News Guide Africa

Tag: cedi depreciation

  • Govt’s seven point agenda to restore stability

    Govt’s seven point agenda to restore stability

    The government has anchored the 2023 budget on a seven-point agenda aimed at restoring macroeconomic stability and accelerating economic transformation as articulated in the Post-COVID-19 Programme for Economic Growth (PC-PEG).

    According to the Finance Minister Ken Ofori Atta, these comprise an agenda to: aggressively mobilize domestic revenue; streamline and rationalise expenditures; boost local productive capacity; promote and diversify exports; protect the poor and vulnerable; expand digital and climate-responsive physical infrastructure; and implement structural and public sector reforms.

    “To achieve these, there are three critical imperatives: successfully negotiating a strong IMF programme; coordinating an equitable debt operation programme; and attracting significant green investments”, he said.

     This, according to he Minister will enable the government to generate substantial revenue, create needed fiscal space for the provision of essential public services and facilitate the implementation of the PC-PEG programme to revitalise and transform the economy.

    The government plans to undertake the following actions, initiatives, and interventions under the seven-point agenda; increase the VAT rate by 2.5 percent to directly support our roads and digitalization agenda; ast-track the implementation of the Unified Property Rate Platform programme in 2023; and review the E-Levy Act and more specifically, reduce the headline rate from 1.5% to one percent (1%) of the transaction value as well as the removal of the daily threshold.

    Other are, cut the imports of public sector institutions that rely on imports either for inputs or consumption by 50% and will work with the Ghana Audit Service and the Internal Audit Agency to ensure compliance; support the aggressive production of strategic substitutes, including the list disclosed at the President’s last address to the nation; support large-scale agriculture and agribusinesses interventions through the Development Bank Ghana and ADB Bank; introduce policies for the protection and incubation newly formed domestic industries to allow them to make the goods produced here competitive for local consumption and also for exports.

    The government will expand the productive capacity in the real sector of the economy and actively encourage the consumption of locally produced rice, poultry, vegetable oil and fruit juices, ceramic tiles among others; to pursue efficiency in Government expenditures, we will among others: implement the Government directives on expenditure measures; integrate public procurement approval processes with GIFMIS to ensure that projects approved are aligned with budget allocation; review key government programmes to reflect relevance, promote efficiency, and ensure value for money; and review the efficiency of Statutory Funds

    It will also undertake major structural reforms in the Public Sector by reviewing the operations of 36 State-owned Enterprises, 8 Special Purpose Vehicles, 90 Joint Venture Companies, 38 Regulatory institutions, 68 Statutory Bodies and 6 Subvented Agencies; enforce compliance with a legal and regulatory framework on foreign exchange; initiate measures to overhaul the tax structures in the extractive industry; expand the gold purchase programme by the Bank of Ghana to support FX Reserve accumulation, and promote an LBMA-certified gold refinery in Ghana and promote local currency stability.

  • Cedi depreciation to hike inflation further

    Cedi depreciation to hike inflation further

    Adnan Adams Mohammed

    The Government Statistician has indicated that the effect of the depreciation of the local currency,  the cedi against major trading currencies (especially, the U.S Dollar) would continue to affect the rate of inflation in the country.

    “The policy decision to be taken in the next few months will determine if the current volatilities in the exchange rate will continue to influence inflation or not”, Professor Samuel Kobina Annim said.

    Year-on-Year October 2022 inflation surged to 40.4% with imported inflation recording very high rate than locally produced items. Inflation for locally produced items was 39.1%, whilst inflation for imported items was 43.7% in the month of October 2022.

    This shows the sharp relationship the Cedi depreciation has on the untamed imported inflation. However, the Finance Minister has reiterated government’s commitment to stabilising the Ghana cedi by the end of the year. According to him, government together with the Bank of Ghana have adopted measures including dealing with speculation which he described as one of the major causes of the depreciation of the cedi in recent times.

    “As the Minister of Finance, no one needs to tell me the ravages of the cedi depreciation which has become an albatross on the neck of our local industries and the high cost of living for all citizens”, Ken Ofori-Atta admitted at an Association of Ghana Industries (AGI) forum in Accra, last week.

    Professor Annim, therefore, believes a drastic policy decision can make a huge impact on the rate of inflation.

    “In terms of how the exchange rate is impacting on this [inflation], one has to look at two things, thus the past through effects and how many items experience the effects as well as the timing of the effects”.

