Will Ghana attain cedi stability?
The Bank of Ghana says it aims to increase the country’s foreign reserves in a bid to prevent further depreciation of the cedi. What policies can help achieve the plans? John Gatsi, Dean at the University of Cape Coast School of Business, joins CNBC Africa for this discussion.
Fri, 01 Nov 2024 15:08:26 GMT
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- The importance of addressing root causes of currency depreciation, such as low productivity in key sectors, to achieve lasting stability.
- The challenges posed by a large government expenditure envelope on revenue management and economic sustainability.
- The need for alignment between monetary and fiscal policies to navigate seasonal and election-related demand pressures on the cedi.
Ghana's currency, the cedi, has been facing significant challenges in recent times, with the Bank of Ghana making efforts to shore up the country's foreign reserves to prevent further depreciation. In a bid to discuss the strategies that can help attain cedi stability, John Gatsi, Dean at the University of Cape Coast School of Business, joined CNBC Africa for a comprehensive discussion.
The Finance Ministry highlighted that the Bank of Ghana has been accumulating substantial reserves to support the cedi, especially as the upcoming festive season typically exerts pressure on the local currency. Despite interventions in the market, the depreciation of the cedi has persisted, reaching alarming levels of 17 cedis to the dollar. Gatsi pointed out that while interventions are essential, addressing the root causes of depreciation, such as low productivity in the food sector, is crucial to achieving lasting stability.
The discussion further delved into the impact of additional inflows from international financial institutions, including the IMF, on boosting reserves. Gatsi highlighted the challenges posed by the large government expenditure envelope, which strains the economy despite efforts to increase revenue. While the economy shows signs of diversification, particularly in the digitalization sector, the effectiveness and impact of these initiatives remain questionable.
As the cedi faces seasonal and election-related demand pressures, Gatsi predicted an undulating nature for the currency in the final quarter of the year. Despite Ghana's successful debt restructuring program with the IMF, concerns remain regarding debt sustainability and fiscal discipline. Gatsi emphasized the need for significant improvements in fiscal ratios and debt payment sustainability.
In conclusion, the path to cedi stability in Ghana requires a multifaceted approach that addresses underlying economic challenges and enhances fiscal discipline. The efforts of the monetary and fiscal authorities must be aligned to tackle issues such as low productivity, government expenditure control, and revenue management. While progress has been made, sustained efforts will be necessary to navigate the complex economic landscape and achieve lasting stability for the cedi.