The Finance Minister, Mr Seth Terkper, has given the strongest assurance yet that the falling cedi will appreciate against the major foreign trading currencies before the close of the year.
He based his assurance on expected inflows from the sale of another Eurobond ($1 billion) and a syndicated loan for cocoa purchases for the next crop season, expected to be above US$1.5 billion.
There are also some expected budgetary support from donors to the tune of about US$600 million, after they regained confidence in the economy following the confidence shown in the government’s policies by the International Monetary Fund (IMF).
The finance minister said this at the Graphic Business/Fidelity Bank Breakfast forum in Accra.
The forum was meant to provide a platform for heads of business associations, policy analysts and heads of government institutions to discuss major issues affecting the economy.
Although the cedi is yet to stabilise, in spite of the promises made to that effect, this new assurance is expected to restore some confidence in the cedi and end speculations, one of the major identified factors behind the fall of the local currency.
Cedi from January/June
The cedi traded at GH¢3.23 to US$1 in January this year but now trades at GH¢4.32 to US$1 as of the end of June, according to figures from the Ghana Association of Bankers.
The cedi was GH¢4.9 to £1 in January but reached GH¢6.9 in June, while GH¢3.7 was exchanged for one euro in January but traded at GH¢4.8 to one euro by June.
Since the beginning of the month of June, the cedi has fallen by about 26 per cent against the major foreign trading currency, the dollar, but Mr Terkper described the decline as seasonal, although it has been made worse by what he called the “greenback’s strength.”
The Bank of Ghana (BoG) has since last week been releasing about US$20 million into the economy on a daily basis in a renewed attempt to flood the market with the dollar and to reduce demand from those who have found the foreign currency a store of wealth.
Meanwhile, the move by the central bank is yet to impact the local currency on the interbank market because as some currency analysts claim, there is a backlog of arrears waiting to be cleared before any impact will be felt.
Two sides of a coin
The assurance from the finance minister comes on the back of two major descriptions of the situation given by the business associations and the IMF.
Some business associations have questioned the fiscal and monetary policies of the government and the central bank respectively.
According to them, the policies are not working and they based their arguments on the myriad of assurances given by the government in the past couple of years but which are not materialising because the cedi continues to fall even at a time when it is expected to stabilise.
On the other hand, the Bretton Woods institution said the government was on track to meet its budget-deficit target and have a stable currency in the second half of the year.
The sceptics view
In spite of the assurances, there are those who have asked the government to desist from banking its hopes on external factors.
They argued, for instance, that it was time for the managers of the economy to draw lessons from the unexpected fall in the prices of commodities such as cocoa, gold and oil to avoid shocks.
Last year, the projections made by the government on oil proceeds had to be revised drastically because the prices on the world market was halved and that affected projected inflows.
Cocoa and gold prices have also been very unstable in the last couple of years, making projections unrealistic.
Credit: Graphic Business