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Cedi depreciation: Ofori-Atta’s approach is a short term lived

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Adnan Adams Mohammed

Some economists have argued against the approach the Finance Minister of  using expected proceeds from borrowings and ‘money in transit’ of about US$800 million as a means to arrest free fall of the local currency the Cedi, which has lost value of over 18 percent in about three months, against major international trading currencies especially the US dollar.
The local currency which started the year around GHC4.9 to US$1.0 as at press time last week was around GHC5.8 to US$1.0, is the weakest currency so far globally, according to Bloomberg terminal analysis.

The Finance Minister, Ken Ofori-Atta, last week assured the disturbed Ghanaians and foreign investors that, the cedi will stabilise in the next few weeks, citing that, government is expecting large inflows of foreign exchange which will help turn around the value of the cedi. “Really I am very confident that a reversal is going to occur and that the cedi is going to be pretty stable going forward. We have about US$200 million coming in from COCOBOD and another US$600 million from COCOBOD in a month or so…and that should close within the next weeks or so…with the type of capital that we expect in the few weeks we really expect a reversal and a stability,” the Finance Minister said.

“It sounds very alarming when we expect cumulatively about US$4 billion to appreciate and restore the value of the cedi in two weeks. This expected loans will definitely give some very short term respite to the cedi and perhaps stabilize around the GhC5 zone”, Prof John Gatsi, economist lecturer at UCC has said.

He is of the view that, the strength of the Ghanaian currency cannot be improved or restored and sustained through “inflow of money in transition” which is in this case “borrowing”. We borrowed more than US$10 billion in the past two years but the cedi demonstrated consistent depreciation.

“The strength of a country’s currency is anchored in robust productivity, improvement in international trade records and effective formulation and implementation of policies in key sectors that influence demand and supply of foreign currency. We however, expect to repatriate over US$2 billion to settle foreign loan repayment in 2019. Therefore borrowing to fix the depreciation of the cedi is not a solution that addresses the structural issues which are well known. This transition money does not address the demand factors affecting the cedi”, he added.

The supply of foreign currency through diversified exports, friendly remittances regime and inclusive domestic production are examples of the things that strengthen currencies and not borrowing, Prof Gatsi explained in a write up shared on social media.

This is not the first time managers of our economy are going to use borrowing to provide foreign currency support. In all the cases because such borrowed funds are in transition, the cedi only experience very short term strength and thereafter worsened. Cocoa syndicated loans and other loans are the usual foreign currency support and cannot do what they have usually failed to do.

We must deal with the structural issues. Borrowing cannot replace inclusive productivity and policy oriented improvements in the structure of the economy.

Kwame Pianim, A Renowned Economist, have asked Finance Minister not to focus on how to stabilize the Cedi but rather work on improving the fundamentals of the economy which will translate into appreciation of the cedi.

In an interview, Mr Pianim said, “we can’t continue to do the same thing over and over again expecting different results.

“Tell my nephew Ken Ofori Atta that I say he should concentrate on working hard to build the economy and provide jobs for the teeming masses, and let investors invest their monies here in Ghana to stabilize our currency. His job is not to see to the cedi being stabilized, that is the work of the Govenor of the Bank of Ghana who has been appointed by the President.”

He added that, it is “not the pumping of monies into the system that will stabilize the economy’ as the Finance Minister is claiming. Ex-President Mahama also pumped monies into the system but that could not stabilize the cedi when it struggled against the dollar. “What Ken Ofori Atta should do is to rather help to transform the economy’.

The economist suggested that, as a country we can’t continue to do things the same way as we did several decades ago. We should all join in propagating to the whole world that Ghana is a peaceful country and that investors will have their monies worth if they invest here. We have young people who are technology entrepreneurs these are the kind of people we should be supporting as a state. We can’t expect to be doing the same thing over the years and expect different outcomes.

In 2014, a National Economic Forum was organized to collate views from Ghanaians to guide in formulating an economic and financial strategy that reflect the economic aspirations of our people. Many issues were identified including the danger of ethnicity, over expenditure and prudent fiscal and monetary policy management. The issue of fiscal policy undermining monetary policy was highlighted to promote continuous autonomy but strong collaboration between monetary policy and fiscal policy.

The policy framework developed thereafter fed into the new agenda of the IMF not to impose policy package on countries hence the adoption of the homegrown strategy in the IMF extended credit facility program. If for nothing at all, the major reforms, enactments in banking, securities industry, Public Financial Management, energy sector among others are some of the outcomes of the National Economic Forum. It was agreed at that forum that if certain economic indicators were not improved in about three months, considering an IMF program should be prioritized to gain from the strength and credibility of the IMF so that the government and economic programs could receive the needed credibility attract the international community hence the term policy credibility. The IMF program was actually a strategic move to gain the support of homegrown strategies to reform the key sectors and restore the country on the path of enhanced growth, fiscal management and improve resource generation.

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