    “So it is possible that the impact of the exchange rate will linger on for a number of months. But the determination of the months will depend on the kind of policy to be introduced in the next two to three months”, he pointed out.

    He added that “so whether we peak or not will depend on what is happening and the items that are going to be affected and the price increases”.

    Meanwhile, Mr. Ofori-Atta after giving assurance to captains of industry, charged industry to increase their productive capacity to stimulate job creation, adding that “we cannot continue to be a nation of importers.”

    He cited an example such as the country imports about GH¢4 billion worth of fish, GH¢1.9 billion worth of chicken and GH¢487 million worth of meat in 2022.

  • BoG decry allegation of conspiring with third forces to transfer funds offshore

    BoG decry allegation of conspiring with third forces to transfer funds offshore

    The Bank of Ghana has debunked allegations by the Director of Research at the Ghana Trades Union Congress (GTUC), Dr. Kwabena Nyarko Otoo, that it is collaborating with some operatives at Cow-lane in Accra to illegally transfer funds offshore.

    The Central Bank says it vehemently denies the said allegations and also considers them extremely reckless.

    “We would have expected that such strong allegations would have been supported by the requisite evidence, and not left at pure conjecture, mere suspicion or hearsay. This is especially so considering the quarters from which the allegations were made”, it pointed out.

    Dr. Kwabena Nyarko Otoo according to the BoG passed the unfortunate remark about the Central Bank.

    “We advise the general public to completely disregard these comments and be assured that we, as a Central Bank, are focused on our mandate of price stability, and doing all within our power to reduce the rising general level of prices. We are doing this guided by our core values of accountability, professionalism and integrity, and in accordance with law”.

    The Bank of Ghana also noted that it is working with other stakeholders including law-enforcement agencies to discourage and sanction persons who engage in illegal foreign exchange activities in the country.

    The Central Bank, however, “advises the public to desist from making any such unfounded allegations in the future and to crosscheck same with Bank of Ghana”.

    The Central Bank also disclosed it is working with the law enforcement agencies to penalise illegal foreign exchange operators.

     “Bank of Ghana is also working with other stakeholders including the law enforcement agencies to discourage and penalise the activities of illegal foreign exchange operators in the country,” the BoG said.

    It also advised “the public to desist from making any such unfounded allegations in the future and to crosscheck same with Bank of Ghana.”

  • Cedi begins to recover after free fall

    Cedi begins to recover after free fall

    By Elorm Desewu

    The Ghana cedi has begun to recover after it has depreciated against the major trading currencies since the beginning of this year.

    But just last week, the Cedi appreciated against the greenback as the US$750 million loan from the African Export Import Bank (AFREXIMBANK) has hit the accounts of the Bank of Ghana (BoG).

    The cedi is also expected to appreciate further in the wake of the first tranche of the annual cocoa syndication loan which would hit the accounts of the BoG next month.

    Last week on the Interbank, Cedi was trading against the dollar at a buying price of 8.2284 and a selling price of 8.2366.

    However, at a forex bureau in Accra, the dollar was being bought at a rate of GHC9.79 and sold at a rate of GHC9.98.

    Against the Pound Sterling, the Cedi was trading at GHC9.5820 and a selling price of GHC9.5924. At a forex bureau in Accra, the pound sterling was being traded at GHC11.10 and sold at a rate of GHC11.60.

    The Euro was trading at a buying price of GHc8.2867 and a selling price of GHC8.2950. At a forex bureau in Accra, Euro was being bought at a rate of GHC9.55 and sold at a rate of GHC9.85.

    The cedi has dropped more than 38% this year making it the worst performing currency after Sri Lanka’s rupee among 150 economies tracked by Bloomberg.

    “Ghana’s assets are facing pressure and this is common across high-yield emerging markets,” said Yvette Babb, a Netherland’s based fixed-income portfolio manager at William Blair International “The move, however, has been particularly pronounced in Ghana.”

    Investors have dumped the cedi and the nation’s bonds this year as concerns about the impact of a global slowdown in demand for commodities such as cocoa have risen. Those movements fed an inflationary surge and pushed Ghana to begin talks with the IMF in July over an assistance package of as much as $3 billion.   

    The Bank of Ghana earlier last month increased its benchmark interest rate by the biggest margin on record to 22% to slow the decline. A depreciating currency will add to the import bill of a country that purchases most of its fuel from abroad and has been struggling with inflation at the highest levels since 2003.

