Cedi’s Longstanding Depreciation Woes A Shame

Professor Godfred Bokpin, an economist and finance professor at the University of Ghana, has emphasized that the Ghanaian cedi’s ongoing depreciation against major foreign currencies is a longstanding issue that is unlikely to be permanently resolved without stronger macroeconomic policies.

In remarks made on Monday, May 13, Professor Bokpin highlighted that the cedi has faced consistent depreciation since it was introduced in July 1965.

He predicted that while there may be occasional periods of relative stability, the overall trend of the cedi slipping in value is expected to persist, even with the implementation of effective economic measures.

“If we do everything right we will still expect that the cedi will depreciate by a certain margin given the relative strength of the economy. It’s a shame that we haven’t been able to provide the cedi with the necessary support through sound macroeconomic policymaking, including responsible fiscal management and prudent monetary policy.

“As a result, we’ve denied the cedi some basic rights and then expect it to perform magic, when in reality, the cedi’s behavior is a reflection of weak underlying fundamentals” Professor Godfred Bokpin made it known.

Referring to Vice President Dr. Mahamudu Bawumia’s well-known remarks on the cedi’s depreciation, Professor Godfred Bokpin argued that the exchange rate will continue to reflect the weakness of Ghana’s economic fundamentals.

Professor Bokpin highlighted that in 1964, Ghana experienced inflation of less than 1%. During this period, Ghana did not have its own national currency and relied on the British West African pound, which limited its ability to control monetary policy.

He explained that even after gaining independence, Ghana struggled to print its own currency until the introduction of the cedi in July 1965.

However, inflation has remained a persistent challenge since then, contributing to the ongoing depreciation of the cedi.

Cedi’s Recovery

According to a report by FitchSolutions, “We also expect that the Ghanaian cedi will recoup some of its recent losses in the months ahead, ending the year at GHS12.25/USD.”

The report stated that the currency has depreciated by 11.0% against the US dollar so far this year, positioning it among the worst-performing currencies globally.

“Indeed, the cedi has been on a rapid depreciatory trend since February, caused by investor concerns over Ghana’s progress of restructuring its commercial debt, as well as the sustained strength of the US dollar.”

Moreover, the report stated that Ghana’s international reserves remain low, covering just 2.7 months of imports in February, which restricts the Bank of Ghana’s capacity to effectively intervene in the foreign exchange market.

Regardless, FitchSolutions expects that the cedi will strengthen as the government makes progress regarding the restructuring of its commercial debt.

“Although a proposed debt deal with international bondholders was rejected by the IMF in April, Ghana’s Finance Minister has stated that ‘significant progress’ has been achieved, which suggests to us that reaching a debt agreement by mid-2024 should be feasible.

“We expect that this will boost investor confidence in Ghana’s economy and policymaking processes, leading to increased foreign exchange inflows and a consequent strengthening of the cedi in H2 2024.”

Professor Godfred Bokpin’s insights underscore a persistent challenge with Ghana’s economic fundamentals and the longstanding issue of the cedi’s depreciation. Stronger macroeconomic policies are needed for sustained stability. Efforts to address debt restructuring and boost investor confidence may aid in stabilizing the cedi going forward.