Renowned finance expert and Bentley University scholar, Professor Alex Annan Abakah, has challenged the widespread belief that the Russia-Ukraine war and the COVID-19 pandemic are the primary causes of the Ghanaian cedi’s depreciation. Speaking at a policy dialogue organized by the Public Financial Management (PFM) Tax Africa Network in Accra, Prof. Abakah attributed the currency’s decline mainly to structural weaknesses within Ghana’s economy.
According to Prof. Abakah’s research, external factors such as the pandemic and the war had minimal impact on the cedi’s depreciation. His findings revealed that the COVID-19 pandemic accounted for just 11% of the cedi’s decline, while the Russia-Ukraine conflict had negligible influence. “The impact of the Russia-Ukraine war on the cedi’s depreciation is insignificant, and COVID-19 contributed only 11%,” he stated, disputing popular narratives. He noted that during the pandemic, the cedi showed relative resilience compared to its severe depreciation in the post-pandemic period, underscoring the need to examine internal economic issues.
Prof. Abakah highlighted that Ghana’s weak economic fundamentals are the main drivers of the currency’s instability. Contrary to assumptions, he pointed out that the Russian ruble and Ukrainian hryvnia appreciated against the cedi during the conflict, disproving claims that the war caused Ghana’s currency to fall. “Both the ruble and hryvnia strengthened against the cedi during the war, so blaming the conflict is unfounded,” he explained.
The Cedi’s Faster Decline Compared to Other African Currencies
Prof. Abakah’s research also revealed that the cedi has depreciated at a much faster rate than other African currencies. For instance, Ghana’s currency declined five times more than Kenya’s shilling. Post-COVID, the cedi’s depreciation reached 104.69%, compared to Kenya’s 21.17%. The study emphasized that while external shocks like the pandemic affect global economies, the extent of the impact depends on a nation’s economic resilience.
The professor criticized Ghana’s economic framework, describing it as inadequate and leaving the country vulnerable to ongoing economic challenges. He also highlighted fiscal imbalances as a key issue, noting that in 2022, Ghana’s interest-to-revenue ratio was 47.27%, surpassing pre-HIPC levels. This means nearly half of the government’s revenue is spent on interest payments, leaving limited resources for infrastructure and human capital investments.
Proposed Solutions to Stabilize the Cedi
To curb the cedi’s depreciation, Prof. Abakah called for a comprehensive approach focusing on fiscal discipline. He recommended implementing debt ceilings and ensuring government spending aligns with revenue. “Legislating fiscal discipline by introducing debt ceilings and aligning spending with revenue is critical,” he suggested.
He also emphasized the importance of long-term investments in infrastructure and human capital to create employment and generate future revenue. Additionally, he proposed leveraging Ghana’s natural resources for industrialization and strengthening foreign exchange regulations to stabilize the cedi. These measures include controlling the repatriation of profits and dividends by foreign companies to reduce pressure on the local currency.
A Call for Structural Reforms
Professor John Asafo Agyei, a senior fellow at the Africa Centre for Economic Transformation, supported Prof. Abakah’s recommendations. He underscored the need for structural reforms to address Ghana’s overreliance on imports, which makes the economy susceptible to external shocks. “Since independence, Ghana has depended heavily on imports, making the economy vulnerable. This reliance leaves us exposed whenever global downturns occur,” Prof. Asafo Agyei noted.
Both experts agreed that addressing these structural weaknesses is essential for stabilizing the cedi and ensuring long-term economic growth.
Source: TheDotNews