The cedi, which has been relatively stable since February 2023 after a sharp depreciation in January, is projected to maintain its course in the second half of the year (H2-23), supported by significant foreign exchange (FX) inflows and improved investor confidence.
According to Databank, an asset management company, the cedi will trade between GH¢10.9 and GH¢11.1 to US$1 by the end of the year, as the country is set to receive substantial funding from the World Bank and the International Monetary Fund (IMF), as well as proceeds from the cocoa syndicated loans. Moreover, Ghana’s external debt restructuring, which is on track to be completed in H2-23, will bolster investor confidence and help attract portfolio inflows.
The cedi depreciated by 20.6 percent against the US dollar in January 2023, amid a severe economic crisis triggered by large external shocks and exacerbated by the COVID-19 pandemic. However, the cedi has remained generally stable since then, with a cumulative depreciation of only 1.8 percent between February and June 2023.
The stability of the cedi has been supported by positive market sentiments derived from the IMF’s disbursement of the first tranche of US$600 million under the Extended Credit Facility (ECF) arrangement in May 2023, as well as forex purchases from the mining and oil sectors and weakened demand.
The government’s debt service is not expected to significantly impact foreign investor holdings of four maturing domestic bonds in H2-23, as they constitute only 2 percent of the outstanding bonds. As a result, the cedi is expected to remain stable in H2-23, and the central bank aims to meet its US$120 million target for the Bulk Oil Distribution Companies (BDC) forex forward auction in Q3-23.
Despite the cedi’s impressive performance since February 2023, concerns remain about the vulnerability of the reserve buffer to shocks – with gross reserves (adjusted for petroleum funds and encumbered assets) estimated to cover only 0.8 months of imports by December 2023. This weak reserve cushion poses a threat to the local unit’s near-term outlook.
The upcoming maturity of the Aug-2023 Eurobond with a face value of US$148.76 million is expected to put significant strain on FX reserves and limit the central bank’s sell-side interventions.
In a period of increased volatility, though unlikely, the cedi could be subject to speculative attacks. Additionally, Saudi Arabia’s decision to reduce oil production by a million barrels daily could increase oil prices and Ghana’s import bills – exerting depreciating pressures on the cedi, as noted by Databank.
Despite these risks, the overall outlook for the cedi appears positive, with the expected funding and debt restructuring contributing to improved investor confidence and stability in the currency market.