The cedi, Ghana’s local currency, continues to experience significant depreciation against its major trading currencies, according to the September 2024 Summary of Economic and Financial Data released by the Bank of Ghana. The report indicates that the cedi has weakened further against the US dollar, the British pound, and the euro, exacerbating concerns over the currency’s stability in the near term.
As of September 2024, the cedi has depreciated by 24.3% against the dollar, up from the 21.3% recorded in August of the same year. On a year-by-year basis, the depreciation rate has increased marginally from 22.9% recorded in September 2023. In real terms, this means the local currency is now trading at GHS 15.70 to a dollar, compared to GHS 11.12 last September.
The British pound has also gained significantly against the cedi, with the local currency depreciating by 27.7% when compared to the 22.9% recorded during the same period last year. The rate of depreciation against the euro has similarly worsened, with the cedi losing 25.0% of its value, up from 22.3% in September 2023.
These depreciation figures have raised alarms among economic analysts, particularly as Ghana recently received the second tranche of its USD 3 billion Extended Credit Facility from the International Monetary Fund (IMF) earlier in the year. The facility, along with other foreign inflows from donor partners, was expected to bring about relative stability for the cedi. However, the latest data suggest that the measures taken thus far have not been sufficient to prevent further erosion of the currency’s value.
The continued depreciation of the cedi is a worrying trend, particularly as the country heads into the festive season. There is an anticipated increase in demand for the US dollar due to heightened imports during the yuletide period. This increase in demand, coupled with the existing pressure on the cedi, could lead to further depreciation of the local currency as the year draws to a close.
Economists are urging the government to adopt long-term strategies that will address the underlying factors contributing to the cedi’s depreciation. While short-term interventions, such as securing IMF funds, provide temporary relief, more sustainable solutions are needed to curb the constant pressure on the currency.
The increasing value of imports and the relatively high demand for foreign currencies have been key drivers of the cedi’s weakening position. As the government continues to work on economic recovery plans, it must also focus on strengthening the local production of goods to reduce reliance on imports. Reducing the import bill could alleviate some of the pressure on the local currency and help restore some level of stability.
Despite the recent financial inflows, experts warn that unless Ghana adopts robust fiscal policies and prioritizes local production, the cedi will remain vulnerable to further depreciation. The current economic environment, characterized by high inflation and external debt obligations, has made it difficult for the country to maintain a stable exchange rate. This has created a ripple effect, impacting the cost of goods and services and worsening the economic conditions for the average Ghanaian.
The need for comprehensive fiscal reform cannot be overstated. Implementing policies that support local industries, encourage exports, and reduce the country’s dependence on imports is crucial in mitigating the cedi’s vulnerability to external shocks. Additionally, monetary policies that focus on curbing inflation and managing the country’s foreign reserves are essential in creating a stable environment for the local currency.
The upcoming festive season presents an immediate challenge for the government and the Bank of Ghana. Historically, the demand for foreign currency spikes during this period due to the increase in imports, particularly of consumer goods. As such, there is a high likelihood that the cedi could lose more value by the end of the year if measures are not taken to manage the currency’s depreciation.
In conclusion, the Bank of Ghana’s report on the cedi’s performance highlights the need for immediate and long-term measures to stabilize the local currency. While the IMF inflows and other foreign assistance have provided some respite, they are not sufficient to reverse the ongoing depreciation trend. The government must adopt a more comprehensive approach, addressing both the immediate demand for foreign currencies and the structural issues within the economy that continue to place pressure on the cedi.
As Ghana continues to navigate its economic recovery, it is imperative that the government takes decisive steps to protect the cedi from further devaluation. Without such interventions, the local currency may continue to lose value, further exacerbating the economic challenges faced by the nation.
