The fall of the cedi


… the verdict

The economy of Ghana was described as a model economy for a developing country and praised by many experts as one of the fast-growing economies in the world. In 2021, Bloomberg published a report that Ghana’s economic growth was faster for two years running, outperforming forecasts of government and the International Monetary Fund. The IMF described the economy as better than expected. The World Bank also indicated a growth of about 7% for 2017-19. With all these impressive testimonies and figures, one question remains: what went wrong? Well, journey with me as we explore the ‘why’ behind the economic recession and the Ghanaian cedi being forced to its knees.


A debt (bond) in itself is not a bad thing, but the use of the proceeds can make a whole lot of difference. Although when sovereign bonds are issued government assumes a liability, foreign currency flowed into the economy. Every tranche of the bond proceeds received into the economy supplied more US dollars than demanded by the market. This gave strength to the cedi. The US dollars needed for importing production materials were readily available at a relatively cheaper price, thus production increased at a cheaper cost.

Ghana’s economic fundamentals showed resilience, with impressive numbers during the COVID-19 pandemic when the rest of the world struggled. One of the main reasons accounting for this was the covid restrictions. Yes, the covid restrictions. Ghana, just like most of its peers on this continent, is an import-based economy that spends billions of dollars on imports annually. There was less demand for the US dollar as a result of covid-restrictive measures on importation. This resulted in the cedi holding up strongly against the US dollar.

There are two sides to the many reasons that have been attributed to depreciation of the cedi and economic recession. One side is government blaming depreciation of the cedi on naysayers and speculators, COVID-19 and the Russia-Ukraine war. On the other hand, a section of the citizenry is blaming it on corruption and the failure of economic managers. Let’s journey together as we find out if these accusations indeed have any merit.


COVID-19 sent a great shock-wave through the global economy. Rising fears of the COVID-19 pandemic pushed the global economy toward recession. Global commodity prices came tumbling down. And one of the main sources of income streams and foreign exchange earnings for Ghana is commodity exports. Many investors – in an attempt to avoid the exposure upon seeing the hits to the commodity market – fled the emerging-market assets; thus creating a huge trade deficit. This increased pressure on the cedi. And the covid pandemic fears brought the global economy to a stop with all the restrictions.

At the pandemic’s peak, many companies recorded losses. When the covid restrictions were eased, economies went into overdrive in an attempt to rapidly recover from the impact of covid; and Ghana was no exception. Countries in a bid to revive their economies increased production. The demand for production materials increased more than the market could supply. This resulted in price increases. Ghana, an import-based economy, faced the challenge of high prices on the international market, thus creating high demand for the US dollar and further weakening the cedi.

The high prices on the international market together with depreciation of the cedi against the US dollar triggered inflation in the local market.

The Russia-Ukraine war

The Russia-Ukraine war is a global catastrophe. Russia and Ukraine are the production factories of the world. Russia produces 31.2% of the total grain imported. In the first two months of 2022, 50.0% and 39.2% of flour and fertiliser imports, respectively, were also from Russia.  Over 60% of Ghana’s iron ore and steel imports were from Ukraine. The construction and agricultural sectors of Ghana’s economy were greatly hit by the supply disruptions and price increase of these commodities. This also fuelled the local market’s inflation, consequently weakening the cedi.

There have been arguments about the impact of speculation on depreciation of the cedi: but if history is anything to go by, we can make reference to black Wednesday – popularly known as the day speculators, led by George Soros, broke the British pound sterling. In the early 1990s, the UK joined the ERM (Exchange Rate Mechanism) to stimulate unification of the European economies. The UK, trailing in the Germans’ shadow, increased interest rates in its desperation to attract investors to the depreciating pound sterling. George Soros backed his speculation by taking a short position in the pound sterling. George Soros pocketed a profit of US$1billion from the £3.3billion the British Treasury lost in its failed attempt to hold up the pound.

The use of policy rate

The fear of covid pandemic and the Russian-Ukraine war have greatly disrupted the demand and supply chain, and triggered inflation across the globe. Most central banks in their attempt to combat inflation are raising their policy rate, and Ghana did the same.  The question, then, is why did this strategy rather increase the rate of inflation? This can be attributed to the fact that the policy rate was raised too slowly. This allowed inflation to gather momentum and thus become too difficult to stop.