  • Cedi to loose 43% value to U.S. dollar in 2022 – Fitch Solutions

    Cedi to loose 43% value to U.S. dollar in 2022 – Fitch Solutions

    Adnan Adams Mohammed

    Fitch Solutions has projected that the local currency, the Cedi will depreciate in value of about 43 percent to the US dollar by end of this year.

    The investor firm is also projecting a 30.1% fall in value of the cedi to the dollar in 2023. This means, the woes of the cedi will not get better anytime soon.

    Disclosing this in its latest report on the country dubbed “Ghana’s Private Infrastructure Investment Set For Medium-Term Recovery”, it said, the continuing investor concern over the country’s large fiscal deficits puts downward pressure on the cedi.

    “We expect weakness for the Ghanaian cedi to persist throughout the near term, as we currently forecast the currency to depreciate by 43% and 30.1% against the US dollar in 2022 and 2023, respectively”.

    “We expect that Ghana’s inflation rate will remain high in the near term in the face of spiking global food and fuel prices and as continuing investor concern over the country’s large fiscal deficits puts downward pressure on the cedi”, it added.

    Again, it pointed out that the currency’s weakness will keep revenue risks elevated for foreign investors dependent on revenue streams in local currency.

    This is despite an expected $2 billion inflows from the Afrexim Bank and COCOBOD syndicated loan.

    Furthermore, it said in the light of the reliance of Ghana’s construction industry on imports, the cedi’s weakness will add to upward pressures on prices of construction materials from existing supply chain disruptions.

    This, in turn, will further contribute to increased project costs and potential investment delays in the near term.

    “In 2021, Ghana’s trade deficit for iron and steel products is estimated to have exceeded $1.2 billion, up from an estimated deficit of over $780 million worth of iron and steel products in 2020. In light of the Ghanaian construction industry’s reliance on materials imports, we expect that the cedi’s weakness will add to upward pressures on construction materials prices from existing supply chain disruptions. This, in turn, will further contribute to increased project costs and potential investment delays in the near term”.

    The cedi has since the beginning of the year lost about 36% in value to the dollar, according to Bloomberg.

    It depreciated by a little over 4% last week, starting the week at ¢10.10 pesewas to the American ‘greenback’.

    This has drastically shot up the prices of some goods and services, increasing both the cost of doing business and living in the country. 

  • Cedi Depreciation: gov’t confused, experts rehash old proposals

    Cedi Depreciation: gov’t confused, experts rehash old proposals

    Adnan Adams Mohammed

    As Ghana’s local currency is rated the worst performing currency in the world which has left the government in a confused state with its monetary policy controls.

    The Cedi has depreciated more than 35 percent on the interbank rate and more than 42 percent on the forex bureau market. The Cedi currently sells at about GHC9.20 to U.S $1.0 at forex bureas.

    The president of the Ghana Union of Traders Association (GUTA) has called on the Bank of Ghana (BoG) to relax the laws on transacting business in dollars at the banks.

    “Doing business in forex is like calling for an audit so many people shy away from doing legitimate business with the banks in dollars”, Dr. Joseph Obeng

    “The laws in dealing with forex at the banks are time-consuming and too cumbersome which has resulted in the booming black market for the exchange of dollars in the country. A lot of people including foreigners now go to the black market to deal in forex in blatant disregard of the laws on forex in the country.

    “In other jurisdictions, if you have to change forex, an identity like a passport is needed but here the market is free for all,” he lamented.    

    This, he explained has contributed to the fast depreciation of the cedis.

    Which has badly affected businesses, contributing to the swindling of the working capital of business people in the country.

    “Now you need about one million Ghana Cedis to be able to do business worth one hundred thousand dollars because the dollar is being bought at GHS10”, he bemoaned.

    He suggested a review of the country’s investment laws adding that this has also contributed to capital flight which in the end has pushed the depreciation of the cedi

    Consequently, the Vice President of GUTA, Clement Boateng argued that some of the foreign firms and traders are importing huge products into the country, which they do not even keep half of the proceeds.

    “Foreigners are doing about 85% of the imports into this country. At the end of the day, this poses a threat to our foreign reserve as they equally take all the profits out of the country”.

    “This also has to do with our investment laws, which need to be revised”, he added

    Meanwhile, members of the association in the coming days will protest against some issues impacting ion their businesses, including the falling value of the cedi and the high lending rate.

    Also, the Executive Director of Danquah Institute, Dr. Antoinette Tsiboe Darko has rehasd calls on the appropriate authorities to speedily put in place measures to reduce the dollarisation in the economy.

