Ghana to suffer currency depreciation and high inflation due to large current account deficit – World Bank

Ghana’s economic woes are likely to worsen this year, with the country’s currency the cedi likely to depreciate further as inflation rises due to the country’s large current account deficit, according to a new World Bank report.

The currency which depreciated about 53 per cent against the US dollar in over a year, suddenly appreciated around 40 per cent in December 2022, but has been depreciating since the beginning of 2023.

Inflation has also been accelerating. Currently at 54.1 per cent, inflation is at its highest in 21 years.

The country’s economy has tanked over high debt and loss of investor confidence, compelling the government to seek help from the International Monetary Fund (IMF), which having received staff level agreement is awaiting board approval.

The Bank’s Global Economic Prospects (GEP) released this week, citing The Gambia and Ghana, said, large current account deficits are likely to keep currencies under pressure in several countries, adding to inflation and external vulnerabilities. With the country defaulting on its debt servicing, rating agencies have rated the economy junk with negative outlook.

The World Bank’s Africa Pulse Report released in October 2022 indicated that Ghana’s current account deficit was set to widen to 5.8 per cent that year, before narrowing slightly to 5.2 per cent in 2024, noting that the deterioration in the current account balance is consistent with the combination of skyrocketing import bills and the fall of the cedi.

According to the GEP, growth in Sub-Saharan Africa (SSA) decelerated to an estimated 3.4 per cent in 2022—0.3 percentage point below previous forecasts. The downgrade masks diverse circumstances and the uneven impact of terms-of-trade and cost-of-living developments across the region, it added.

Growth estimates were revised down for over 60 per cent of countries as a marked weakening of the global economy combined with tightening financial conditions and rising inflation dampened already fragile recoveries and amplified domestic vulnerabilities, the report said.

It further pointed out that the cost-of-living increases, intensified by the effects of the war in Ukraine, have reduced food affordability and domestic demand across the region, especially in countries lacking policy space to protect the poor.

The report said almost 60 per cent of the world’s extreme poor, who spend a substantial share of their income on food, live in SSA.

“In 2022, the estimated number of people experiencing acute food insecurity or worse in SSA surpassed 140 million, up nearly 24 million since 2021,” the report said.

It notes that soaring food prices are, therefore, having grave repercussions on food security, poverty alleviation, social cohesion, and growth in many countries.

“Food price increases, which accounted for more than half of overall inflation, pushed average inflation in SSA to  13 per cent—almost three times above its prepandemic rate,” adding that, “annual inflation in some countries surpassed 30 per cent (Ghana, Rwanda) with food price inflation exceeding 20 per cent in over a quarter of all SSA economies. Currency depreciations resulting from unfavorable terms-of-trade shocks, the loss of foreign exchange reserves, capital outflows, and elevated debt levels exacerbated inflationary pressures (Ethiopia, Ghana, Malawi),” the report said.

By Emmanuel K Dogbevi
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