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Terpker’s measures to halt cedi fall won’t work – Economist

bycitibusinessnews
July 29, 2014
in Banking And Finance, Business
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A renowned economist, Kwamena Essilfie Adjaye says the policy interventions by government to arrest the depreciating cedi as contained in the mid-year budget review will not work.

As part of some 9 measures to stop the free fall of the cedi, government expects increased production of crude oil and gas to reduce reliance on imported light crude for the generation of power and thereby reduce the demand for foreign exchange.

This coupled with expected reversal in the low world commodity price for cocoa, is also expected to improve the foreign exchange position of the country.

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The cedi has depreciated by some 27 percent against the dollar in the first half of 2014 compared with 3.4 percent at the same period last year.

The other measures by government include efforts to continue to enforce the President’s directive for all MDAs and MMDAs to patronize made-in-Ghana products to conserve foreign exchange

This is aimed addressing the annual seasonality of foreign exchange inflows by effectively arranging the smooth use of our international reserves through interventions that include swaps especially for the period after the cocoa season and entering the dry season.

According to Mr. Adjaye however, “any measures, any policies, any actions that do not address the supply constraint, the supply inadequacy will not give us the effect of arresting the cedi’s decline against other currencies.”

He said: “If you do not address that you can’t not have your currency regain strength, immediately after the 2008 election, my friend Kwabena Duffour as Finance Minister, we had a contraction in government expenditure, the cedis rate of depreciation decreased, in the first half of 2012 leading up to elections there was expansion in government expenditure and related to that we had the rate of depreciation increase.”

“When government expenditure expands, it includes imports so you need more foreign exchange to pay immediately for those that need to be paid for and those that have terms to pay for later… so normally when there is expansion in government expenditure you have a related increase in imports which put pressure on the cedi,” he explained.

Presenting a paper at the launch of the growth and development platform on the depreciating cedi and the Bank of Ghana measures, Mr. Adjaye urged the Bank of Ghana to scrap immediately the revised forex rules introduced to halt the free fall of the cedi because it has back fired.”

“The Bank of Ghana must rescind and revise the measures, return to the foreign exchange Act 206 with some amendment, then specific steps to increase the supply of foreign currency, until we have an increase in supply the cedi will remain weak against the dollar and other leading foreign currencies,” he warned.

 

By: Rabiu Alhassan/citifmonline.com/Ghana

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