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IMF Deal To Help Stabilise Cedi
 
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27-Feb-2015  
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Managers of Ghana’s economy are banking their hopes on assistance from the International Monetary Fund (IMF) to avert a recurrence of the cedi’s depreciation this year.

“We expect more confidence in the economy and therefore more forex inflows rather than outflows when the IMF deal is clinched,” says Governor of the Bank of Ghana (BoG), Dr Henry Kofi Wampah.

This, he believes should help stabilize the currency as the year progresses.

The Cedi has already faced some pressures this year, especially in February but then the Central Bank maintains that pressures on the FOREX MARKET are expected in the first quarter of every year.

The BoG does not also rule out the effect of speculative activities on the FOREX MARKET and the cedi.

It points to activities such as panic buying “as happened last year, people are into panic buying ahead of their needs, companies which need the foreign currency much later in the year have started buying ahead because of fears of depreciation.”

This according to the Governor is what is accounting for the current pressures on the cedi which from the January has seen some disturbing depreciation in value.

The value of the cedi against the US dollar now stands at GH¢3.40 from GH¢3.20 in January 2015.

Dr Wampah believes that the IMF programme “will help to calm nerves.”

Ghana’s economy same time last year came under severe strain as the sliding local currency, recurring energy challenges, high government expenditure, rising fuel and utility costs as well as bloated public sector wages , amongst others, combined to create untold hardships for Ghanaians.

The Cedi prior to the last quarter of 2014 had depreciated by over 30 per cent against the dollar and major TRADING CURRENCIES.

It will be recalled that the rate of the Cedi’s fall against major TRADING CURRENCIES necessitated the introduction of some measures by the Bank of Ghana (BoG) in February last year  but they failed to yield the desired results as the local currency closed the year at 32.5 percent against the dollar.

With Ghana being heavilly import dependent, the prolonged depreciation of the cedi impacted on the domestic prices of petroleum products as well as goods and services.

Since the EXCHANGE RATE is a key determinant of fuel prices, petrol and diesel prices jumped by about 50 percent in the course of the year. 

Economic experts hold the view that the Cedi’s depreciation against the US Dollar in 2014 was due largely to oil imports, inadequate supply of the dollar and speculations fueled by the inappropriate policy mix by the BoG.  

They, however admit that the Cedi did appreciate against the Dollar with the boost from the inflow of the Sovereign Bond and the COCOBOD syndicated loan.

It is important to note that a number of those challenges that plagued the economy in 2014 are still lingering and according to observers are likely to frustrate recovery efforts.

“Output by firms in 2015 is likely to face further hurdles as there appears to be no end to the energy shortfall at least before the end of the first half of the year,” says STOCK MARKETS watcher, umb Stockbrokers Limited in its financial markets forecast.

 “For 2015, we are looking forward to an improved outturn. Although the energy challenges are likely to persist for a while putting further strain on production. It is likely measures and agreements reached may lead to some improvement later in the year,” it said.

Dr Raziel Obeng-Okon of the Ghana Institute of Management Public Administration (GIMPA) agrees that the depreciation of the cedi may not be significant this year because the decline in crude OIL PRICES should lead to an improvement in Ghana’s trade balance.

According to him, the provisional trade balance for the period January to September 2014, showed a narrower deficit of US$681.3 million, from US$3.8 billion at the end of 2013.

He explained that the improvement was due to less imports compared to exports, with imports declining  by 18 per cent whilst exports declined by 2.8 per cent. 

“Speculation which played a significant role in the depreciation of the currency also has reduced drastically with the boost from the inflows of the Sovereign Bond and COCOBOD syndicated loan,” Dr Obeng –Okrong said.

“Given these positive factors enumerated above, I do not expect the average depreciation to go beyond 25% or GH¢4.00 to USD1 by the end of the year, “he observed.

The GIMPA lecturer advised the BoG to continue to build a strong buffer in foreign reserves and take measures to increase the liquidity in the foreign exchange market as a way to reduce excessive exchange rate volatility. 

“Prudent fiscal management is necessary to lower the debt for interest rates to fall and this has the potential to stabilize the EXCHANGE RATES,” he stated.

Head of Research at Standard Chartered Bank, Razia Khan has however linked the Cedi’s performance to the outcome of Ghana’s negotiations with the Bretton Woods Institution.

The bank is predicting a GH¢4.2 rate of depreciation against the US dollar by the end of this year, unless Ghana secures a programme with the IMF.

Razi Khan confirms BoG’s observation of some marginal pressures on the cedi in the early months of the year, “because of moves by some companies to restock mainly by importation.

“Given the high current account deficit, we expect gradual pressure to return to the FOREX EXCHANGE market, as imports normalize again,” she notes.


 
 
 
Source: The Finder
 
 

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