Adnan Adams Mohammed
Soon after the approval of a $3 billion Extended Credit Facility Arrangement for Ghana by the International Monetary Fund (IMF), the Ghanaian currency the cedi has become the world’s best performer against the dollar over the past six months.
It has advanced 33% since November 2022, the biggest gain among about 150 currencies, reversing some significant losses, according to Bloomberg data.
The cedi strengthened for a fourth day, on bloomberg platform to 10.73 per dollar as at press time on Friday, May 19, 2023. Bank of Ghana as at close of May 18, 2023, a $1 was trading at GHC10.82 and it was trading at Stanbic as $1 to GHC11.0. Also, Ghana’s dollar bonds have delivered a strong performance, providing investors with a return of almost 12%, more than the 3.6% average for emerging and frontier peers in a Bloomberg index.
“..The cedi is likely to see gains in the coming days, to trade at levels below 10 against the dollar,” said Daniel Kavishe, an Africa economist at Rand Merchant Bank, in a note to clients on the back of positive sentiment as Ghana government receives the first tranche of bailout money.
“A similar reaction has been seen in other markets that have received an IMF programme that has coincided with an immediate disbursement of funds.”
The IMF funds will help restore Ghana’s foreign-exchange reserves which have dropped by nearly 50% from a peak in August 2021 as the central bank used them to help ease the pressure on the cedi, which came under significant selling pressure after the country defaulted on its debt, Kavishe said.
The local currency lost about 8.7 percent in value to the US dollar since the beginning of the year.
Prior to the announcement of the fund’s approval as hinted by Dr Amin Adams, a minister of state in charge of finance on Friday, May 12, 2023, the cedi recorded relative stability, trading around ¢11.9 to a dollar since late March 2023.
The cedi gained further grounds on May 16, 2023 to sell at ¢11.78 to one dollar. It has since March 2023 recorded stability against the world’s most important currency.
The same story can also be said about the pound and then euro. The cedi is going for ¢14.90 and ¢12.97 to the pound and euro respectively.
Investors were cautiously optimistic that Ghana would get the IMF deal approval during the second quarter, without ruling out a May approval per government’s indications.
“Immediately on Friday [May 12, 2023], we saw that reflected in the Ghana cedi performance as the local currency gained 1.0% on Friday alone. The gains have continued into this week as the market expect the approval this week, roundly today, as communicated by government officials”, Economist Courage Martey, , told Joy Business.
“So, in sum, yes, the recent run appreciation of the Ghanaian cedi is due to the latest positive news effect from IMF programme approval”, he added.
Meanwhile, many analysts are worried about the spread between the buy-side and the sell-side.
“It appears the buy-side is falling faster than the sell-side and this is widening the spread. Essentially, traders want to buy the US dollar very cheap but are not willing to sell too cheap”, Mr. Martey pointed out.
“This means that the appreciation of the cedi is not yet supported by any strong improvement in economic fundamentals, but rather on sentiments and news effects”, he added.
Subsequently, the Forex Bureau Association of Ghana is predicting further gains by the cedi in the coming days. According to the association, the local currency is witnessing some stability owing to the announcement of Ghana securing a US$3 billion Extended Credit Facility from the IMF.
Prior to the approval announcement, the Vice President of the Association, Dr. Alex Akpabli said members of the association were hopeful a successful deal will shore up the value of the cedi.
“As we speak, most businesses are struggling and therefore if the funds come it will boost more confidence in our economy. I think it will be good news for all of us. We as bureau operators are only praying that the good thing happens”.
He added that Ghana’s economy will soon bounce back once the funds is credited to the Bank of Ghana’s account.
“Ghana’s economy will be sound and robust. Therefore if it happens, as we are all praying that we secure this $3 billion loan from the IMF, I think it will help businesses”.
