The Bank of Ghana should allow market forces of demand and supply to determine the real value of the cedi as part of the medium to long-term recovery process, while attention should be channeled to improving exports, says President of Africa Investment Group Dr. Sam Ankrah.
He said the central bank’s habit of tapping into its reserves to stabilise the cedi is not only artificial but unsustainable. Hence, he suggests government should aggressively pursue an export strategy focusing more on goods and services with potential to add real value to the currency and economy.
He said the economy is in tatters and in desperate need of fresh ideas, including having to cut down on imports to restore investor confidence and stability.
His comments come after S&P lowered Ghana’s local and foreign currency credit ratings to CCC+/C from B-/B, pointing to government’s ‘limited commercial financing options, and constrained external and fiscal buffers’.
He said government’s failure to borrow from the international market and investors’ reluctance to hold assets in cedi speaks to the magnitude of work to be done, and the need for a change in approach.
Meanwhile, as a near-term measure Dr. Ankrah, who is a fellow of Chartered Institute of Economists-Ghana, said the cedi should be pegged to the United States dollar for a period of five years to allow for some breathing space.
When this is done, he believes it will lay the foundation for the currency to stabilise.
“So by the time you have finished 5 years, your demand for US$ is significantly diminished.”
Among the options available to add real value to the cedi, which is rated as the worst-performing currency on the continent, and to restore economic stability he said: “We could disincentivise all imports of staples (rice, maize, tomatoes, etc.), and restrict imports on electrical and electronic stuff – fridges, freezers, air-conditioners and vehicles – while we give incentives to domestic production and purchase of locally made alternatives.
“If you need convincing, just look at the appreciation of cedi in 2019/20 when COVID stopped us from travelling,” he added.
The Bank of Ghana has raised the policy rate by 550 basis points since the end of last year to curb spiralling inflation, which reached an 18-year high of 28.9 percent last June. The domestic currency has also depreciated nearly 30 percent over the same period.
In its quest for solutions, government has already started talks with the International Monetary Fund for economic support.
An economic programme is expected to be created in this regard to return the economy to the path of stability, following a meeting between government and IMF officials last month.
“We reaffirm our commitment to support Ghana at this difficult time, consistent with the IMF’s policies,” the Fund said in a statement issued after the meeting in Accra.