According to Dr. Sam Ankrah, President of Africa Investment Group, the Bank of Ghana should let supply and demand factors decide the real value of the cedi as part of a medium- to long-term recovery process.
However, he wants the government to vigorously pursue an export strategy, concentrating more on exportable goods and services with the potential to add real value to the currency and the economy. He claims the central bank’s practice of using reserves to stabilize the cedi is not only artificial but unsustainable.
Following S&P’s downgrading of Ghana’s local and foreign currency credit ratings from B- to CCC/C, citing the government’s “limited commercial financing choices, and restrictive external and fiscal buffers,” the president made the remarks.
He said the economy was in tatters and in desperate need of fresh ideas, including having to cut down on imports, to restore investor confidence and stability.
Dr Ankrah said the government’s failure to borrow from the international market, and investors’ reluctance to hold assets in cedi, speaks to the magnitude of work to be done and the need for a change in approach.
Meanwhile, as a near term measure, Dr Ankrah, who is a fellow of Chartered Institute of Economists-Ghana, said the cedi should be pegged at 10:1 to the United States dollar to allow for some breathing space, for example, a minimum of 5 years.
When this is done, and aggressive local policies are implemented, using fiscal policies to change the behaviourial and consumption pattern of the people, he believes it will lay the foundation for the currency to stabilise. “So by the time you have finished 5 years, your demand for USD is significantly diminished.”
Among the options available to add real value to the cedi, which is rated as the worse performing currency on the continent and to restore economic stability, he said: “We could disincentivise all imports of staples (rice, maize, tomatoes, etc) and restrict imports on electrical and electronic stuff (fridges, freezers, air-conditioners and vehicles) while we give incentives to domestic production and purchase of locally made alternatives.”
“If you need convincing, just look at the appreciation of cedi in 2019/20 when COVID stopped us from travelling,” the investment banker added.
The Bank of Ghana has raised its main lending rate by 550 basis points since the end of last year to curb spiralling inflation, which reached an 18-year high of 28.9 percent last June. The domestic currency has also depreciated nearly 30 percent over the same period.
IMF Bailout
In a quest for solutions, the government has has already started talks with the International Monetary Fund for economic support.
An economic programme is expected to be created in this regard to return the economy to the path of stability, following a meeting between government and IMF officials last month.
“We reaffirm our commitment to support Ghana at this difficult time, consistent with the IMF’s policies,” the Fund said in a statement issued after the meeting in Accra.