    According to her, the pricing of goods and services in dollars is a structural defect which has worsen the economic challenges confronting the country.

    She compares the situation to our neighboring francophone countries and maintains that the CFA appreciates better than the Cedi.

    “We have structural issues which speak to the issues we are currently facing. We have a dollarized economy. It is something that has historically gone with us and we keep going along with it. When you go into a Francophone country, it is the CFA that comes to fore when you want to buy something but how come that in Ghana it is the dollar that is mentioned first?. This is something that we have to fight to make sure that the dollar economy is minimized so that we can have confidence in our own cedi”, she said in an interview, last week.

  • Cedi’s free fall; sharp inflation rise push policy rate to 22%

    Cedi’s free fall; sharp inflation rise push policy rate to 22%

    By Elorm Desewu

    The speed depreciation of the fiat currency, the cedi and sharp rise in year on year inflation have compelled the Monetary Policy Committee, (MPC) of the Bank of Ghana to hike the policy rate by 300 basis points to settle at 22 percent from 19 percent.

    This means that cost of credit to households and the private sector would rise steadily in the next couple of months.

    But in a swift attempt to stem the rising inflation as well as the speed depreciation of the cedi, the BoG has raised the primary reserve requirement of banks from 12 percent to 15 percent which is to be implemented in a phased manner: i. 13 percent from 1 st September, 2022 ii. 14 percent by 1st October, 2022 iii. 15 percent by 1st November, 2022

    Additionally, to boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions.

    According to the BoG, the Ghana Cedi has depreciated by 25.5 percent year-to-date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, non-residents disinvestment in local currency bonds, and loss of reserve buffers.

    The US Dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.

    Recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks. This has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.

    The latest consumer price index release showed that the headline inflation accelerated further for the eleventh consecutive month to 31.7 percent in July 2022, from 29.8 percent in June 2022. This was driven by both food and nonfood price pressures.

    Food inflation rose to 32.3 percent in July 2022 from 30.7 percent in June 2022. Similarly, non-food inflation increased to 31.3 percent from 29.1 percent in June 2022, contributing 55 percent to the rise in headline inflation in July 2022.

    The above developments have translated into relatively strong underlying inflationary pressures. The Bank’s core measure of inflation, defined to exclude energy and utility indices, increased to 30.2 percent in July 2022 from 28.4 percent in June.

    On month-on-month basis, headline inflation rose by 3.1 percent in July 2022 compared with 3.0 percent in June 2022. The increase in monthly inflation was underpinned by increases of 3.3 percent and 3.0 percent in food and non-food inflation respectively.

  • Cedi to deteriorate further as S&P scares foreign investors

    Adnan Adams Mohammed

    The Ghanaian economy is to further suffer the consequences of another ratings from S&P Global Ratings as it downgrades the nations debt sustainability to CCC+/C, outlook negative.

    The ratings, released last week, has strong negative consequences on the deteriorating exchange rate, especially the U.S dollar against the local currency (Cedi), as foreign dominated investors in the countries debt instruments are recouping their investment.

    This, coupled with high import bills, has depleted the country’s international reserves to unsustainably low putting pressure on the Cedi as it’s currently trading on the forex market at GHC9.10 to a dollar. These necessitated S&P lowering Ghana’s foreign and local currency sovereign ratings to CCC+/C from B-/B.

    “Reflecting Ghana’s limited commercial financing options, and constrained external and fiscal buffers”, S&P justified its negative outlook for the country.

    The Covid-19 pandemic and the conflict in Russia have magnified Ghana’s fiscal and external imbalances, S&P said.

    Demand for foreign currency has been driven higher by several factors, including nonresident outflows from domestic government bond markets, dividend payments to foreign investors and higher costs for refined petroleum products, the agency said.

    The nation has also been affected by a lack of access to Eurobond markets, the agency said.

    Local authorities have passed a levy on electronic transactions and legislation to tighten exemptions on tax payments including for VAT, among other moves. “While these changes could improve the tax take going forward, the situation remains challenging, and over the first half of 2022, the fiscal deficit has exceeded the government’s ambitious target,” S&P said.

    S&P had affirmed Ghana’s ratings in February, as Moody’s downgraded the African nation to Caa1 with a stable outlook.

  • BoG hopeful of cedi rebound

    BoG hopeful of cedi rebound

    By Elorm Desewu

    The Ghana cedi would soon rebound after it has experienced some level of depreciation during the first half of this year due to government’s decision not to issue Eurobonds this year.

