Cedi losing value against foreign currencies, in spite of IMF US$1.0bn injection
Adnan Adams Mohammed
The Ghanaian local currency (cedi), after showing resilient against the major foreign currencies for over a month in the past two months, has started losing value in spite of the International Monetary Fund (IMF) disbursement of SDR 738 million (about US$1 billion) last month under the Rapid Credit Facility (RCF).
The IMF facility disbursement was to help address the urgent fiscal and balance of payments needs that Ghana is facing, improve confidence, and catalyze support from other development partners.
IGS Financial Services data shows that, the US dollar last week made a weekly gain of 0.05 percent to trade at GH¢5.62 on the interbank currency market with the year-to-date depreciation of the cedi consequently rose to 1.45 percent. The British Pound recovered from a seven-year low against major trading peers sustained by improving risk sentiments.
The Financial Services firm explained that, the resurgence of demand on the trading market has led to the cyclical depreciation of the Ghana cedi against three major trading currencies on the interbank currency market.
“The Pound’s surge was driven by emerging reports of a successful COVID-19 vaccine trial by Moderna Inc. and the reopening of some global economies in the wake of the coronavirus lockdowns”, IGS reported in its last week release.
Additionally, the British Pound appreciated by 0.59 percent to sell at GH¢6.85 on the interbank currency market with the year-to-date appreciation of cedi therefore easing to 6.50 percent.
For the Euro, it firmed on account of the release of upbeat economic data and proposals of a euro-recovery fund.
The Euro appreciated by 0.76 percent to trade at GH¢6.12 with its year-to-date appreciation of the cedi also declined to 1.54 percent.
On April 13, 2020, the IMF Executive Board approved the disbursement of US$1 billion to be drawn under the Rapid Credit Facility.
However, the IMF has noted that, it continues to monitor Ghana’s situation closely and stands ready to provide policy advice and further support as needed.
Following the Executive Board’s discussion of Ghana, Mr. Zhang, Deputy Managing Director and Chair, issued the following statement:
“The COVID-19 pandemic is impacting Ghana severely. Growth is projected to slow down, financial conditions have tightened, and the exchange rate is under pressure. The budget deficit is projected to widen this year given expected lower government revenues and higher spending needs related to the pandemic. The Fund’s emergency financial assistance under the Rapid Credit Facility will help address the country’s urgent financing needs, improve confidence, and catalyze support from other international partners.
“The authorities’ response has been timely, targeted, and proactive, focused on increasing health and social spending to support affected households and firms. The Central Bank has recently taken steps to ensure adequate liquidity, preserve financial stability, and mitigate the economic impact of the pandemic, while allowing for exchange rate flexibility to preserve external buffers.
“The uncertain dynamics of the pandemic creates significant risks to the macroeconomic outlook. Ghana continues to be classified at high risk of debt distress. The authorities remain committed to policies consistent with strong growth, rapid poverty reduction, and macroeconomic stability over the medium-term.
“Additional support from other development partners will be required and critical to close the remaining external financing gap and ease budget constraints.”