Public Policy think tank, Centre for Policy Scrutiny (CPS) has observed that the cedi’s recent improved performance may be short-lived without bold and far-reaching measures to anchor the gains.
The think tank says the cedi’s stability is very welcoming due to the enormous economic benefits it comes along with. CPS observes that the recent performance of the local currency is partly the cause of reduced inflation and the improvement in business confidence in the country.
In addition, the development, CPS says, is expected to indirectly reduce the country’s foreign debt stock while boosting investor confidence in the economy.
However, in a policy document on the development titled “Ghana’s Cedi Holds Steady – But Can the Calm Last?”, the think tank argued that the real issue lies in how the government can maintain this positive performance.
Some of the reasons for the cedi’s performance, CPS says, are not robust enough to anchor the currency for the long term.
“The sustainability of the gains made in recent weeks is very critical to reap their economic benefits. This requires that the government find ways to make these positive gains sustainable in the long term,” CPS noted.
It continued that, “Already, some of the underlying factors of the appreciation in itself are threats to the sustainability of the appreciation of the currency. What if the depreciation of the dollar against other global currencies stops? What happens when the government resumes spending? What happens when Ghana starts serving the next tranche of foreign debt, which is due in July 2025?”
CPS fears that should the developments occur without any proper interventions, the cedi is likely to be plunged back to default settings, where excessive volatility will resume.
To anchor long-term currency stability, CPS lays out four strategic recommendations that it believes the government must prioritize:
1. Expand Domestic Gold Reserves
CPS calls for an aggressive continuation of the domestic gold purchasing program, initiated in 2021, as a key lever to back the local currency with real assets. With Ghana’s gold reserves increasing by 257% over two years, the think tank believes that strengthening reserves with locally sourced gold will send a strong signal to markets, build investor confidence, and cushion the cedi against future shocks.
2. Implement True Import Substitution
Beyond political rhetoric, CPS strongly recommends that the government move decisively toward producing key goods locally, especially those that account for a large share of Ghana’s import bill.
The think tank points out that the high demand for foreign exchange stems largely from the country’s import-dependent consumption pattern, hence the need to mitigate this with local production to substitute for the imports.
3. Reinforce Fiscal Discipline
The policy brief further emphasizes that consistent fiscal responsibility is vital to easing pressure on the currency. Acknowledge the contained government expenditure in the last months, CPS further urges that this continues aggressively. The government must cut non-essential public expenditures, enhance domestic revenue mobilization, and maintain tight control over the public purse.
4. Limit Monetary Financing
Too much liquidity can undo the gains hence, CPS recommends the adoption of tight monetary financing measures to avoid excessive injection of liquidity into the economy. It argues that loose monetary policy could trigger inflationary pressures and weaken the cedi’s value.
CPS’s policy brief issues a clear call to action for the economic managers to prioritize the protection of the gains made in the local currency or risk losing them. While the cedi’s recent performance has earned praise from traders and provided a breather for businesses, the think tank insists that without structural reforms, Ghana may soon return to the volatility of the past.
