Ghana’s Cedi is Poised for Further Depreciation, Ranking as Third-worst Currency in Africa, According to Bloomberg



Ghana’s cedi, Africa’s third-worst-performing currency this year, may not have seen the worst yet. Despite a $3 billion bailout from the International Monetary Fund after the country’s 2022 default, analysts predict further weakening.

Even though Ghana has made progress with domestic and official creditors, negotiations with Eurobond investors are ongoing. Despite an improvement in international reserves to $5.9 billion in December 2023, they are still considered insufficient to stabilize the currency.

Courage Boti, an economist at GCB Capital Ltd. in Accra, highlighted the precariousness of these reserve levels, suggesting that the cedi would have depreciated further if Ghana hadn’t halted foreign debt payments.

“Moreover, elections this year is a big risk in terms of foreign exchange demand pressure,” he said. The vote for a new president is due to be held in December.

In December 2022, Ghana declared a moratorium on its foreign obligations amidst the challenges posed by the Covid-19 pandemic and the economic repercussions of Russia’s invasion of Ukraine. Since then, Ghana has successfully restructured its domestic bonds and reached a preliminary agreement with bilateral lenders to restructure $5.4 billion of loans in January. However, negotiations with Eurobond holders, who are owed $13 billion, are still ongoing.

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Once the debt restructuring process is finalized, foreign investors may view Ghana’s investments more favorably. However, Mr. Boti highlighted that political risks ahead of the election could continue to warrant caution.

As the world’s second-largest cocoa producer, Ghana’s economy relies heavily on imports ranging from everyday items like toothpicks to heavy machinery, with expectations of increased imports leading up to the election. The government anticipates a growth in GDP, projecting an acceleration to 2.8% this year from 2.3% last year.

“One of the policy priorities of the central bank under the IMF programme is to rebuild foreign reserves,” said Kweku Arkoh-Koomson, an economist at Databank Group. “This means the Bank of Ghana will not necessarily intervene on the market the way it should but just to smoothen volatilities,” he said, forecasting the cedi to weaken to 13.7% to dollar by the end of the year.

The cedi traded almost unchanged at GH¢12.9267 per dollar at 10:41 a.m. in Accra, the capital, according to data compiled by Bloomberg.

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