Cedi Rebound � What�s The Plan?

It should be fair to say that many are heaving a sigh of relief following the recent performance of our dear cedi. The local currency has held its own against the dollar and the other major trading currencies.

Everybody seems happy, though the story might not be the same for exporters and those who receive remittances from abroad because they would receive less for the same amount remitted. But generally, the �feeling is good� and it is a respite badly needed, not surprising that the news found its way to the UN General Assembly in our President�s speech.

It appears the depreciation of the cedi was so alarming and topical that bringing it down became an end in itself, but now that the local currency is looking good, what next?

I really want an answer to this question. Are we going to work to see the cedi make more gains and up to what point because of the implications for our exports? Are we okay with the good feeling and so we�ll relapse? Or is it all in the agenda with the International Monetary Fund (IMF) which might not come into force until next year?

Bringing confidence back

I think it works for confidence, if there is a statement on where we have got to and the way forward. May be it�s too early but what if the rebound is ephemeral? These are issues agitating my mind and I think a clear message from government will be useful.

Businesses have less confidence in the prospects of the economy and although economic activity has picked up, registering �a year on year real growth of 10.8 per cent at the end of June, 2014, compared with a growth of 3.3 per cent for the corresponding period in 2013�, the business confidence index dipped from 82.8 in March to 78.6 in June 2014. This is what the Bank of Ghana told us in their latest Monetary Policy report.

If we want to go by these findings, then it means that there is the need to boost business confidence in the economy, and addressing the issue of �what next after the cedi rebound�, will play a significant role.

Rebound drivers

There is exactly no empirical explanation yet to what led to the rebound of the cedi but it is safe to guess that a combination of factors such the reversal of the foreign exchange rules, almost coinciding with inflows from the US$1 billion Eurobond and the US$1.7 billion Ghana Cocoa Board syndicated loan, as well as the cedi denominated bonds, played a key role.

But are these enough to keep us going, considering the fact that our foreign reserves are just enough for 2.4 months of imports, (before the Eurobond and COCOBOD inflows), and there are still slippages with our budget deficit targets?

It is important to interrogate these issues because the cedi rebound could also whet appetite for imports and if it does, where does that leave us? The Bank of Ghana has said that imports for the first eight months of the year dropped �significantly to US$9.5 billion from US$11.7 billion in 2013.� And I believe that the �cedi haemorrhage� was a major reason. So it is very likely that imports will pick up again particularly during these last four months of the year, where traditionally there is a boom in business activity towards the yuletide.

It is also worth noting that even with the significant drop in imports, we still had a balance of payment deficit because our exports gave us less (US$9 billion for the same period), so we can fairly guess what is likely to happen, should imports pick up on the back of a stronger cedi and that scares me.

I believe the challenges we went through from the latter part of last year till August, although not entirely new, even in its gravity, are bitter lessons we should swear never to go through again. This will require that we don�t worsen our trade imbalance, otherwise with the yuletide shopping beckoning; the cedi rebound will be short lived.

What�s the plan?

Sustaining the recent performance of the cedi will require a higher inflow compared to the outflow which will mean either increasing exports or reducing imports or both. Figures from the central bank have shown that the country could not take advantage of the fall in the value of the local currency to boost exports, so how are we going to fair now that the cedi is showing positive signs?

We all know we are looking to the IMF for support and implementing its programme will be daunting. One can glean that from the End-of-Mission press release just issued after the team from the Fund met with ours.

But while the Fund will typically focus on cutting back on government expenditure and limiting the central bank financing of budget deficit and other such �cut and limit� measures, it is important that we have a plan to also boost productivity and drive exports, while discouraging the toothpick kind of imports.

I don�t subscribe to the �cuts and limits� because sooner than later, there will be nothing more to cut or limit, so rather than planning to cut back let�s plan to boost production to contain our expenditure.

And as to whether the current respite from the cedi will be short lived or not will depend on the plan going forward and that is why I ask, What�. Is�. The�.. Plan�.?

Graphic Business



The writer is the Chief Executive Officer of El deD Consult, a marketing communications firm

Email: [email protected]

Source: Fred Avornyo