African markets

The Ghanaian cedi has fallen by 72% in 10 months

The Ghana cedi has lost 72% of its value against the US dollar since the start of the year.

At the time of writing this article, USD/GHS was trading around 1/10.45. This indicates a 45% drop in 6 months.

Although Ghana’s central bank raised its interest rate to a record 24.5% in an effort to reduce inflation and strengthen the Cedi, the currency continued to decline.

This implies that business operating expenses, especially those related to manufacturing, will increase, which will lead to increases in the prices of certain marketable goods and, ultimately, inflation.

What you should know

Ghana struggles with debt, high inflation for 20 years, a weak currency and growing inequality. In August 2022, inflation rose to 33.9% from 9.7% the previous year. Moreover, these vulnerabilities have been exacerbated by the ongoing conflict between Russia and Ukraine and the COVID-19 pandemic.

Consequently, the government of Ghana was forced to seek economic assistance from the International Monetary Fund (IMF). A new assessment of the country’s debt sustainability will be part of the engagement.

Ghana will need to take steps to restructure its debt if the new review concludes that the country’s debt levels are unsustainable for it to qualify for IMF assistance. According to the Fund, it is forbidden to lend to countries whose debts are unsustainable until these countries take steps to restore their financial viability, which may include debt restructuring.

Ghana’s total public debt in June 2022 was $54.4 billion (78.3% of GDP) compared to $32.3 billion (155.5% of GDP) in 2017, according to central bank data and the Ministry of Finance. Of this amount, external debt amounted to $28.1 billion (40.5% of GDP), while domestic debt issued in cedis amounted to $26.3 billion (37.8% of GDP). GDP).

The outlook for inflation in Ghana is still bleak, and the Bank of Ghana is compelled to intensify its policy tightening following recent significant increases in policy rates by advanced countries.

Second quarter economic growth in the gold, cocoa and oil-producing country appeared strong, according to the Bank of Ghana, and the outlook for the cedi currency improved following the recent disbursement of a Afreximbank loan of 750 million dollars and the signature of a syndicated cocoa loan for 1.13 billion dollars.