By The challenges persist for Ghana’s cedi, ranked as Africa’s third-worst-performing currency this year.
Analysts suggest that despite the International Monetary Fund’s $3 billion bailout following the country’s default in 2022, the cedi, having already depreciated over 7% against the dollar, could continue to weaken.
Ghana has managed to negotiate restructuring deals with its domestic and official creditors, yet negotiations with Eurobond investors are ongoing. Although the country’s international reserves rose to a 10-month high of $5.9 billion in December 2023, they are still considered insufficient to effectively defend the currency.
“Those are weak reserve levels that no one expects to support currency stability,” Courage Boti, an economist at GCB Capital Ltd. in Accra, remarked that the cedi would likely have depreciated even more if Ghana had not suspended its foreign debt payments.
“Moreover, elections this year is a big risk in terms of foreign exchange demand pressure,” he said. The vote for a new president is due to be held in December.
In December 2022, Ghana announced a moratorium on its foreign obligations amidst the challenges posed by the aftermath of the Covid-19 pandemic and the impact of Russia’s invasion of Ukraine on prices. Since then, Ghana has successfully restructured its domestic bonds and reached an agreement in principle with bilateral lenders in January to restructure $5.4 billion of loans. Negotiations are still ongoing with Eurobond holders, to whom Ghana owes $13 billion.
Once the debt restructuring is finalized, foreign investors may view Ghana’s investments more favorably. However, Mr. Boti cautioned that political risks ahead of the elections could still warrant continued caution.
The economy of the world’s second-biggest cocoa producer relies heavily on imports of various goods, ranging from toothpicks to heavy machinery, and these imports are anticipated to rise in the lead-up to the elections. The government forecasts GDP growth to accelerate to 2.8% this year from 2.3% last year.
“One of the policy priorities of the central bank under the IMF programme is to rebuild foreign reserves,” said Kweku Arkoh-Koomson, an economist at Databank Group. “This means the Bank of Ghana will not necessarily intervene on the market the way it should but just to smoothen volatilities,” he said, forecasting the cedi to weaken to 13.7% to dollar by the end of the year.
The cedi traded almost unchanged at GH¢12.9267 per dollar at 10:41 a.m. in Accra, the capital, according to data compiled by Bloomberg.
Source: Bloomberg
