Akurugu writes...✍🏾
The most talked about issue within the media light and on the streets of Ghana is the depreciation of the local currency, Cedi. As at 11:25pm on Wednesday, 13th March, 2019, the cedi to US dollar rate was 5.86ghs to 1 United States Dollar. It was predicted this way back in July, 2018 that, the cedi will trade above 5.5 and likely to hit 6.00ghs to 1 dollar.
The depreciation came as no surprise to me though, it is disheartening for importers and businesses. Importers have to pay more to buy the dollar which simply devalued their worth and businesses which depend on imports are likely to decline drastically if dramatic measures are not put in place immediately to stabilize the local currency.
Let's have a glance at the Ghana Economic indicators and the economic outlook. According to the IMF assessment and the world bank report, and data from Ghana Statistics Service, GDP growth rate is soaring, Agricultural production is on the rise, International reserves rise from 6.2 to 7.6 which is positive and debt to GDP ratio also decreased considerably and trade balance is positive (1.1). Inflation rate has gone down to 10.3% as in January 2018 against 17.7% in 2016. Industrial production also increased which in summary saw an expansion of 24.6% of the economy.
So what then is the problem? To the lay person, it can be attributed to poor economic management and fiscal indiscipline but it goes beyond.The United States Dollar has been appreciating against even major currencies (British pound, Euro, Japanese yen, Turkish Lira, and many others.) Donald Trump who's the President of the USA, since his assumption of office has steadily put the US economy on a trajectory of growth with job numbers hitting all times high and US stocks trading at their peaks. For instance, the Turkish Lira depreciated against the dollar by closed to 70% after President Donald Trump placed 55% tariffs on steel from Turkey. This even forced the central bank of Turkey to hiked their interest rate from 17.5% to 24.5% in order to stabilize the Lira.
One spectacular cause too is the expiration of the IMF deal which is at hand (April, 2019) cast doubts in the minds of speculators and investors. The depreciation of the cedi is driven by a negative sentiment which is triggered by the IMF exit in April. Investors confidence will only be restored in 6 to 12 month after the IMF exit if government demonstrates competency in economic management and fiscal discipline.
Another factor that is causing the cedi to fall heavily is due to unregulated forex industry. We are in a country where forex bureaux are not properly regulated and unlicensed exchangers are on the streets exchanging the local currency for the dollar and the Franc (CFA) without being held accountable by the law. The amount of dollars a person is limited to buy cannot be tracked because, the bureaux do not report their transactions with verifiable data to the central bank electronically as the law prescribed to aid Bank of Ghana to monitor the circulation of dollars in the country.
Also, excessive importation of foreign goods puts the cedi under pressure.Due to high import taxes and clearance fees, most Ghanaian traders import from neighbouring countries and the local currency is being exchange on daily basis which puts pressure on the cedi.
Recommendations:
Bank of Ghana should apply strict regulatory measures and also limit the amount of dollars one can purchase per day. There is an urgent need to sanction unauthorized exchangers to desist from the act. Government should also place a ban on the importation of goods that have local competitors. Strict compliance with fiscal discipline. Bank of Ghana should readjust policy rate (hike interest rate) to discourage borrowing and spending to stabilize the falling cedi. Enough Legislation should be enacted and enforced to restrict hotels and companies that accept the US dollars for payments of services instead of the local currency.
It is again obvious, the dollar rate will hit 6.20ghs before August, 2019 but let's prevent it if we can. The cedi is the backbone of the economy. Treat it well!
By: Moses Akurugu Ade-ena
CEO, Ariel Legends Forex Network.
moses@legendsfxnet.com
+233(0)547193748
0 Comments