The Bank of Ghana should allow market forces of demand and supply to determine the real value of the cedi, as part of medium to long term recovery process, Dr Sam Ankrah, President of Africa Investment Group.
While he said the central bankâ€™s habit of tapping into its reserves to stabilise the cedi was not only artificial but unsustainable, he wants the government to aggressively pursue an export strategy, focusing more on exportable goods and services with potential to add real value to the currency and the economy.
His comments come after S&P lowered Ghana’s local and foreign currency credit ratings to CCC /C from B-/B, pointing to the government’s â€˜limited commercial financing options, and constrained external and fiscal buffersâ€™.
He said the economy was in tatters and in desperate need of fresh ideas, including having to cut down on imports, to restore investor confidence and stability.
Dr Ankrah said the governmentâ€™s failure to borrow from the international market, and investors’ reluctance to hold assets in cedi, speaks to the magnitude of work to be done and the need for a change in approach.
Meanwhile, as a near term measure, Dr Ankrah, who is a fellow of Chartered Institute of Economists-Ghana, said the cedi should be pegged at 10:1 to the United States dollar to allow for some breathing space, for example, a minimum of 5 years.
When this is done, and aggressive local policies are implemented, using fiscal policies to change the behaviourial and consumption pattern of the people, he believes it will lay the foundation for the currency to stabilise. â€œSo by the time you have finished 5 years, your demand for USD is significantly diminished.â€
Among the options available to add real value to the cedi, which is rated as the worse performing currency on the continent and to restore economic stability, he said: â€œWe could disincentivise all imports of staples (rice, maize, tomatoes, etc) and restrict imports on electrical and electronic stuff (fridges, freezers, air-conditioners and vehicles) while we give incentives to domestic production and purchase of locally made alternatives.â€
â€œIf you need convincing, just look at the appreciation of cedi in 2019/20 when COVID stopped us from travelling,â€ the investment banker added.
The Bank of Ghana has raised its main lending rate by 550 basis points since the end of last year to curb spiralling inflation, which reached an 18-year high of 28.9 percent last June. The domestic currency has also depreciated nearly 30 percent over the same period.
In a quest for solutions, the government has has already started talks with the International Monetary Fund for economic support.
An economic programme is expected to be created in this regard to return the economy to the path of stability, following a meeting between government and IMF officials last month.
“We reaffirm our commitment to support Ghana at this difficult time, consistent with the IMF’s policies,” the Fund said in a statement issued after the meeting in Accra.