Build forex reserves to protect traders and sustain cedi gains – Prof Bokpin

Economist and Professor of Finance, Godfred Bokpin has called for urgent action to build Ghana’s foreign exchange reserves, warning that the recent gains in the Ghana cedi could be short-lived without a clear strategy to sustain them.

Speaking on Joy FM’s Newsfile on Saturday [May 17, 2025] Prof Bokpin acknowledged that the cedi’s appreciation against the US dollar reflects improved fiscal and monetary management. 

He pointed to government expenditure cuts in the 2025 budget, over GH¢10 billion less than in 2024, and stronger revenues from gold and cocoa exports, as well as higher remittance inflows. A credit rating upgrade by Standard & Poors, linked to Ghana’s debt restructuring and the IMF-backed reform programme, has also improved investor confidence.

Despite these gains, Prof Bokpin cautioned that rising public debt and possible fiscal slippages could still pose a risk to the currency’s stability.

To safeguard the progress made, he urged the Bank of Ghana to prioritise foreign reserve accumulation instead of short-term interventions in the exchange rate. 

“In our shallow economy, even small inflows can shift rates significantly,” he said. 

He added that strong reserves would offer predictability to traders in Makola, Kantamanto, Kumasi Central Market, and other trading centres who are often left vulnerable to rapid exchange rate movements.

He stressed that the absence of clear exchange rate targets from the central bank creates uncertainty for businesses, especially those used to operating with a higher dollar rate. 

This unpredictability, he said, affects planning and pricing across key sectors of the economy.

Prof Bokpin also raised concerns about the long-term implications of the cedi’s current strength, saying it makes imported goods more attractive and risks undermining local producers. 

“Since November 2023, inflation on yam, maize, and other local products has outpaced imported inflation,” he said, warning that farmers and agro-based industries could suffer if this trend continues. 

He advocated for policies that support local production, especially in agriculture and manufacturing, to reduce reliance on imports and create sustainable jobs.

He further called on the Bank of Ghana to improve communication to help stabilise expectations, especially for businesses navigating exchange rate shifts. 

While commending the government’s 2025 spending cuts, Prof Bokpin noted that they are unlikely to hold beyond the next two years. 

He cited upcoming infrastructure projects such as the $10 billion “big push” initiative and rising debt service obligations as pressures that could drive up public spending by 2027. 

He advised that fiscal prudence be paired with targeted investments to support growth without placing undue pressure on the cedi.