Economist Dennis Brown has attributed the recent depreciation of the cedi to the structure of the economy. Earlier this month, the Bank of Ghana revealed that the Cedi had depreciated by 6.2% against the three major trade currencies the Euro, Dollar, and British Pound.
The figure signifies a decline in the 22.3% average depreciation recorded as of March 2023. The depreciation rates for the cedi against the dollar for January, February, and March were 1.3%,4.7%, and 6.8% respectively.
Speaking to RGG NEWS, Dennis Brown stated “The lack of stringent FX regime in Ghana means that exporters ultimately decide how much of the FX generated through exports are remitted back into the economy and very little of it comes back to shore up our FX reserve.
Adding that the significant depreciation recorded over the last 3 years was largely triggered by the country’s debt management issues.
Before the pandemic, the Eurobonds have been a good source of FX inflows and have helped stabilize the local currency. Government’s inability to go to the Eurobond market had a significant toll on the supply of FX, which occasioned significant and prolonged depreciation of the cedi. This is precisely why the inflows from the IMF deal have resulted in a more stable currency in recent times.
However, in a bid to salvage the situation Dennis Brown believes it is important for the government to stay on track in terms of performance benchmarks and policy measures agreed upon with the IMF as this will ensure we receive inflows expected from the IMF under the program. This will further help stabilize the local currency. Also, the government should stick to the current MoU we have with our bilateral and multilateral lenders to allow us to draw down on existing loan facilities, which will further shore up our FX reserve and stabilize the cedi.
He is therefore admonishing the leaders for a review of our FX management regime and laws around outward and inward remittances to incentivize investors and businesses to retain and reinvest more significant portions of their FX earnings in the economy.
“This will not only expand the productive capacity of the economy but will also boost our FX reserve to better absorb FX demand shocks and help sustain a more stable local currency, ” he said.
