Ghana cedi depreciated by 30% against US dollar in 2022

Ghana’s economy is in bad shape. Debt-ridden, unable to pay its creditors and rated junk by all major credit rating agencies in the world. With December 2022 inflation at 54.1 per cent, the country’s currency depreciated by 30 per cent against the US dollar in 2022 after reversals of some of the losses in December, according to the Bank of Ghana.

The Governor of the Bank, Dr Ernest Addison told journalists at a press conference in Accra January 30, 2023 that, that compares with 4.1 per cent depreciation in 2021.

“In the year to January 26, 2023, the Ghana cedi cumulatively depreciated by 19.1 per cent, 21.4 per cent, and 20.7 per cent against the US dollar, the pound, and euro, respectively. In comparison with the same period of last year, the Ghana cedi had depreciated by 1.5 per cent against the US dollar and appreciated by 0.1 and 0.7 per cent against the pound and euro, respectively,” he said.

The Bank further noted that on the domestic front, inflation remained elevated in 2022, driven by both demand pressures and supply shocks.

The two price readings since the last Monetary Policy Committee meeting, it said, showed a significant jump in headline inflation to 54.1 per cent in December 2022, from 50.3 per cent in November and 40.4 per cent in October 2022.

“The acceleration in inflation was driven mainly by the lagged effects of the sharp currency depreciation recorded in October. Food and non-food inflation went up significantly. Food inflation surged to 59.7 per cent in December from 55.3 per cent in November 2022, while non- food inflation rose to 49.9 per cent from 46.5 per cent over the same comparative period,” the Bank said, adding that underlying inflationary pressures similarly remained elevated.

The Bank’s core inflation measure, which excludes energy and utility, accelerated to 53.2 per cent in December 2022 from 49.7 per cent in November. However, the Bank’s surveys on consumers, businesses, and the financial sector showed that inflation expectations eased in December 2022. This indicates agents’ expectations of moderation in inflationary pressures on the horizon, it said.

Citing the staff level agreement that the Ghana government has reached with the International Monetary Fund (IMF), the Bank said it spells out measures that will put the fiscal on the path of consolidation. Consistent with the agreement, it stated, was the 2023 Budget which has just been passed by parliament and frontloads the consolidation efforts.

“Revenue enhanced measures such as the VAT increase of 2.5 per cent, the complete removal of benchmark values on imports, and the review of the E-Levy should help improve the revenue outlook,” the Bank said.

On the expenditure side, the Bank said the lower capping on transfers to earmarked funds from 25 to 17.5 per cent, and the reduction of budgetary allocation to goods and services, as well as rationalisation of executive compensation should help contain expenditures in 2023.

“The concerns being expressed in the public domain relating to high government expenditures have been addressed in the agreement and reflected in the 2023 Budget,” the Bank said.

It noted further that the agreement is also contingent on the Domestic Debt Exchange Programme and external debt restructuring, which when concluded and the necessary financial commitment obtained, will allow the presentation of the agreement to the IMF Board.

“The MPC believes that these measures will help restore fiscal and debt sustainability and bring down inflation as well as help stabilise the currency,” it added.

By Emmanuel K Dogbevi
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