The Ghana cedi has registered modest gains amidst declines in the British Pound, the United States Dollar and the Euro in the first five months of the year, indicating a better stability when compared to the recent past.
In the last couple of years the cedi had performed contrarily, steeply depreciating in the first quarter of those years.
Data from the Bank of Ghana (BoG) shows that the local currency gained two per cent in value over the British Pound between January and May this year, compared to a loss of 16.3 per cent recorded in the same period last year.
As a result, a Pound is now equal to an average of GH¢5.51 in May, compared to May last year, when one Pound exchanged for an average of GH¢5.95.
The data, however, shows that the cedi lost three per cent of its value to the United States Dollar compared to 16.9 per cent depreciation recorded in the same period last year.
Against the Euro, the pace of depreciation moderated to 4.7 per cent this month, compared to 6.9 per cent recorded in the same period in 2015.
As a result of the slow depreciation against the three major currencies, businesses and individuals needed less amounts of the cedi to exchange for these foreign currencies or buy goods from abroad, compared to last year when they would have required higher amounts.
Impact on economy
A former Deputy Governor of BoG, Mr Emmanuel Asiedu-Mante, told the Graphic Business in an interview that the stability in the foreign exchange market was a positive one that should be sustained.
Beyond helping businesses to plan, he said a stable foreign exchange rate regime ensured that the value of every earned income was not eroded through frequent increases in prices of goods and services.
“Exchange rate stability is good for everybody. For pensioners like me, when the cedi is stable, I can go to the market knowing that one plantain will cost me one cedi. If the cedi loses value, then it means my one cedi can no longer buy one plantain and I will be required to have two cedis to get the same one plantain,” Mr Asiedu-Mante, who retired from BoG in 2006, said.
He attributed the stability to an increment in dollar circulation by the BoG into the system but explained that a permanent solution to the exchange rate volatility would be for the country to reduce imports and raise exports.
“What BoG is doing is just managing the situation. The permanent solution will be for us to export more than we import or at least, to grow those things that we eat locally,” he said.
Dr Eric Osei Asibey of the Economics Department of the University of Ghana (UG),agreed with Mr Asiedu-Mante but explained that the stability could also be attributed to low speculation, increased dollar inflows from the International Monetary Fund under the Extended Credit Facility (ECF) Programme and the reduced demand for dollars by businesses.
He was hopeful manufacturing companies and individuals would capitalise on the development to expand their operations while increasing their investments in cedi instruments.
The data from the BoG further showed that merchandise exports declined by 11.6 per cent in the first three months of the year.
It dropped from US$2.89 billion in March last year to US$2.58 billion in March this year.
The decline was influenced by a steep fall in crude oil exports, which dropped to US$289.5 million in March, this year, compared to the US$445.1 million recorded in the same period last year.
Gold exports also declined to US$89 million in March, this year, from US$817.7 in March, 2015.
However, export of cocoa rose to US$944.5 million as of March, this year, from the US$817.7 million recorded in the same period last year.
On the import side, the data showed that the country’s import bill rose to US$3.28 billion in March, this year, compared to US$3.26 billion in March, last year.
This led to a trade deficit of US$700 million, equivalent to 1.8 per cent of total economic output, which is measured by gross domestic product (GDP), in the first quarter of the year.