The Vice President, Dr. Mahamudu Bawumia, has explained the reasons for the cedi’s performance against the country’s major trading currencies in the face of extraordinary pressures on global capital markets.
Speaking at the launch of the Student Entrepreneurship Initiative at the Ghana Senior High School (GHANASCO) in Tamale on Friday 14th September, 2018 Dr. Bawumia asserted that the relatively resilient performance of the cedi is mainly attributable to the strong economic fundamentals of the economy arising from prudent policies being implemented by the Nana Akufo-Addo government.
The cedi appears to be the star performer in emerging economies’ currencies strength against the dollar, and only the Euro and UK Pound appear to have performed better than the cedi against a resurgent US dollar.
“The macroeconomic performance shows quite clearly that Ghana’s economic fundamentals are strong, and we can withstand the temporary challenges confronting the cedi” Dr. Bawumia indicated.
Situating the cedi’s performance in context, Vice President Bawumia observed that “the exchange rate of the cedi to the US dollar remained relatively stable when compared with movements in other currencies against the US dollar. The reason for this is because of the relatively stronger fundamentals.
“According to Bank of Ghana data, the cedi exchange rate increased from GHc1.1 to the dollar at the end of 2008 to GHc4.2 to the dollar (close to a quadruple increase) in 2016. Since we assumed office the exchange rate has increased from GHc4.2 to the dollar to GHc4.4 as at December 2017 and GHc4.75 now.
“It is therefore clear that we have managed the exchange rate much better than our predecessors and also much better than many other countries this year”.
The Vice President attributed the relative weakness of a number of currencies, including the cedi, against the dollar, to measures being implemented by America’s Federal Reserve, emphasising that the recent policy rate hikes and normalization in the United States has caused some shock spillovers to many emerging markets, causing their currencies to depreciate at rates and magnitudes higher than the cedi.
Other countries that have experienced challenges with the dollar include the Argentina Peso has depreciated by 50.2%; the Turkish Lira by 42%; the South African Rand by 19.2%; the Indian Rupee by 11.2%; the UK Pound by 4.29% and the Euro by 4.2%, he added.
Within the Ghanaian context also, recent historical trends on the cedi’s performance show that the year-to-date 7% depreciation of the cedi is the second best since 2012. BoG data indicates that the Cedi depreciated by 17.5% in 2012; 14.6% in 2013; 31.3% in 2014; 15.6% in 2015; 7.9% in 2016; and 4.9% in 2017.
“With this, the lowest and second lowest depreciation since 2012 were both achieved under President Nana Akufo-Addo’s administration in 2017 and 2018, respectively” Dr. Bawumia stated.
However, the cedi has been quite stable against the Euro and the British Pound.
“The Cedi only depreciated by 2.7% against the UK Pound this year and 3.48% against the euro. This only goes to reinforce the fact that the strengthening of the dollar is the issue” Dr. Bawumia noted.
Against this background, the Vice President expressed confidence that the attempt by political detractors to manufacture an exchange rate crisis where none really exists would fail.
“Propaganda is never sustainable in the face of the facts” – Dr. Bawumia declared.
The Vice President may not be the only one who believes that the recent performance of the cedi is one of the best that the country has achieved in recent years. At a “Cedi Forum” organized by Accra-based Joy FM at the Economics Department of the University of Ghana on Thursday, speaker after speaker and students took turns to underscore the fact that the current managers of the cedi have indeed weathered the vagaries of a strong dollar in the face of unexpected global pressures.
At the forum, a Senior Research Fellow at the Institute of Fiscal Studies and a former Economic Advisor at the Ministry of Finance during the erstwhile NDC regime, Dr. Saed Boakye observed that the current heightened discussion on the cedi’s performance is premature. Dr. Boakye believes the cedi’s depreciation of 7% is far below the average rate of depreciation of 11% for the currency for same periods since 1993.
Also, Dr. Ken Thompson, CEO of Dalex Finance and a panelist for the forum recounted that the “cedi depreciation is not a big deal”. He believes Ghana’s currency has been depreciating since his 57 years’ experience on earth as a human being and for him the nominal value of the cedi is not what matters but the rate of its depreciation. And in this context, he believes the present government has done better than previous governments, at least for the past 6 years. This same view was held by the head of Treasury and Currency Management of the Central Bank, Mr. Stephen Opata.
The former Deputy Minister of Finance during the NDC regime and also the Member of Parliament for Ketu South, who has been a constant critic of the Nana Akufo-Addo government.
Mr. Fiifi Kwetey could not help but agree to the fact that indeed the “economic fundamentals built by this government is one of the best so far”.