The Institute of Economic Affairs (IEA), a political economy think tank, has proposed 17 practical measures to stabilise the Ghana Cedi against the United States dollar.
The proposals, which cut across short, medium and long-term measures, include the Ghanaian ownership of economy, industrialisation, acceleration of external debt restructuring, the enforcement of foreign exchange (forex) market regulations, checks on illegal forex dealings, repatriation of company profits and dividends, regulation of forward forex market trading and the maintenance of fiscal discipline.
The rest are limitation of monetary financing, promotion of remittances, issue of diaspora bonds, building up reserves, dollarisation, adoption of currency board, industrialisation and expansion of export earnings.
Ownership
The IEA said there was a need for a strategic local ownership strategy to ensure that major sectors of the economy were owned by Ghanaians so that earnings from those companies would stay in the country and contribute to the development of the economy.
That, it said, would ultimately boost the country’s forex supply from exports and reduce payments for imports, with a potentially positive impact on the exchange rate. “The foregoing is a wide-ranging menu of options for stabilising the cedi on a more permanent basis. The menu is not exhaustive. They represent a broad range of options to select from,” the political economy think tank stated.
Depreciation
The Ghana Cedi has in recent times suffered a series of depreciations, thereby affecting the prices of almost all goods and services produced or imported into the country.
Using Bank of Ghana’s (BoG’s) official figures, for instance, the IEA said in 2022, the cedi depreciated by 30 per cent against the dollar; in 2023, it depreciated by 27.8 per cent, and this year up to May 16, it has depreciated by 13.7 per cent.
In a statement issued in Accra yesterday, the think tank charged the Bank of Ghana (BoG) to use its Economic Intelligence Unit (EIU) to collaborate with the security agencies to monitor acts of illegal forex transfers through banks, forex bureaux and other channels as well as money laundering to reduce the demand for it.
Checking the illegal forex dealings, it said, would help stem the demand tide, thereby helping to address the cedi’s depreciation against the US dollar.
Measures
It said the measures to address the incessant depreciation must aim at dealing with the underlying determinants of forex demand and supply and that the measures must also have timelines, which it had conveniently categorised into the fire-fighting, short-term, medium-term and long-term phases.
The measures for those phases, it said, were not necessarily to be undertaken sequentially and that many of them were required to begin now and run simultaneously to achieve maximum impact.
“Fire-fighting (or immediate) phase. We decided to include this phase to answer the question often put to us as to what we can do immediately to stop the “bleeding” of the cedi. Obviously, the options here are limited,” it said.
However, the immediate option could be for the government to engage with both the International Monetary Fund (IMF) and the external creditors to reach an early agreement on the external debt restructuring exercise, the IEA stated.
IMF
That, it said, would allow the IMF to release the third tranche under the Extended Credit Facility (ECF) programme and that the IMF release, in turn, would unlock funds from other development partners such as the World Bank, African Development Bank and bilateral creditors.
“Those funds would boost BoG’s reserves, allowing it to provide higher liquidity to the forex market to calm the current panicky and speculative situation,” it said. The second option, the IEA pointed out, was for the BoG to step up the enforcement of forex market regulations.
The regulations include forex carry-on limits for travellers; supportive documentations for forex purchases and outward transfers; non-pricing of goods and services in foreign currencies; non-payment of forex to Ghanaians for their services and trading in forex.
