Ghana’s Currency Woes, Cedi on Paper but Operates in US Dollar

The Ghana Cedi has seen sustained depreciation since the fourth republic. The depreciation has averaged 26.44 percent under Rawlings, 6.34 percent under Kuffour, 13.96 percent under Mills/Mahama and 14.02 percent under the current regime led by Nana/Bawumia. In all the four regimes, the Cedi has depreciated each year and even worse in the year 2000 at 49.5 percent. The least of the yearly depreciation was the HIPC years of debt forgiveness, ie 2005, 2006 and 2004 at 0.9 percent, 1.1 percent and 2.2 percent respectively. The next least of these is in 2010 at 3.1 percent.

The performance of the Cedi, this year in particular, is of high concern to many Ghanaians especially the business community. The Cedi started the year at GHC11.88 to a Dollar but currently going for GHC14.02 to a Dollar according to the Bank of Ghana (BOG). The Bank of Ghana last week also reported that the Ghana Cedi depreciated by 14.6 percent on the inter-bank market and 20 percent on the retail market.

The Cedi’s poor performance is surprising because we have restructured our debt and the debt servicing period has been postponed. Despite not servicing our debts, we also receive inflow from IMF as part of the $3 billion IMF support programme. The expectation is that the pressure on the Cedi should go down and therefore a stronger Cedi.

Everything indicates that there is something wrong with the way we manage our currency since independence. We have always complained about how our currency has underperformed, proffered solutions but goes to sleep because we so much loved the Dollar. It is clear that we have a currency in Ghana Cedi on paper but we do not place value on it. As a people we prefer to transact on foreign currency other than our own Cedi.

Despite the complaints, not much is done about strengthening the Cedi. The current administration in opposition complained about how the economy is over dollarized. The government has not done much to make Ghanaians believe what they complained of in 2016 is been stopped. The practice of dollarization has become even worse. Businesses including hotels, schools, traders, etc charge in Dollars. Not all, government contracts are largely awarded in Dollars and taxes at the ports collected in Dollars.

Recent examples amply demonstrate what is been said. The Pwalugu dam, National Cathedral, Agyapa Royalty deal, SSNIT payments to SEM Capital and so on were denominated in Dollars. This is telling because we could have signed these contracts with the Ghana Cedi as the operating currency. Unfortunately, the poor performance of the Cedi does not encourage contractors, especially foreign, to accept the Ghana Cedi to be the currency with which to contract with the government of Ghana.

Even more worrying is the fact that most or some of these contracts do not add any productive value to the economy of Ghana. For instance, a total amount of $82 million was spent on the Pwalugu dam, National Cathedral and Agyapa Royalty deal. These contracts have even caused further destruction to the economy which we must even spend more money to correct. Given that the beneficiaries of these contracts are largely not local contractors, it will mean that the Dollar we claimed to have earned is not actually earned.

To make it clear. If we sell our gold for $82 million Dollars at the international market but paid same sum to a foreign contractor for no work done, it simply means that we loss $82 million in gold sale and a further $82 million in the benefit we could have gotten had we used the money prudently, say completing the Pwalugu dam.

Completing these projects should lead to saving foreign exchange as we may be able to produce goods we could not have produced. The success of the pwalugu dam should reduce tomato imports. The Ghana Vegetable Producers and Exporters Association in 2022 reported that Ghana imports US$400 million of tomatoes from Burkina Faso annually. Imagine the relief the Ghana Cedi will enjoy if this amount is no longer needed for import.

Another issue that should concern us is the payment of government appointees and senior officials in state enterprises in Dollars. We have seen letters of Ghana Commercial Bank and SSNIT owned hotel, La Palm Royal Beach Hotel employees been paid in Dollars. None of the institutions have issued a disclaimer about the payments reported in the media and we all know they are not alone in this.

The Foreign Exchange Act 2006, (Act 723), in section 3(1) provides that a person shall not engage in the business of dealing in foreign exchange without a license issued under this Act. It proceeded in subsection (4) to explain that the business of dealing in foreign exchange includes the purchase and sale of foreign currency, receipt or payment of foreign currency, importation and exportation of foreign currency, and lending and borrowing of foreign currency. It is disheartening to establish that those who are expected to know better and comply with the law are the ones doing away with the law to satisfy their parochial interest.

The continued dollarization of the economy is detrimental to the macro-economic fundamentals. An import driven economy like ours requires a strong currency. Once your currency keeps loosing value, then there is strong exposure to inflation, unemployment and consequently general decline in the standard of living. For instance, in most years we see a low rate of depreciation of the Cedi, inflation drops for those years.

To achieve a stable currency, discipline is required. Then we need to invest in agriculture to be able to create jobs and produce enough raw materials for the industrial sector, which must be a national priority, to add value for local consumption and the international market. This will significantly reduce imports and increase exports.

We must again attract investment into the oil sector because we have more discoveries but nothing is being done about exploiting them. Curtesy of president Mahama, oil lifting from TEN and SANKOFA oil fields generated gross receipts of $502.37 million for the government of Ghana in the year 2022 according to the Ministry of Finance quarterly reports. Again, Ghana Gas Company was projected to process light crude oil amounting to $500 million for the Volta River Authority to power its thermal plants to generate electricity thereby saving FOREX and easing the pressure on the Cedi.

We need quantifiable investments like this to be able to determine how much we are doing to stabilize our local currency. We have much talked about one district one factory but we are not able to tell its impact in cushioning the Cedi against foreign currencies.

The BOG must intensify the powers given to it by the law to keep the Cedi stronger. We cannot continue to allow businesses, especially the hotels to keep charging in Dollars. The payment of employees of government and state enterprises in Dollars must also be stopped and sanctioned accordingly. Above all, we must insure that every transaction must be in the Ghanaian currency and the payment of hard earned foreign currency to contractors for no work done must be stopped and punished.

By; Taluta Gbanha Mahama
[email protected]
Sissala West