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Home Economy

Rate of cedi depreciation can erode economic gains – Economist

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Rate of cedi depreciation can erode economic gains – Economist

Economist with Databank, Courage Martey, has warned that the cedi’s rate of depreciation over the past weeks can erode gains made in stabilizing the economy.

The cedi has witnessed some sustained depreciation over the past month, hitting around GHS 6.42 to the dollar. This is despite improved support from the Central Bank and influx of holiday makers.

Mr Martey stated that he disagrees with Bank of Ghana increasing support to stabilize the situation.

“There is also the question that, what more should the  Bank of Ghana be doing right now beyond what they are currently doing. I mean its that seasonal time of the year so there is a lot of seasonality in the behavior of the currency and then that leads to the question of should the Central Bank be supplying more given that there is reserves”.

“I will not advocate that they should increase it beyond the current level that they are doing because, really, interventions are not to prevent depreciation, which must be emphasized”, he said.

The economist also attributed the current depreciation of the cedi to the country’s double digit fiscal deficit and that the fiscal deficit is in excess demand. Adding that the only way is to augment the excess aggregate demand by bringing in more goods and by so doing cutting down on fiscal pressures.

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“If you have a situation where you have a double digit fiscal deficit that is in excess demand which is adding to the total demand in the economy, but with sluggish productive capacity, you will need to augment that excess aggregate demand by bringing in more goods. So we need to look at cutting down on the fiscal pressures. The central bank cannot continue to increase it supply of FX because it can continue indefinitely”, he added.

Meanwhile, Former Minister for Finance, Seth Terkper, has said that government should urgently prioritize fiscal consolidation narrowing the gap between revenue and expenditure or undertake fiscal realignment to bring the economy back to the path of recovery, describing the country’s present fiscal challenge as a threat to economic stability.

The call by the erstwhile Minister was made in a post-budget forum organized by tax consultancy firm, PFM Tax Africa.

Speaking further in the forum, Mr Terkper noted that government must cease borrowing to finance recurring expenditure or consumption but rather focus on aggressive revenue mobilization as well as address wastage in the system.

Read: RTI: Guidelines for preparation of information manuals by public institutions issued

Ghana’s high fiscal deficit and public debt have become a subject of concern for multilateral institutions such as the IMF.

With the country’s high public debt, credit rating agencies such as Fitch, have called for the country to go for an IMF programme to help restore investors confidence in the country’s ability to service its debts and effectively restore its market access.

Currently, the country’s public debt as a ratio of GDP stands at 77.6% with a projected fiscal deficit of 9.4% for end-2021.

Cedi depreciates 3.2% against the dollar

The cedi has recorded another high depreciation against the dollar as the demand for the greenback by importers increase ahead of the Christmas festivities.

The daily interbank FX rates data published by the Bank of Ghana indicates that the cedi is currently trading at GH¢5.7602 (mid-rate) to $1, revealing the local currency has depreciated by 3.2 percent as of December 21 from the 2.6 percent depreciation it recorded at the end of November.

The central bank attributed the fall to the decisions of some foreign investors to pull out due to debt sustainability concerns and also the rising demand for FX by importers.

Taking the fall from a historical perspective, the cedi depreciation against the dollar ahead of the festive season is quite normal, since same was recorded the previous year with 3.1 percent, 3.2 percent and 3.9 percent fall in October, November and December respectively.

Tags: Bank of Ghana (BoG)ghanaIMFRate of cedi depreciation can erode economic gains - Economist
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