The Institute of Social, Statistical and Economic Research (ISSER) of the University of Ghana has said that it expects the cedi to depreciate far more cumulatively this year than it did in 2017, given happenings on both the internal and external fronts.
As part of its analysis of Ghana’s Economic Performance in 2017, Prof. Peter Quartey of ISSER said the rate of depreciation so far this year shows it will be worse than last year.
“If you look at the depreciation rate for 2016, it is about 9.6 per cent to the dollar. If you look at 2017 it is about 5 per cent. Between January and now the depreciation is close to 9 per cent, so it tells you our prediction [that it will perform worse than in 2017] is basically on course,” he said.
Prof. Quartey explained that external factors, such as the robust economy of the United States and government’s inability to control the black market for exchange rates, are responsible for the poor performance of the cedi this year.
“The reason is that the interest rate for the US market is going up and it has become a safe haven for most investors, so investors are rather choosing to invest in the US than in our economy.
“Then also, you find some investors who possess the local currency moving their funds out there, and that imposes pressure on the local currency in addition to our inability to export so much to generate revenue.
“And lastly, our informal exchange market thrives. You find people on motorcycles who you can call to exchange money for you, and they are driving the market. People can come from other African countries and scoop foreign exchange and get away with it. I think we need to tighten our grip in this area so that we can manage our exchange rate depreciation,” he said.
“The annual average exchange rate of the cedi against the US dollar, pound sterling and euro on the inter-bank market in 2017 was 4.36, 5.67, and 4.96 compared with 3.92, 5.25 and 4.33 respectively in 2016. The cumulative depreciation rates were 4.9 per cent, 11.9 per cent and 14.6 per cent against the US dollar, pound sterling and euro respectively on the interbank market in 2017.
“The cedi depreciation in 2017 was, therefore, lower in relation to the US dollar in 2016 when the depreciation rate was 9.6 per cent, but higher in relation to the euro in 2016 when the depreciation rate was 5.3; and even higher against the British pound in 2016, against which the cedi appreciated by 10 per cent,” the report stated.
Recommendations in the ISSER report
The institute recommended that for the country’s economy to achieve sustained growth, government must, among other things, pursue an employment-centred economic growth strategy that will ensure employment expands along with production – and that the benefits of growth will be widely shared through better job opportunities and enhanced incomes, particularly for the growing pool of unemployed youth.
It also added that government must ensure sustainability in the exploitation of Ghana’s natural resource endowment, including agriculture and minerals as well as oil and gas, supported by strategic investments in human capital, infrastructure, science, technology and innovations.
Again, ISSER recommends that the government must engage in strategic infrastructural development as well as the application of science, technology and innovation to enhance the creation of employment and income-earning opportunities.