Editorial: Sliding cedi could pick up after IMF board approval of second review


Corporate demand, coupled with a strong U.S. dollar on the international market, has weighed heavily on the cedi in the first four months of this year (2024).

As demand surpasses foreign exchange (FX) liquidity, asset management company Databank envisages a continuous weakening trajectory of the local unit this week in the near term as the FX demand-supply disparity remains substantial.

Data from Databank’s weekly updates suggest Bank of Ghana has supplied an estimated US$270.1million on the FX market as of April 3, 2024 – US$150.1million on the spot market and US$120million on the Bulk Oil Distribution Companies (BDCs) FX forward market – to improve liquidity and stabilise the cedi.

This notwithstanding, Databank envisages improved liquidity following the IMF programme approval.

“We anticipate improved liquidity conditions toward the end of Q2 2024 after board approval of the second review, which will lead to a tranche disbursement of US$360million under the IMF programme,” it notes.

On the other hand, a resilient U.S. economy sees the dollar continue to demonstrate strength. The greenback has gained against just about every other major currency in 2024.

Consequently, year-to-date cedi depreciation against the dollar has worsened from 6.8 percent as of the last MPC meetings to 14.11 percent currently.

However, investment advisor, Constant Capital cautioned of a negative FX supply outlook due to fundamental factors.

“The disinflationary trend seen earlier in the year was reversed in two CPI readings in the first quarter and inflation remains worryingly elevated in the economy, on rising food and utility prices. Additionally, Ghana’s cocoa output for the 2023/24 season is expected to be almost 40 percent below a target of 820,000MT.”

Coupled with the afore-mentioned, current total government financing in FX from the World Bank complex does not quite match the loss in FX inflow from offshore bilateral and the commercial sources.

Vice President Dr. Mahamudu Bawumia is of the considered opinion that the depreciation of the cedi has been sustainable in spite of the current global economic challenges in comparison to the previous administration’s era.

According to him, the exchange-rate depreciation between 2009-2016 averaged 13.9 percent but between 2017-2023, it averaged 13.1 percent. Therefore, the cumulative, the depreciation of the cedi has been lower under the present government.

While we struggle with statistical averages, the fact of the matter is that the combination of factors leading to high inflation and the cedi’s instability is having a dire effect on the health of the economy. We believe the focus should be on how to address challenges.

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