The longer high prices linger, the more future inflation expectations build. This resulted in people buying more in anticipation of prices rising further – perpetuating high demand and speeding up inflation in the process.  The US Federal Reserve led by Paul Volcker raised the policy rate from 11.20% to 20% in the 1980s. The economy went into a recession, but the double-digit inflation was tamed. Paul Volcker raising the rates too quickly is like slamming the brakes on a car that’s speeding downhill: the economy came to a standstill, allowing economic managers to press the reset button and take control of affairs.

Printing and Introduction of the New Note

Contrary to slowing inflation, printing and introducing new notes into the economy did not increase Ghana’s economic output. It only increased the inflation. When the new notes were introduced, the amount of cash circulating in the economy increased. Now more money was chasing fewer goods in the economy. When the demand for goods became more than the supply, the market responded by adjusting price upward triggering inflation. This also resulted in the cedi losing value against the US dollar.

Rising debt

Ghana has relied on the international bonds market to fund government expenditures. This has increased the country’s interest costs on international bonds in the capital market. Repayment of maturing interests created high demand for the US dollar. Labelled junk, Ghana’s bond market saw investors flee our securities. With its inability to raise funds on the international capital market, Ghana was forced to supply debit domestically – crowding out businesses and slowing down productivity. The value of the cedi dropped.

Reset button

The country’s economic predicaments have gone beyond the fundamentals. Panic and speculation rule the day. People are rushing for the US dollar as a safe haven. Investments and savings are no longer appealing as a result of the ‘haircut’ speculation. Some traders are holding up their products in anticipation of a price increase. Other traders are also increasing prices in anticipation of future cedi depreciation. There is a loss of confidence in the economic managers.

The country’s economic outlook looks gloomy, but not all hope is lost. This is the right time to press the reset button and start from scratch. Government should make a deliberate attempt to restore confidence. This is the period when government must come clean on the true state of the nation with enhanced debt transparency; because hidden debts, most of the time, become known at the worst possible time and thereby deepen any crisis. The country’s leadership must communicate the challenges facing us as a nation. Government should reshuffle its economic managers. The president’s team of communicators should sing the same version of the song, and not otherwise.

The president should let the citizenry see that he recognises we are in difficult times, by drastically reducing the size of his government and budget allocations. This will create a little fiscal space for government. Government should communicate a pragmatic programme to get us out of this situation, and this should be backed by actions.

Social interventions

Targetted social interventions toward the poor and vulnerable are highly recommended, as depreciation of the cedi and the high inflation level have left the majority of Ghanaians impoverished. Research shows that more than 50% of Ghanaian households’ income goes into food expenditure.  In the short-term, Ghanaians should revise the planting-for-food programme as a top priority project. Crops with harvesting times of three months to a year should be prioritised. This is to enable the citizenry get access to cheaper foods within the shortest time possible. Abundant food supplies will lower food prices and reduce inflation. Also, the cedi will start gaining strength against the US dollars since the importation of some food items will decline.

The Bank of Ghana

The central bank plays a pivotal role in every economy, but can only do so much with its foreign reserves and management of the banking system; it cannot control inflation. Over-reliance on the central bank by government as the fallback lender depleted the foreign reserves, which caused currency depreciation. Government should leave the central bank to attend to its business – managing the banking system and creating liquidity in the economy.

Government should desist from monetisation of the debt (financing debts by printing money). The public debt should be brought to sustainable levels with economic growth, spearheaded by the agricultural sector and taxation. The tax regime must be reviewed. Some taxes on fuel and the import of essential commodities must be scrapped to further lower the price of fuel and essentials to lessen the difficulties of Ghanaians in turbulent times. The tax managers must be tasked to find innovative methods of ensuring everybody in the informal sector pays tax.

Government should improve the quality of its spending. Public spending should be more performance-oriented. Government should reduce its reliance on high-cost, short-term funding. Economic managers should be more prudent in managing debt so as to reduce debt service costs. There should be massive reforms in the state-owned enterprises to make them profitable.

Now the verdict

The cedi’s fall cannot be attributed to any single isolated cause but a collective one: external uncontrollable events (covid, Russia-Ukraine war), mismanagement, wrong economic decisions and speculation by citizens.

Yes, the cedi will regain its strength. Yes, we will recover from this recession. But we all have to play our part, as citizens and as government, to fight the uncontrollable external events. Now more than ever, we will have to live the adage “a single broomstick breaks easily when bent; but together with other broomsticks and bent from every angle, it will not break”.

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