President John Dramani Mahama has set an ambitious target to keep the Ghana cedi’s depreciation within a 5% margin annually. This target, he says, will stabilize planning for businesses, ease burdens on importers, and provide balance for exporters.
Speaking at his first Presidential Media Encounter at the Jubilee House, the President admitted that while depreciation and appreciation are natural phenomena for any currency, what hurts Ghana most is rapid swings, such as the nearly 25% plunge in the first half of 2024.
“When you have steep depreciation of about, like we had in 2024, 25% depreciation in the currency in the first half of the year, it makes planning difficult,” stressing that such volatility distorts trade flows, encourages speculative imports, and leaves exporters disadvantaged.
President Mahama acknowledged that exporters suffer when the cedi appreciates too fast, as they “get fewer cedis for what they export,” while importers complain bitterly when the cedi weakens too sharply.
Given the trade-offs involved in the management of the currency, the President indicated that there is a need to find a balance.
“Every country tries to find a balance where exporters are able to do good business and importers are not overburdened by high forex rates. Where that lies, I don’t know,” he noted.
He therefore announced that his government has targeted a depreciation rate of 5% per annum going forward. The 5% target, he emphasized, is an attempt to strike that delicate middle ground.
‘We will make sure that any depreciation that occurs in the value of the city is within a margin of about 5% per annum. That is what we target,” he announced.
Is a 5% Target Economically Sound?
Economists generally agree that mild and predictable depreciation is healthy for developing economies, particularly those like Ghana that need to boost exports and protect domestic industries.
According to IMF research, a 10% depreciation can improve a country’s trade balance by up to 1.2% of GDP over three years. However, anything beyond that risks fueling inflation, raising the cost of foreign debt, and undermining consumer welfare.
In this context, President Mahama’s proposed 5% ceiling appears conservative but prudent, signaling to investors and businesses that currency management will favor stability over volatility.
The challenge, however, will be ensuring that this target is not just aspirational but backed by sound fiscal discipline, effective forex market interventions, and export diversification strategies.
Can the Bank of Ghana deliver this stability, and will the 5% target hold under real-world pressures? Only time will tell.
