Economist Dr. Ishmael Yamson has urged the Ghanaian government to consider expenditure cuts as an immediate measure to address the depreciation of the cedi.
He believes that while debt restructuring agreements with external creditors are important, they are not the primary solution to the currency’s poor performance in recent years.
“There is always a signalling effect that could convince investors about government commitment to stabilize the economy and help deal with our debt situation,” Dr. Yamson explained during an appearance on PM EXPRESS BUSINESS Edition with host George Wiafe on July 18, 2024.
He emphasized the need for the government to adopt practical and verifiable expenditure reduction measures. This approach, according to Dr. Yamson, could help manage the amount of fresh borrowing required.
The discussion focused on Ghana’s economic recovery and whether the country is on the right track. Dr. Yamson expressed concern over the government’s reliance on short-term borrowing through the Treasury bill market, warning that it could negatively impact the cedi and the country’s debt situation.
Cedi’s Performance
Despite government efforts in restructuring Ghana’s external debts, the cedi continues to struggle against major currencies. As of July 19, 2024, the cedi was trading at ₵15.56 to the US dollar, ₵20.23 to the British pound, and ₵17.02 to the euro, based on average transactional quotes from major commercial banks.
The telecommunications and manufacturing sectors remain the leading sectors demanding foreign currency, with trades on the interbank market ranging around ₵15.38.
Ghana’s Exports and Cedi Performance
Dr. Yamson highlighted the importance of monitoring developments in the cocoa sector, as its performance can significantly impact the cedi’s stability. He noted concerns over the recent decline in cocoa production and its potential effect on Ghana’s export earnings. With Ghana currently unable to access the Eurobond market, export proceeds are crucial for bolstering international reserves.
Election Spending
Dr. Yamson also expressed concerns about the government’s ability to maintain fiscal prudence in an election year, despite commitments under the International Monetary Fund program. He recalled that previous administrations have struggled to adhere to fiscal discipline during election periods.
“We can talk about Yaw Osafo Marfo who tried to ensure that we did not witness any serious election overrun,” Dr. Yamson said, referencing past efforts to maintain fiscal discipline during elections.
As the December 2024 elections approach, Dr. Yamson’s advice underscores the need for the government to implement effective economic measures to stabilize the cedi and ensure long-term economic recovery.