prof. Gyeke-Dako

Economist at the University of Ghana Business School, Prof. Agyapomaa Gyeke-Dako, has identified persistent fiscal indiscipline and a narrow export base as the fundamental drivers of Ghana’s exchange rate instability, warning that without sustained reforms, pressures on the cedi could easily resurface.

Speaking during the NorvanReports and Economic Governance Platform (EGP) X Space themed “Cedi Stability in 2026: Can Ghana Hold the Line After the IMF?” on Sunday, February 8, 2026, Prof. Gyeke-Dako described the fiscal deficit as the “devil in the room” and the root cause of Ghana’s long-standing exchange rate challenges.

“For a very long time, we have not been very disciplined in our spending, and at the same time, we’ve not been able to raise the revenue that we are supposed to be raising to take care of the spending,” she said, noting that the problem typically worsens during election cycles.

According to her, election-year fiscal slippages undermine investor confidence, trigger capital flight, and ultimately weaken the currency. She cited the 2021–2022 period as a clear example, when concerns about debt sustainability led to a sharp loss of confidence in Ghana’s ability to service its obligations. “They didn’t believe that we’d be able to pay our debts with the revenue handles that we had listed, and that led to people moving their funds out and a currency crisis,” she recalled.

Beyond fiscal deficits, Prof. Gyeke-Dako pointed to Ghana’s terms of trade and the structure of the economy as a second major vulnerability. While Ghana recorded a trade surplus at the end of 2025, she stressed that this outcome remains heavily dependent on just three commodities—gold, oil and cocoa.

“This trade surplus is driven by three main commodities, so it’s not really diversified,” she said, cautioning that Ghana’s current external position is largely supported by high gold prices. “What happens if the price of gold comes down? It means we need to be thinking beyond gold, cocoa and oil and diversifying our economy.”

She explained that shocks to commodity prices directly affect export earnings, international reserves and import cover, even if production volumes remain unchanged. In this context, she emphasised the need to strengthen export diversification and maintain strict macroeconomic discipline.

Prof. Gyeke-Dako welcomed recent fiscal reforms, including amendments to the Public Financial Management Act (PFMA), particularly the introduction of a debt rule and the primary surplus requirement. She also called for a stronger and more active fiscal council to enforce compliance and manage expectations.

On reserves, she urged authorities to continue rebuilding buffers to protect the economy against future commodity price downturns. “Once the prices of these commodities come down, our reserves would automatically fall,” she warned.

She concluded that sustaining cedi stability would require a balanced and credible policy mix from both fiscal and monetary authorities. On the fiscal side, she stressed adherence to spending commitments and revenue-enhancing measures, while acknowledging the role of the Bank of Ghana’s monetary tightening, followed by cautious easing.

“It’s all about discipline on the fiscal side, complemented by consistency on the monetary side,” Prof. Gyeke-Dako said, underscoring that lasting exchange rate stability will depend on policy credibility and coordination rather than short-term interventions.