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General News of Friday, 24 January 2020


How Ghana's Finance Ministers promised to fix the cedi against the dollar

Akufo-Addo, Prez Ghana(L) & Ken Ofori Atta, finance minister(R) Akufo-Addo, Prez Ghana(L) & Ken Ofori Atta, finance minister(R)

There has been a chronic depreciation of the Ghanaian cedi under the NPP.

It is worth noting that there are external and domestic factors that cause the cedi to depreciate against major trading currencies.

The performance of the cedi against major trading currencies was a major campaign issue with both the NPP and NDC trying to topple the other with claims for and against the performance of the cedi.

Analysis accompanied with facts is to help determine who, Nana Addo or former president John Mahama performed better with respect to the management of the cedi.

The NPP government has allayed fears that the economy could crumble as a result of the gradual depreciation of the cedi against the US dollar.

Some economists, members of the opposition National Democratic Congress (NDC) and many Ghanaians have criticized the government for failing to fix the cedi's fall and legislating policies to weak the cedi – a stance Vice President Dr. Bawumia Bawumia rejected.

Ken Ofori-Atta on the cedi

Finance Minister Ken Ofori Atta largely blamed the cedi's depreciation on the strength of the US dollar and said other currencies like the pounds were also struggling against the US dollar.

He described the decline in economic growth as a global catastrophe which in his estimation the Nana Addo administration has managed very well.

He cautioned Ghanaians against labeling the local currency as the "weakest in Africa" and assured that the cedi will stabilise in the next few weeks.

He said the ailing cedi will regain its strength, latest in a fortnight adding that the fundamentals of the economy are still strong.

"The truth of the matter is to look at the fundamentals of this country. Inflation is at a single digit which is good. Growth has been strong. The budget deficit has gone down and we are getting surpluses. I’m confident of the revival and stability of the Cedi," he said.

"Really I am very confident that a reversal is going to occur and that it [cedi] is going to be pretty stable going forward. We have about 200 million dollars coming in from Cocobod and another 600 million from COCOBOD in a month or so…and that should close within the next weeks or so…with the type of capital that we expect in the few weeks we really expect a reversal and stability," Ken Ofori Atta added.

Emergency FX Committee headed by Ken Ofori-Atta

Ken Ofori-Atta has put together an Emergency Forex Development Committee to arrest, to some extent, the perennial fall of the cedi against other major foreign currencies, particularly the US dollar.

The committee headed by Ken Ofori-Atta, is to review the current Forex (FX) regime, offer workable alternatives by way of policy interventions which potentially would reduce FX risks in the economy and save the cedi from a free fall.

However, some Ghanaians have described the committee "like a public relations stunt" and "needless".

Seth Terkper fights cedi depreciation

The cedi depreciated against the US dollar by 8.3 percent during the first quarter of 2012, compared with two percent depreciation in the same period in 2011.

From 2012 to 2014, the cedi has depreciated incredibly by 77 percent against its main trading currency, US dollars. In 2012, one US dollar fetched a mere GH¢1.64, but by 2014 this amount has shot up to GH¢2.60 to one US dollars.

In January 2014 alone, the cedi's strength against major currencies dropped by 3 percent and 17 percent against the US dollar from about GH¢2.40 to GH¢2.60 to one dollar.

In 2015, Seth Terkper gave the strongest assurance that the falling cedi will appreciate against the major foreign trading currencies before the close of the year.

He based his assurance on expected inflows from the sale of another Eurobond ($1 billion) and a syndicated loan for cocoa purchases for the next crop season, expected to be above US$1.5 billion.

The cedi traded at Gh¢3.23 to US$1 in January but trades at Gh¢4.32 to US$1 as of the end of June 2015.

The cedi was GH¢4.9 to £1 in January but reached GH¢6.9 in June, while GH¢3.7 was exchanged for one euro in January but traded at GH¢4.8 to one euro by June 2015.

Since the beginning of the month of June, the cedi fell by about 26 percent against the dollar, but Terkper described the decline as seasonal, although it has been made worse by what he called the "greenback's strength."

Kwabena Duffuor on cedi's free fall

In 2012, former Finance Minister, Kwabena Duffuor who served under the late Atta Mills-led administration said the cedi has been sliding consistently, falling more than 11 percent since January. It hit fresh lows in recent weeks on strong dollar demand by local manufacturing and telecom firms.

"We've begun implementing the latest measures and I have hope that the situation will change soon. By the middle of this month, we'll see the cedi stabilise against the dollar," Kwabena Duffuor noted.

Measures to arrest cedi failed

Measures by the governments - NDC and NPP have attracted anger from the business community as they describe it as 'unfortunate' and 'discriminatory'.

It is expected to spark a wave of people withdrawing their hard currencies from their bank accounts and stashing them at home.

The measures by the governments were a hindrance to local businesses because it would not adversely affect companies operating in the country, particularly the mining companies who repatriate over 90 percent of their profits in hard currencies to their home countries.

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