Cedi on recovery path
The local currency, the cedi, has begun a gradual rebound on the back of news from the Bank of Ghana (BoG) that it was raising its dollar sales in the interbank market from a weekly supply of US$14 million to a daily supply of US$20 million in a bid to bolster the currency.
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The recovery is also fueled by the inflows of aid from development partners, which was boosted by the expected Eurobond and cocoa inflows.
Checks by the Graphic Business showed that the cedi, as of Thursday, July 2, was trading at GH¢4.289 to the US dollar on the interbank market, up from the GH¢4.350 it traded to the dollar on Wednesday, July 1.
The local currency was trading at GH¢4.3878 to the dollar on Monday, June 29, up from the rate of GH¢4.4051 to the dollar on June 22, when it peaked.
The cedi has remained firm and making gains for the past two weeks after plunging almost 22 per cent in the first half of the year due to a shortage of dollars and concerns over a weak economy.
Analysts attribute the steady rise of the cedi to the remedial measures instituted by the central bank to contain the speedy fall of the local currency.
Correct structural defects
Analysts forecast that the cedi to regain significant weight against the dollar in the second half of the year as cocoa inflows kick in.
"The cedi's depreciation has eased significantly as a result of this improvement in offshore inflows.
We are likely to see some gains in local currency, if forex improves further,” said Mr Courage Kingsley Martey, Senior Economist at Databank.
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But Mr Martey warned that until structural defects of the economy are corrected, the gains of the cedi will be short lived.
“We have a Balance of Payment (BOP) deficit of US$ 850 million gap as of the first quarter of the year, which we cannot rely on the short-term offshore supplies”, he said.
“The structural economic defect could be corrected, if we had a sustainable cashflow of export earnings”, the economist said.
Finance Minister, Mr Seth Terkper, on July 2 cut the government's 2014 growth target and forecast a wider budget deficit and higher inflation, citing falling revenues, the slide of the cedi and declining gold prices.
Ghana is set to issue a third Eurobond of up to $1.5 billion later this month. The government will also sign a syndicated loan of $2 billion for next year's cocoa purchases, Terkper said, noting that the inflows will boost the country's reserves in support of the cedi.
BoG action
The BoG increased its interbank dollar sales to US$20 million daily from US$14 million a week previously in a renewed effort to ease the pressure on the cedi.
The action appears to be in line with an agreement signed in April between the government of Ghana and the International Monetary Fund.
Under that deal, the bank's net international reserves are expected to decline from around US$1 billion to US$331 million between April and August to reflect the pressures caused by seasonal flows of dollars through the economy.
The cedi's decline this year comes on top of a 31 per cent drop in 2014 and a significant slide the previous year. Analysts say the recent decline is driven by speculation and unmet dollar demand by importers.
The losses concern policy makers who hope the currency will stabilise as a consequence of the IMF deal, which is aimed at stabilising the country's economy.
IMF deal
Ghana’s deal with the IMF marked the fund’s first intervention in sub-Saharan Africa since the vulnerability of the continent’s booming commodity exporters was exposed by the fall in oil prices.
But Government says the financial aid programme would buoy the economy and help it rebound within three years to the soaring growth rates that saw it lead African frontier markets at the start of the decade.
Ghana's economy grew rapidly for years, powered by exports of cocoa, oil and gold. But growth has slowed sharply since 2014 due to a fall in commodity prices and fiscal problems that include a debt-to-GDP ratio of close to 70 per cent. GB