Bank of Ghana (BoG) Governor Dr. Ernest Addison has expressed worry that the economy remains at the mercy of foreign investors and importers, whose actions trigger cyclical cedi depreciation.
Speaking at the Graphic Business/Graphic Breakfast Meeting Monday, Dr. Ernest Ato Addison said, significant pressure is brought on the local currency whenever non-resident investors take out their monies to chase after more attractive investments abroad or when importers demand significant amount of dollars to bring in goods or services.
The effect, the cedi by March 2019 had lost 9% of its value when by March 2018, it lost only 0.02% on the exchange rate market.
An outcry over another round of dollar battering the cedi followed as the cedi was trading for ¢5.9 to a dollar.
Dr. Addison explained, despite “very significant improvement in macroeconomic indicators such as halving of the fiscal deficit, a nosediving inflation rate from 15.6% to single digit, the currency suffered depreciation.
This was due to a strengthening of the US dollar as a result of US monetary policy which lured investors to move their money from economies like Ghana.
“If they see the yields on other markets are more attractive they will take their investments out,” he described the attitude of non-resident investors.
The cedi’s slide has been reversed, with the dollar now trading at 5.1 cedis when it used to be ¢5.9 a month ago.
Dr. Addison said the reversal of the cedi’s misfortune was down to the government’s successful issuance of a $3bn Sovereign Bond, the IMF’s pumping of the final tranche of $925million into the economy following Ghana’s completion of the Extended Credit Facility program with the IMF and the intervention of the bank in releasing foreign currency to ease the pressure.
The cedi’s improvement in recent times, he said, reflects a “successful reversal of sentiments on Ghana’s economic outlook.”
But the economy is not yet ‘uhuru’, he indicated noting the underlying causes of the depreciation need to be addressed.
“We need to change the narrative on the currency,” he told an audience of business executives, top managers and representation from trader and importers associations.
He picked the extractive industry as one sector that needs to see more locals participate in because foreign dominance means their dollar-denominated earnings are repatriated.
Government will also have to improve its debt management strategy to shift from financing the budget from non-resident investors.
While pointing out that foreign investments have proved useful in reducing the deficit, he also expressed worry that the use of sovereign bonds, an instrument of financing, as one of the ways which expose the country to the whims of foreign investors.
He also asked for improvement in export earnings to attract more dollars into the economy as against imports which whisk dollars out of the economy and causes depreciation.
“You will be shocked to see how much Ghanaians spend on buying rice,” he said as reports show Ghana imports more than $1bn of rice. The Governor called for a reduction on import dependency syndrome despite government’s slashing of import duties.
“We have to work on all fronts,” he said.
The Ghana Union of Traders Association represented (GUTA) by its President, Dr. Joseph Obeng and Public Relations Officer, Joseph Paddy, conceded while importation affects the currency, they have shown interest in manufacturing but to disappointing results.
Manufacturing helps to produce locally which helps reduce dependence on imports. But GUTA PRO explained, banks are to blame for charging interest rates that discourage local manufacturing.
He said, while foreign companies are attracting credit at 3% interest rates, the Ghanaian competitor is offered a loan at 23%, making his business uncompetitive right from the start, he complained.
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