    The Bank of Ghana has banked it hopes on the recent US$750million loan from African Export-Import Bank (Afreximbank) as well as this year’s cocoa loan syndication to build it reserves  which currently stands at US$7.6 billion representing 3.4months import cover according to BoG’s latest economic and financial data report released last week and also stabilize the currency.

    The local currency has depreciated by about 18.89% to the dollar on the interbank market and 26% on the retail market.

     Senior Economic and Currency Analyst, Courage Martey explained that market participants are not confident of the market outlook.

    He is therefore calling for new ways to cushion the country’s foreign reserves.

    “The cedi’s problem is idiosyncratic because of the fixation of regular Eurobond inflow’s which is now missing today. And the kind of the withdrawal symptom from the Eurobond market is really squeezing the cedi hard and the market is really not comfortable with the level of reserves [Ghana’s foreign reserves] they are seeing.”

    Furthermore, he said “in recent weeks or so, you’d also agree that there has been negative noise around the level of reserves that we have. And that also plays into the psychology of the market in a negative way and the cedi is really under serious selling pressure”

    Mr. Martey continued, saying, despite the approval of the $750 million syndicated loan by Parliament yesterday, the outlook of the foreign exchange market is not encouraging.

    “The good news is that yesterday parliament approved some $750 million, out of the $1.0 billion. However, the understanding is that it doesn’t fully resolve our total external financing means for the year [2022] and so the market doesn’t have that full confidence that the supply side or the gap between demand and supply is fully met with this approval”.

    So that limited supply without options to beef up the reserve right now is really playing  

  • Ghana’s balance of payment deficit widens

    Ghana’s balance of payment deficit widens

    By Elorm Desewu

    Ghana’s balance of payment deficit has more than doubled for the first quarter of 2022, according to the Bank of Ghana, (BoG).

    This was due to the capital and financial account recording some significant outflows from net portfolio reversals and net private capital outflows, which resulted in an overall balance of payments deficit of US$934.46 million for the first quarter of 2022, compared with a deficit of US$429.93 million, same time last year.

    However, the trade surplus improved significantly recording US$1.3 billion in the first four months of the year, compared with a trade surplus of US$778.00 million in the same period of last year.

    The trade surplus was offset by investment income outflows and net services payments, resulting in a current account deficit of US$128.15 million (0.2 percent of GDP) for the first quarter of the year, representing a marginal improvement from the current account deficit of US$197.0 million (0.2 percent of GDP) recorded in the first quarter of 2021.

    Commodity prices have remained volatile due to the on-going geopolitical tensions. Average crude oil prices gained 42.0 percent on a year-to-date basis to settle at US$106.2 per barrel in April 2022, supported by supply constraints arising from the geopolitical tensions between Russia and Ukraine.

    Gold prices also gained 8.1 percent to settle at US$1,935.89 per fine ounce, on the back of increased safe-haven demand amid global inflation concerns. Similarly, cocoa prices went up by 4.4 percent to settle at US$2,591.06 per tonne in April 2022, compared to the US$2,481.95 per tonne in December 2021, due to unfavourable weather conditions across West Africa.

    The improvement in export earnings was attributed to crude oil and non-traditional exports. Crude oil export receipts recorded significant growth of 61.0 percent to US$1.9 billion, due to price effects, while gold exports improved by 3.6 percent, also supported by price effects.

    Non-traditional export receipts crossed the US$1.0 billion mark in the review period and contributed significantly to the trade surplus. These developments far outweighed the 7.7 percent growth in total oil imports in the review period, on the back of compressed non-oil imports.

    Gross International Reserves (GIR), at the end of April 2022, stood at US$8.34 billion, equivalent to 3.7 months of import cover.

    This compares with US$9.70 billion, equivalent to 4.3 months of import cover at end-December 2021. 21. In the foreign exchange market, the Ghana Cedi depreciated by 15.6 percent against the US dollar, 13.1 percent against the Pound Sterling, and 13.6 percent against the Euro, during the first quarter of 2022.

    From the beginning of April through 18th May 2022, there has been some moderation in the rate of depreciation. The Ghana Cedi depreciated by 0.2 percent against the US dollar, but appreciated by 5.7 percent against the Pound Sterling and 5.4 percent against the Euro, bringing the year-to-date depreciation against these currencies to 15.8 percent against the US dollar, 8.2 percent against the Pound Sterling, and 8.9 percent against the Euro.