Ghana’s currency, the Cedi is likely to record high levels of depreciation during the year if the government does not clearly come out with a policy to manage the situation. In January the Cedi depreciated on average against the dollar 0.08% and 0.24% in February.
During the first weeks in March 2017, the cedi has recorded a significant year to date depreciation of 7.36% against the dollar and 7.31% against the Euro. This makes the Ghana Cedi the worst performing currency on the African continent for the period under review- 2017.
GN Research analysis relates the situation to the low supply and the high demand for these currencies. There seems to be some growth in business confidence within the business community that is driving high level of imports after the sector slowed in 2016. The market seems to be reactivated pushing high demand for the greenback, urging speculators within the foreign exchange market to reignite their business.
The challenge for Government
The 2017 budget statement either reduced or abolished some twelve taxes in order to boost economic growth, giving the private sector lead role.
These tax reforms include abolishing the 1 percent Special Import Levy; the 17.5 percent VAT/NHIL on selected imported medicines and the duty on the importation of spare parts. Even though the tax cuts generally came as good news, especially to the business community, it has the potential of enforcing the rate of depreciation of the Cedi.
The execution of these measures can lead to a reduction in the domestic prices of imported items resulting in high demand. Such opportunities offered to importers might lead to abuse and exploitation, as their desire to enlarge their jobs to meet the rising need for the goods can increase the need for the major trading currencies.
If nothing is done to improve the supply of foreign exchange, the cedi will depreciate further providing a lot of uncertainties for the business community. Unfortunately, the 2017 budget did not provide any specific policy aimed at stabilising the cedi.
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