[ 2019-03-22 ]

The cedi’s depreciation is due to various factors - Economist
Accra, March 22, GNA – Mr Habibu Adam, an
Economist, has attributed the depreciation of the
cedi to the structure of the economy, allowing
foreign portfolio investments into the domestic
bond market and the speculative attacks by either
politicians or ‘rogue traders’ in the
forex market.

Mr Adam said Ghana recorded trade deficit of
USD$1.69 billion in 2016 as in many other years
previously “this transformed to trade
surpluses of about USD$1.19 billion and USD $1.78
billion in 2017 and 2018 respectively for the
first time in decades. So why should the cedi be
under pressure”.

The Senior Economist said this in interview with
the Ghana News Agency in Accra.

Mr Adam said allowing the foreign portfolio
investments (investments by non-resident
Ghanaians) into our domestic bond market for which
some of them are now moving their funds to their
parent countries as it tapers, its rates higher as
against the downward trend in the Ghanaian
interest rates.

He said the other reason for the depreciation may
be due to the huge interest servicing being made
by government.

“Just before the IMF intervention in our
economy, experts including then Vice-Presidential
Candidate Dr Mahamudu Bawumia had warned of
excessive borrowing which will cloud out fiscal
space for government.

“Spokespersons of then government argued
that as far as the debt level had not hit the
unsustainable debt level of 70 per cent, they were
not doing anything wrong.

“The end result was that, they left
government leaving a debt level of 73 per cent of
Gross Domestic Product (GDP) for the new
government to grapple with,” Mr Adam said.

He said the resultant effect of the binge
borrowing was that interest payments ten years
(2008) ago was only GH¢ 679 million. This rose
to GH¢10.7 billion in 2016 and is expected to
hit GH¢18.6 billion by the end of 2019 (2019
Budget statement).

The Senior Economist said external debt
constitutes 49.9 per cent of the public debt,
therefore, “government will need to service
the interest in foreign currency bringing
additional burden on the cedi”.

Mr Adam said the final contributor to the
depreciation of the cedi was the structure of the
economy where “we export raw commodities and
import almost everything in their value-added
form.

“If the structure of the economy remains the
same, no government will be able to halt the fall
of the cedi. How can we be importing USD$2.0
billion worth of rice, USD$320 million worth of
sugar and USD$ 374 million worth of poultry just
to mention few and expect the cedi to be stable?
All these commodities could be produced
here”.

Mr Adam said in the last eight years before the
current administration, the cedi had depreciated
by 247 per cent giving an average annual
depreciation of 30.9 per cent.

“The first two years of former President
John Dramani Mahama’s administration
recorded annual depreciation of 34.9 per cent.

“This compares to 6.43 per cent annual
depreciation as at the end December, 2018 in the
first two years of President Nana Addo Dankwa
Akufo-Addo’s administration.

“Though a significant reduction; it is still
not good enough. It is also important to
acknowledge that the cedi has witnessed over 5 per
cent depreciation in the first quarter of 2019 and
it will be interesting to find out how it ends the
year,” the Senior Economist said.

“In my opinion, the only way to end the
cedi’s perennial depreciation is to embark
on a comprehensive industrialisation policy
together with improvements in infrastructure as
well as modernisation of the agriculture and
tourism,” he said.

Source - GNA

... go Back