According to the latest Monetary Policy Report by the Bank of Ghana (BoG), exchange rate volatility in May 2024 caused a significant decline in both business and consumer confidence. The most pressing issue that impacted businesses during May was the sudden fluctuations in the exchange rate.
In particular, the Business Confidence Index, a measure of the optimism of businesses regarding economic conditions, dipped to 88.8 in May from 92.6 in the same period the previous year. This decline was largely due to concerns over the cost implications of the rapid depreciation of the cedi observed during this period.
Throughout May, the cedi depreciated by 14.6% against the US dollar, trading at GH¢15 to a dollar on the retail market. Similarly, the cedi experienced a 14.5% depreciation against the British Pound, reaching GH¢17. Against the Euro, the local currency lost 12.9% of its value, trading at GH¢15.
In addition to the declining business confidence, the BoG’s report highlighted a drop in consumer confidence. The Consumer Confidence Index fell to 81.2 in June 2024, down from 87.7 in April 2024. This reduction in confidence can be attributed to rising food prices and uncertainties regarding future economic conditions.
The challenges faced by businesses and consumers alike were not solely due to exchange rate volatilities. A combination of factors, including erratic power supply, has increased operational costs for many businesses. As these costs are eventually passed on to consumers, the impact is felt across the economy, further dampening consumer confidence.
Despite these difficulties, there is a silver lining. The report indicates that while challenges lie ahead, Ghana’s economy shows signs of resilience and is on the path to recovery. The underlying strength of the economy and its capacity to bounce back remain intact, providing some hope for the future.
Finance Minister, Dr. Mohammed Amin-Adam, has acknowledged these issues and assured that the government is working tirelessly to reduce depreciation pressures on the cedi. Efforts are also underway to enhance the business climate and create a more conducive environment for businesses to thrive.
These measures, if successful, could help stabilize the currency and restore confidence among businesses and consumers alike. The road to recovery may be challenging, but with the right policies and interventions, there is optimism that the economy will regain its footing.
While businesses and consumers continue to face tough conditions, the resilience of the Ghanaian economy remains evident. The government’s commitment to tackling these challenges and improving the business climate is crucial in ensuring sustained economic growth and stability.
Moving forward, it will be vital for all stakeholders, including the government, businesses, and consumers, to work together in navigating these uncertain economic times. By addressing the underlying causes of the exchange rate volatility and ensuring a stable macroeconomic environment, Ghana can emerge stronger and more resilient in the face of future challenges.
