cedi

In a rather surprising twist, the plummeting Ghanaian Cedi, has mounted an aggressive recovery, gaining significant value against the major international currencies in the past two weeks.

Business24

In the past two weeks, the local currency has significantly appreciated against its three main international trading currencies: The Euro, the US Dollars and the British Pound Sterling. As at the last check, the cedi now sells for GHC 3.3 to US $1 from over GHC 4.3 to the dollar.

Also, the Cedi has gained significant strength against the Euro which was previously selling for GHC4.8 to an Euro. Similar trend has been recorded in both the forex and interbank rates for the British Pounds.

This recent growth of the Cedi is said to be one of the fasted in the history of the Ghanaian economy. Foreign Exchange speculators have projected that at this rate, the cedi could climb in value to as much as GHC 2.382 to one US dollar by the close of July 2015 and further strengthen to GHC 1.952 to one US dollar by the end of 2015.

The cedi depreciation has been the bane of the country?s recent economic downturn in the country; destabilizing the hitherto steady growth of the economy and causing inflation. The currency situation has caused uproar from several businesses and individuals whose daily endeavors have been negatively affected by the exchange rate dilemma in Ghana.

The economic downturn had forced government to make major reforms to its finances. Recently, the Finance Minister, Seth Terkper tabulated a number of important economic progress made that would soon be felt by everybody in the country, saying the strict expenditure capping on government had resulted in a reversal of the huge budget deficits depriving the country of important funds for wealth creation.

In a recent address to Parliament, Finance Minister, Seth Terkper said the purpose of the tough economic reforms were to ?address the revenue shortfalls, ensure the achievement of the objectives of the ongoing fiscal consolidation, and keep borrowing in line with the levels approved in the 2015 Budget. We will continue to strengthen the Public Financial Management system and deepen structural reforms in the public sector as part of the overall objective of ensuring transparent and accountable economic governance..

It is unclear, the factor particularly influencing the current rapid appreciation of the cedi in the past couple of days, but the Republic newspaper gathered that the governments signing on to the International Monetary Fund (IMF) economic programme and the resumption of aid from major donors such as the World Bank, the European Union, among others, could be responsible for the change in fortune of the cedi.

This week, for instance, the World Bank Group s Board of Executive Directors approved a US$150 million budget support for Ghana.

The amount is the first of three tranches of World Bank financing aimed at helping the Government of Ghana stabilize its economy and shore up fiscal control by implementing financial policies and processes that are transparent and predictable.

The Board also approved IDA s very first landmark Policy-Based Guarantee (PBG) of up to US$400 million for Ghana, which may be used to support Ghana?s future external debt financings.

? The proposed credit is the first in a programmatic series that will make policy more predictable and enhance the productivity of public spending,? says World Bank Task team leader for this project, Santiago Herrera.

According to the World Bank, in the context of rising interest rates and a depreciating currency, extending the maturity of public domestic debt became a daunting task, and debt mangers were forced to issue short-term debt to avoid committing future budgets at unsustainable high interest rates.

? While the financial objective was achieved, it was done at the expense of rising rollover and liquidity risks. Amortization of short-term domestic debt reached the equivalent of 31% of GDP.  Hence, debt composition became a source of risk, trapping debt managers in a vicious circle of short maturity-high risk-currency depreciation-high debt levels,? the Bank stated in its press release on Wednesday.

In the face of dire economic challenges facing Ghana, Finance Minister Terkper , initiated radical reforms aimed at cutting down budgetary deficits and waste in government expenditure while trying to reverse the downward spiral of major economic indicators.

This resulted in the popular phrase; Home-grown solutions which has been hailed globally and had been on that basis that the International Monetary Fund (IMF) recently agreed to partner Ghana?s reform program, starting with an almost US$1 billion bailout.

Source: The Republic

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