It is time for government to focus on policies that will encourage the production of goods that the country is capable of, while adding value to exports as a sustainable means of reducing imports and strengthening the local currency, financial and economic analysts have said.
The cedi has currently crossed GH¢5 to a dollar compared to GH¢4.42 in the same period last year and GH¢4.27 in January 2017 – a situation many fear will get worse if long-term measures are not put in place.
This essentially means that the cedi has depreciated 10.6 percent against the US$ since January 2018.
Head of Finance Department at the University of Cape Coast (UCC), Prof. John Gatsi, told the B&FT that until managers of the economy focus on long-term policies that will reduce the import of products that can be easily produced in the country, the cedi’s woes will never cease.
“The Bank of Ghana report shows that rice importation has increased to US$300million, while sugar imports also increased to US$123million. We already have policies for reducing rice importation; we already have policies toward reducing sugar import in the form of the Komenda Sugar Factory. So, it means we are not implementing policies that should limit the demand of certain commodities.
“We also know that some agriculture produce is part of the items we import into this country. So, the question is: what is our agricultural policy achieving? What is it directed toward? It should be targetted toward sustainable food production and dealing with key imports that we have the ability to produce. But it seems we are not managing the agriculture sector as part of the policies to address depreciation of the currency,” he said.
He further debunked the idea that the local currency is suffering from external shocks, particularly the strength of the US economy – saying if the country focuses more on the things it has control over, the impact of external shocks will not be felt.
“Even though we may explain this with some factors such as performance of the US dollar, the point is that most countries trade with the US dollar but their currencies are not depreciating the way the cedi is. We need to deal with the factors that we have control over; and after we have done so, then we will see that international developments have minimal effects on our economy,” he said.
His view is also shared by an economics professor at the University of Ghana, Peter Quartey, who said the currency depreciation is a result of excess demand for foreign currency over-supply, which is caused mainly by the high level of importation.
“There is excess demand over supply for forex. And what is causing this is that our imports continue to be a challenge: we tend to import quite a lot.
“A sustainable way of managing the exchange rate is to export more value-added products, not raw materials. We have to add value to all things we export – like cocoa, gold etc., before they are exported,” he said in an interview with the B&FT.
He further urged the central bank to enforce its regulation on forex trading, as he argues all efforts to address the depreciation will be in vain if forex trading is not properly regulated.
“[In Ghana] you can walk to any corner and exchange money without any identification. In most countries you cannot do that; you need a passport or some identification to do that. But in our case, people walk in from neighbouring countries and come and load the dollars into suitcases and go.
“So, if we don’t address this problem, no matter how much Bank of Ghana pumps in, it will leak. I heard the Bank of Ghana has started it, but I want to see more effort,” he said.