Economist, Dr Nii Moi Thompson has placed the blame on the consistent depreciating of the Cedi witnessed since the beginning of the year, 2019, largely at the doorsteps of government.
The Economist believes government’s penchant to spend well beyond its budget and in some cases on things that were needless or irrelevant in the grand scheme of things negatively affects the performance of the currency.
Dr. Nii Moi Thompson explained that this expenditure pattern of government results in the massive importation of goods and services which in most cases are rated in dollars.
A large government size, he adds, also contributes to the cedi woes because government must use its meagre resources to pay their salaries, the size triggers imports to satisfy their work needs and demands but borrow to finance projects.
In an interview on JoyFM on Tuesday, former National Development Planning Commission (NDPC) Chairman observed “It is driven largely by excessive government spending, continuous practice of putting on government payroll, when we shouldn’t do that. Every month, for example, the government last year pumped in GHC980 million in the form of salaries. This year, it is projected to be a little above GHC1.3 billion per month and we don’t have the productive capacity to meet the demands these monies lead to, so we import everything.”
He acknowledged that the problem of excessive government expenditure has been a normal phenomenon since independence suggesting that it was a key factor to inviting the IMF into assisting Ghana in the past.
Despite this knowledge, Dr Nii Moi Thompson is concerned that the situation has worsened over the past two years.
He believes that the incumbent government has failed to do much in ensuring that government expenditure goes up and keeps borrowing to invest in non-capital expenditure project, a situation that worries him.
The economist believes that to resolve the issue of cedi depreciation, government should first start with factors it can control like size of the government constituted to goods imported and other factors it has control over before it addresses the ones it has little or no control over.
“…If we are going to deal with the problem, the first area should be where you have immediate controls and that is government spending. This business about Eurobonds and travelling all over the world, you may or may not get what you want but at least you have control over what you spend and how you drive demand for import,” he advised.
The position of Dr Nii Moi Thompson was sharply disagreed to by Dr Osei Assibey who was also interviewed on the same issue.
Dr Osei Assibey believes that situation the country faces can be perceived from several perspectives but what the Cedi is currently going through is as a result of outflow of profits by multinationals many of whom trade in Cedi but convert into dollars for the benefit of their shareholders.
He said the macro fundamentals seem stronger and the various indicators look good thus a targeted approach is needed to manage the short run movement of the currency.
“The Central Bank, in particular, must become more forward-looking and preemptive in its approach to managing some of these things. You will always be having issues. Even if you record trade surplus which is supposed to give you more earnings than you are taking out in terms of your exports. Because of speculative attacks and the vulnerability of our currency to external forces, you will always see this dip coming in and out. So we will need a targeted approach to address some of these issues because it is seasonal.,” Dr Osei Assibey explained.
He added, “If you look at the trend over the past 6-7 years, you will notice that the Cedi always depreciates around January, February, March. Why is this always the case? It is because of the way the economy is structured. We have so many multinationals, we have so many other companies whose factors of production are held not by Ghanaians but by outsiders and these people have to repatriate their profits to the holders of these factors of production.”
By: Jonah Eledi/awakenewsonline.com