Governor ofthe Bank of Ghana Dr Ernest Addison ahs observed that the exchange rate pressures witnessed in recent weeks reflect a weakening of the current account surplus, due to higher import demand and lower export revenue, especially a sharp fall in cocoa export earnings.
He said the foreign exchange market pressures also reflect robust public spending on Independent Power Producers (IPP) arrears payment, and capital expenditure outlays.
There are also indications of increased pressures from importers diverting foreign exchange demand requirements into informal markets, increasing speculative demand for foreign exchange,h said.
“The Bank of Ghana, however, has adequate reserves to manage these shocks to the foreign exchange market, having added over US$600 million to the current foreign exchange reserve levels over the first five months of the year,” Dr Addison said ruing the 118th Moneyray Policy Committee Press conference in Accra on Modnay May 27.
He added “The improved reserves position is also backed by strong liquid monetary gold levels of over 26.6 tonnes (estimated at US$2.1 billion) as a result of the very successful domestic gold purchase programme.”
His comments come at a time when analysts including a Professor at the University of Ghana Business School, Patrick Asuming, had stated that even though the Bank of Ghana’s reserves had improved significantly since 2022, the reserves were still not strong enough to resolve the current challenges of the Cedi.
Prof Asuming explained that if the central bank decided to pump more dollars into the market, it would still not be able to carry out that decision because its reserves were not too strong.
Asked whether the third tranche of $360 million cash from the International Monetary Fund (IMF) which is expected in Ghana, all things being equal, in June, would help tackle the Cedis challenges he said on the Ghana Tonight show on TV3 Tuesday, May 22 “It shouldn’t. Because the market would have priced in. It has become obvious that we are going to get the third tranche very soon and therefore the market would have priced that in but I think at the moment it will take some positive unexpected turn about the economy.
“This money we know is coming is not new money so the market would have already priced that. It will shore up the reserves of the Central Bank. Our reserve position, even though has improved significantly from 2022, it is still not the strongest it can be, so even if the central bank wanted to support the Cedi by putting additional dollars on the market, it is actually not just in their position, it doesn’t have that much reserves to help solve this problem.
“I think there is still something to do with the World Bank when Parliament recently met I think there was some loan that was approved, a 150 million USD, so if we get all of those suddenly then it might help ease the situation a little bit but I think at the moment it is a little bit difficult for the central bank.”
Prof Asuming further stated that it is not clear when the problems of the Cedi will be resolved.
He explains that the country is still importing more than it is exporting. Over-reliance on imports is a major factor affecting the Cedi.
Also, he said, investors are concerned about the economy in an election year. These two major factors, put together, are causing the woes of the Cedi.
He said “You have to look at where this rapid depreciation is coming from. Generally, the balance between our imports and exports is really the long-term driver of the currency, that’s usually true. So in a typical year, the Cedi will depreciate 5 percent.
“In our case, when you look at our trade balance compared to last year, our trade balance is lower. I think last year, in the first couple of months, our trade balance was about 1.1 percent of GDP. This year is 0.5 percent but we are still expecting more than we are importing, you do see that this year the first couple of months, our import bill is almost twice what we did last year. so there is this part.
“Then, because it is an election year, usually election years come with jitters so I think it appears investors have additional concerns about the economy. When you put all of these together it means it is a configuration of factors that are playing in the currency we are seeing and there is no clear straightforward solution and because of that, there is not so clear that there is an end in sight, unfortunately.”
Also commenting on this issue, the Chief Executive Officer of the Chamber of Commerce, Dr Mark Badu-Aboagye said the abysmal performance of the Cedi against the major trading currencies is disturbing businesses.
He said that this is certainly not a good time for businesses in Ghana owing to the free fall of the cedi.
“Not a good time for businesses. Rate of depreciation of the cedi and high cost of operating troubling,” Dr Mark Badu-Aboagye said on the Ghana Tonight show on TV3 on Thursday, May 16.
Ghana’s cedi is in a record-breaking weakening cycle. The currency hasn’t gained versus the dollar in the past 22 trading sessions, the longest streak, Bloomberg reported.
The currency hasn’t gained versus the dollar in the past 22 trading sessions, the longest streak according to data compiled by Bloomberg going back to 1994. The cedi traded 0.3% weaker at 13.9310 by 1 p.m. in London.
It’s declined 14% this year, a slump beaten only by currencies that have been devalued, including the Egyptian pound and Nigerian naira.
The slide has been fueled by a slump in cocoa earnings, with exports dropping by nearly a third to $508 million in the first two months of the year due to adverse weather, disease and fertilizer shortages.
Despite a temporary surplus in 2023, Ghana’s historical current account deficit is also resurfacing, signaling further challenges to the cedi, said Gergely Urmossy, emerging market strategist at Societe Generale.
Source: 3Nnews