Central bank, businesses in a tango over new forex rules
The Bank of Ghana (BoG) has justified its foreign exchange measures amid protestation from a section of business operators who say the measures would increase the cost of doing business.
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The central bank defended its directives on the ban on commercial banks not to contract or guarantee offshore loans for their customers.
It also justified its decision to collaborate with the security agencies and the Attorney-General’s Department to enforce the directives.
However, mixed reactions have greeted the bank’s measures to prop up the ailing cedi.
While some local businesses have hailed the measures, others have described them as hysterical and cosmetic.
On the sidelines of a Monetary Policy Committee (MPC) news conference in Accra yesterday, the Governor of the BoG, Dr Henry Kofi Wampah, said government agencies had also been banned from quoting and pricing items in foreign currencies.
“If you want to trade or pay for rent or buy a commodity or buy a house, what we are saying is that pay in cedis, which is the sole legal tender,” he said.
“We have had some discussions with the Attorney-General’s Department on this issue and this directive is applicable to them,” he added.
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The BoG is under further pressure to act because of inflation, which in December hit a three-year high of 13.5 per cent in a country which is viewed as one of Africa's brightest prospects because of its stable democracy and high GDP growth.
That fall, which has rattled consumers and shaken business confidence, is the latest problem confronting the monetary policy makers for a country that is also struggling to control broader economic instability, as depicted in its fight against a high budget deficit.
But some local business operators, especially, the Ghana Union of Traders Association (GUTA), have described the directives as discriminatory and unfortunate.
An economic consultant, Mr Kwamena Essilfie Adjaye, disagreed with the rules initiated by the BoG, saying the move was counter-productive and would encourage black marketeering.
Although the Ghana Chamber of Mines has welcomed the additional measures, it cautioned against taking advantage of the new measures to engage in currency hoarding.
But Governor Wampah was upbeat that the directives, when strictly enforced, would stabilise the struggling currency and bring some sanity into the foreign exchange market.
The central bank has also, in a latest move, increased its main policy rate by 200 basis points to 18 per cent from 16 per cent to curb the fall in the cedi and combat external pressures.
It was the first shift in the rate since May last year.
That move had been expected, although most analysts had forecast a 100 basis point rise.
Analysts said they welcomed the decision.
Ghana follows emerging markets such as India, Turkey and South Africa that increased borrowing costs in January to support their currencies after the US Federal Reserve's decision to roll back its bond buying shook emerging markets.
Ghana's strong growth is based on exports of gold, oil and cocoa but import-led demand for dollars caused the cedi to depreciate nearly 20 per cent in 2013 and 4.7 per cent so far this year.
Dr Wampah said he wanted to stop a burgeoning black market and the pricing of local transactions in dollars.
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He said payment in dollars was becoming more common for rent and in other areas, as people sought shelter from the falling cedi.
More broadly, he said the government should broaden its tax and export base and consider renegotiating stabilisation agreements.
GUTA reacts
Reacting to the measures announced by the BoG to shore up the cedi, the President of the Ghana Union of Traders Associations (GUTA), Mr George Aboagye, told the Daily Graphic that it appeared the measures were targeted at local business people, a situation which is unfortunate.
“They talk about importing, importing, importing, thinking that is the bane of the economy. But importation has been with us over the years, yet the cedi and, indeed, the economy performed creditably in the past,” he argued.
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Mr Aboagye said the US$10,000 permissible to be withdrawn was discriminatory and said if anything at all, it should be applicable to foreign business people and multinational companies operating in the country.
“The irony of the situation is that those foreign business interests repatriate their profits to their countries,” he said.
Mr Aboagye said the central bank was not being fair to local businessmen and women because the purpose of banking was to ensure security and protection of savings.
Pointing out that the dollarisation of the economy could not be blamed on the business community alone, he said the government, ministries, departments and agencies (MDAs) and even the central bank itself were equally guilty.
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“They should stop buying cars and other expensive things in dollars,” he said.
He suggested that the law that banned foreigners from the retail trade must be enforced if the nation wanted to battle the pressure on the currency.
Mr Aboagye also stressed the need for both foreign and local businesses to be treated equally in the application of the laws.
Kwamena Esilfie Adjaye
An economic consultant, Mr Adjaye, who disagreed with the rules, said “Let’s not do anything that will constrain the supply of foreign exchange,” he said, adding that “any measures to frustrate or constrain the inflow of foreign exchange accounts are likely to worsen the situation”.
According to him, Ghana had a long history of foreign exchange controls which never worked, adding that he did not expect those latest measures to halt the tumbling of the cedi.
On the other hand, the measures would make holders of foreign currency reluctant to trade it in the formal market, which might increase the black market trade.
The economist rather wanted the central bank to actively encourage the inflow of foreign exchange by way of remittances and other capital inflows, including deposits into foreign exchange accounts.
“We should encourage non-resident Ghanaians to open foreign exchange accounts in our local banks,” he said.
Mr Adjaye suggested that the BoG float special foreign exchange bonds targeted at Ghanaians and non-resident Ghanaians who had foreign exchange.
The economist, who in 1996 was the lead consultant on foreign exchange rules in Ghana, called on the BoG to address the supply side constraint of foreign exchange in the short term.
Chamber of Mines
The Chief Executive Officer (CEO) of the Ghana Chamber of Mines, Dr Tony Aubyn, told the Daily Graphic yesterday that much as the chamber was worried about the dwindling local currency, it was important for the BoG to also ensure that the new measures did not create conditions for "black marketeering" in the system.
He added that the policy must avoid a parallel market that had the tendency to eventually affect the value of the cedi in an unintended manner.
He said Ghana needed a stable currency for purposes of good business planning and that as a generator of foreign currency in the country, the chamber was hopeful that the new measures would not create complexities within the business environment.
He expressed the chamber's support to the measures adopted by the central bank to stabilise the cedi.
Dr Aubyn said the chamber was yet to fully appreciate the new measures, based on which it could also make informed decisions, since a significant component of its imports were largely sourced outside the country.
Cause of decline
According to the CEO, Ghana had completely become import dependent, to the extent that most items in the country were quoted in dollar terms, such as school fees and rent.
Such a situation, he observed, exerted pressure on the cedi, resulting in the current state of affairs.
He underscored the need to support the local manufacturing sector while putting limits to excessive imports.
Dr Aubyn advocated for more foreign investments and regretted that foreign investments in the exploration centre were "drying up".