The Ghana cedi has faced a significant depreciation against the US dollar, losing approximately 74% of its value over the past three years, according to the Institute of Economic Affairs (IEA). In 2022, the local currency fell by 30%, followed by a 27.8% drop in 2023. In 2024, the cedi has lost nearly 29% of its value.
The IEA attributes this steep decline to a variety of factors. One major concern is the election-related uncertainties, which have driven investors to seek the dollar as a safe haven. Additionally, there are worries about the future of Ghana’s International Monetary Fund (IMF) programme due to the uncertain outcome of the elections and potential changes in government policy. These uncertainties could lead to an increased demand for dollars, further driving up the currency’s value.
Another factor contributing to the cedi’s depreciation is the ongoing debt negotiations with non-Eurobond commercial creditors. The IEA suggests that any delays in reaching agreements could slow the disbursements under the IMF programme, reducing foreign exchange inflows into the country and further straining the currency. The Minister of Finance, Dr. Mohammed Amin Adams, recently announced that the IMF will conduct its third review of Ghana’s programme on December 2, 2024. However, this review is seen as delayed, given that staff completed their own review back in early October.
The IEA also pointed to other economic challenges, including a weaker cocoa crop and COCOBOD’s decision to shift towards domestic financing. These factors contribute to limited foreign exchange supply, especially with the possibility of reduced syndicated loan availability.
Looking beyond the elections, the IEA warns that stabilizing the exchange rate will require significant structural and macroeconomic reforms to address the perennial foreign exchange supply-demand gap. Achieving lasting exchange rate stability will depend on these efforts to manage the risks and challenges facing the cedi.
