$ FLIGHT IS CEDI’S DOOM Experts predict further drop of local currency
By Emmanuel Akli
Ghana’s economy was described by the Bretton Wood institutions – the World Bank and the International Monetary Fund (IMF) – as one of the best performing economies in the whole world in 2011, surging past the almighty China and the new kid on the block, Brazil.
The economy actually grew by 14.4%, depicting a 0.8% percentage points move, than 2010. This makes it the highest in the history of this country.
Though experts in economics, including Dr. Mahamudu Bawumia, former Deputy Governor of the Bank of Ghana (BoG) and the now the vice presidential candidate of the New Patriotic Party (NPP, have argued that the unprecedented growth was driven by high oil revenue, the government has rejected the idea, insisting that its prudent economic policies had fertilised the ground for the high growth.
From the humble Gross Domestic Product (GDP) of $4 billion recorded in the year 2000, the economy has grown to $16 billion as at December 2008. The growth further increased to over $60 billion after the re-basing, which was carried out in 2010. This has made Ghana a lower middle income country.
Inflation, which was hovering around 18.1% in 2008, has now reduced to a single digit of 8.1%. Within the same period, interest rates also reduced marginally from 27% to the current 26%.
Following the implementation of the Single Spine Salary Structure (SSSS), the government claims it put over GH¢4 billion every months into the pockets of workers in the formal sector. International foreign reserves have also jumped to a record $4.5 billion, which is enough to give the government two weeks import cover.
Despite this laudable economic statistics, connoisseurs have argued that there is no direct correlation between the drop in inflation rate and the current interest rates charged by the commercial banks.
The downward trend of inflation has also not linked up with the local currency, the Cedi, which is fast falling against the dollar and other major currencies. The exchange rate of the cedi to the dollar is now GH¢1.85, as against GH¢1.5 recorded within the same period in 2011.
A former Deputy Minister for Finance and Economic Planning, Kwaku Agyemang Manu, attributed the free fall of the cedi, whilst commenting on Dr. Mamudu Bawumia’s lecture on Adom FM on Wednesday night, to the circulation of large sums of cedis in a few hands in the country.
According to him, because these people obtained the money from dubious sources, they were changing them into hard currencies such as the dollar, to preserve their ill-gotten wealth.
When The Chronicle contacted the Deputy Minister for Finance, Seth Terkpeh, a technocrat and former consultant to the World Bank, to comment on the current economic situation in the country as espoused by Dr. Bawumia, he declined to make any comment, because his Minister, Dr. Kwabena Duffuor, would soon state the government’s position on the lecture delivered the NPP running mate.
An Economic Consultant, Sydney Casley-Hayford, however, agrees with the arguments raised by Dr. Bawumia and the commentary made on it by Mr. Kwaku Agyeman Manu.
According to him, the economy suffered the same fate between August 2008 and November the same year, where over $800 million was spirited out of the economy and the normal banking system by investors.
He noted that this development normally occurs when investors perceive instability in the economy. Also because of the persistent fall of the cedi, some investors would prefer to hedge by buying the dollars to release them later onto the market when the cedi depreciates further to make huge profits.
To help arrest the situation, the Economist suggested that the government allows state institutions like the Police Service, BoG, and the Ghana Statistical Service among others to go about their work without interference.
He noted that if the police, for instance, make an arrest and the government intervenes to set the person free, the hullabaloo that would follow, depending on the stature of the person in society, could cause investors to panic. This could result in the conversion of their investments into dollars and exported out of the economy.
Whilst pursuing this front, Sydney also suggested that the BoG continues with its current rescue efforts to ensure that the cedi did not depreciate further, which could lead to increase in prices of goods and services in the country.
The Economics Consult further told The Chronicle that the fact that the interest was widening should have pricked the minds of the managers of the economy that either they are getting the fundamentals wrong, or somebody was trying to manipulate the figures just to sound good in the eyes of the public.
Sydney Casley-Hayford was also not happy with the government’s high borrowing from the money market. He argued that looking at the revenue coming in, and the statutory payments to institutions like the Social Security and National Insurance Trust (SSNIT), Ghana Education Trust Fund (GETfund), salaries to government sector workers, it would be very difficult for the government to repay some of these loans it has contracted, or is about to contract.
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