A renowned economist, Prof. John Gartchie Gatsi, has advised the government to tackle the root causes of the depreciation of the cedi, and not continue to assume that the Bank of Ghana (BoG) has a magic wand to deal with worrying phenomenon.
“The government and the BoG should realise that dealing with the currency is not merely about monetary policy. It includes government policy on agriculture, government policy in ensuring that our industries and individuals use items produced in Ghana,” he said in an interview with the GRAPHIC BUSINESS.
Prof. Gatsi, who is also the Head of the Department of Finance at the School of Business, University of Cape Coast, said those are some of the things that will hold the cedi in check.
Impact of depreciation
He noted that the huge import volumes is likely to earn some revenue for government through import VAT.
However, he said that the increase in revenue as a result of imports, will not in any way compensate for the impact of the depreciating cedi on businesses.
Prof Gatsi explained that “the cost of import will be going up and that is likely to impact on pricing of items and that also means that within a certain period it will influence prices of goods and services in the country. “
According to Prof Gatsi, the BoG has a very little to do and noted that the best it can do in the short-term is to pump in some money by reducing our reserves to cater for the demand for more foreign currency in the short-term.
“Beyond that BoG has very little to do because the factors that are driving depreciation are not merely policy issues, they are issues to do with the way we structure our economy, which is aheavily import dependent, and BoG has very little to do about that trend,” he said.
Consequently, he said that the government machinery should be focusing on the above and be addressing.
For example, the best BoG can do, he said is to provide some funding that will focus on agriculture such as the GHC500 million as loan insurance to farmers under the Ghana Incentive-based Risk Sharing System for Agricultural Lending (GIRSAL) programme.
“Those are some of the interventions that the BoG can give but it doesn’t determine whether the government wants to borrow hugely or not, or its payment is in dollars or whatever, that is the work of government. The BoG doesn’t mobilise or collect revenue, it is the work of the government to do so,” he said.
Prof Gatsi said it is time for government to match its policy implementation with the monetary policy focus of BoG to be aligned so that govt activities will not be undermining the monetary policy orientation of the BoG.
Impact on businesses
There was hue and cry among importers, spare parts dealers and other businesses when the dollar rate was around GH₵4.20pesewas and it is the same now that it is around GH5 cedis to the dollar.
“It will continue to reduce the income of importers because some of them will eat into their profit. There is erosion of income and it is imposing hardship across the country. These are the effect that we can all experience; businesses and people in the country,” he stated.
The Director, Financial Markets Department of the BoG, Mr Steve Opata, recently told a section of the media that changes in global financing conditions, due to rising oil prices and hikes in US interest rates, were impacting frontier market economies in Sub-Saharan Africa.
However, he said, Ghana is in a strong position to overcome the exchange rate volatility due to excellent economic fundamentals and a good external payments position.
“We want to assure the market that we have adequate reserves and the fundamentals do not support the slippages we have seen, and we expect it to correct itself,” he said.