Economic policy think tank, the Institute for Fiscal Studies (IFS) wants the government to restructure Ghana’s external sector to address the persistent depreciation of the Ghana cedi which continues to struggle in spite of the country’s strong merchandise exports.
The think tank has pointed at structural issues in Ghana’s export sector, particularly in gold and oil, as key reasons why increased export earnings have had little impact on stabilizing the local currency.
IFS has identified Ghana’s reliance on external borrowing as a major cause of the country’s recurring exchange rate crises, which often triggers broader macroeconomic instability.
To address the issue, the institute has called on government to actively participate in the gold and oil sectors by taking commanding interests through joint ventures.
Alternatively, the think tank suggests shifting to production-sharing agreements, which it maintains would ensure that a significant portion of export revenues return to Ghana in hard currency.
“These measures would enable the Bank of Ghana to better manage the exchange rate, reducing reliance on external borrowing and preventing future economic crises,” IFS’ economist Dr Said Boakye says.
The institute believes that fundamental changes in the ownership structure of Ghana’s major merchandise exports are necessary to ensure that a greater share of export revenues remains in the country.
According to the IFS, between 2022 and 2023, Ghana’s total merchandise exports increased significantly, with gold and oil exports accounting for 95% of the growth.
However, due to concession agreements with multinational companies, much of the foreign exchange earnings did not flow back into the local economy. As a result, the Bank of Ghana had limited access to foreign currency from these exports to support the cedi.
Government has historically relied on external borrowing to manage the exchange rate. During 2017-2019, the average capital and financial account balance stood at US$2,528 million, with an average cedi depreciation rate of 8.7%. In 2020-2021, increased Eurobond issuance improved the capital and financial account balance to US$3,096 million, reducing the cedi’s depreciation rate to 4.0%. However, in 2022, Ghana’s credit rating was downgraded to junk status, restricting access to international borrowing and turning the capital and financial account negative at -US$1,437 million. This led to a dramatic 28.9% depreciation of the cedi against the US dollar.
The IFS argued that securing controlling interests in Ghana’s extractive sector—either through joint venture arrangements or production sharing agreements—was crucial for two key reasons. First, it will generate sufficient fiscal revenue to support effective economic management. Second, it will ensure that a larger share of export earnings in foreign currencies flows directly into the economy, strengthening the cedi without the burden of excessive external borrowing and debt servicing, which have historically made Ghana’s economy vulnerable to crises.
