The hope of Ghanaians to see an end to the sharp rise in inflation and the wanton depreciation of the local currency has further been dashed as Fitch Solutions forecasts a further weakening of the local currency throughout the year.
In its latest ‘Ghana’s Private Infrastructure Investment Set for Medium-Term Recovery’ report, Fitch is predicting a 43% and 30% depreciation of the cedi to the US dollar in 2022 and 2023 respectively.
According to the research company, “the currency’s weakness will keep revenue risks elevated for foreign investors reliant on revenue streams in local currency”.
Fitch also expects Ghana’s inflation rate to remain high in the near term in the face of spiking global food and fuel prices, coupled with the continuing investor concern over the country’s large fiscal deficits which is putting downward pressure on the Cedi.
“Accordingly, we forecast consumer price inflation to average 25% and 15% in 2022 and 2023, respectively.”
Furthermore, Fitch’s report predicts that the cedi’s weakness will add to upward pressures on prices of construction materials from existing supply chain disruptions due to the country’s over-reliance on imports.
“Ghana imports large volumes of construction materials, with domestically produced cement amounting to less than 60% of domestically consumed cement throughout the largest part of the past decade. In 2021, Ghana’s trade deficit for iron and steel products is estimated to have exceeded USD1.2bn, up from an estimated deficit of over USD780mn worth of iron and steel products in 2020,” the report explained.
This, in turn, will further contribute to increased cost of construction materials, project costs and potential investment delays in the near term.
Depreciation Of The Cedi To Slow Down In 2024
In the medium term, Fitch expects inflation to slow down and pressures on the Cedi to reduce significantly in 2024, lifting downward pressures on private sector participation in Ghana’s infrastructure sector.
“Our positive medium-term outlook is further supported by Ghana’s relative long-term political stability in comparison to other regional markets, as well as stable to positive demand forecasts for automobiles, transport and logistics, and general consumption.”
The cedi has since the beginning of the year dropped by at least 35 percent in 2022, according to Bloomberg, making it the world’s worst-performing currency after Sri Lanka’s rupee among 150 economies tracked.
It depreciated by a little over 4% last week, starting the week at GH¢10.10 pesewas to the US dollar.
This situation has drastically shot up the prices of some goods and services, increasing both the cost of doing business and living conditions in the country and has become a major worry to businesses and household consumers.