Citizens for Good Corporate Governance (CGCG), a leading economic think tank and pressure group, has predicted that the beleaguered national currency, the cedi is on the brink of a significant rebound after a dismal performance during the first half of 2015.
According to the Convener of the group, Elorm Desewu, the cedi will recover significant ground against the US dollar and other major international trading currencies during the second half of the year due to the large quantum of foreign exchange inflows being expected over the coming months, which will reverse the current shortfall in supply of forex on the local financial markets.
He said in a statement issued in Accra: “Some US$4 billion in inflows are being expected over the next few months from diverse sources including this year’s international syndicated loan for cocoa purchases of US$1.8 billion; the proceeds of an imminent US$1.5 billion Eurobond issue; the first tranche of recently approved World Bank financing to the tune of US$550 million; development partner bilateral assistance of some US$500 million; and two tranches of the balance of payments support from the International Monetary Fund cumulatively amounting to over US$200 million”.
Indeed, in anticipation of these inflows and in response to the Bank of Ghana’s on-going intervention in the local forex market through increased supply of forex, the cedi has already begun appreciating and by the beginning of this week the US dollar was trading for about GHc3.8, up from a trough of GHc4.5 a couple of weeks ago, Mr Desewu stated .
The CGCG maintained that their quantitative economic modeling suggests that the cedi could appreciate to GHc 3.2 before the end of the third quarter of this year.
The think tank pointed out that while the central bank and the government itself cannot escape blame for the cedi’s travails, it is overly simplistic to hold those institutions alone responsible for the problem and therefore expect them alone to provide the solution. CGCG insists that to rescue the cedi it behooves on everyone resident in Ghana to cut back their consumption of imported goods relative to available locally produced substitutes.
The think tank also identifies currency speculators who purchase forex as an investment and seek to make profits from the cedi’s subsequent depreciation as major culprits in the cedi’s fall and warns that just like what happened during the third quarter of last year, the imminently expected forex inflows and consequent appreciation of the cedi stands to wipe away the profits they have made this year unless they offload their forex holdings and return to the cedi.
However CGCG also notes that monetary policy tightening and forex market intervention as currently being successfully carried out by the central bank, as well as capital account inflows of forex from abroad are only a temporary panacea. Therefore unless the fundamental imbalance between Ghana’s forex earnings from exports and its forex expenditure on imports is addressed, the cedi would eventually resume its depreciation.
The think tank points out that it is easier over the short term to cut imports through fiscal measures and a change of the citizenry’s mindset, than to build export capacity, which is necessarily requires a medium to long term effort.
Therefore CGCG has called on government to seek an accommodation from the World Trade Organization and Ghana’s major trading partners to allow the country apply tariff protection for local industry with capacity to meet local demand, for a specified period while it gets through its current balance of payments problems.
African Eye News.com
