A Financial Economists and Dean of the University of Cape Coast, Prof. John Gatsi has responded to the Vice President, Dr. Mahamudu Bawumia asking to disclose the amount of money invested into the management of the country currency depreciation.
The Vice President during a speech suggested that the rate of the cedi of depreciation is the lowers in the history of the fourth republic of Ghana. Dr. Bawumia also claims that despite the covid 19 pandemic, Ghana’s currency has performed better.
But according to Prof. Gatsi, “Fundamental to any discourse about the exchange rate is the demand and supply of the particular foreign currency.” adding that “The other factor that normally comes with serious disruptions is external shocks.”
He stated that “Global developments have different weights effects on depreciation” but “It will depend on how the global events influence the demand and supply of a foreign currency.”
He explained that “If you want your depreciation to be controlled in the era of market-driven exchange rate management, you frequently utilize the intervention of the Central bank (Bank of Ghana) by pumping foreign currency into the economy” and this to Prof. Gatsi “is a serious cost to the economy.”
“If you borrow to support the cedi and the BoG releases huge foreign currency to protect the cedi at a huge fiscal cost to the economy as the main strategy, it is only fair to know how much in total has been consumed in an attempt to manage the depreciation.” – Prof. Gatsi said
“BoG and Finance Ministry kindly give us the cost breakdown for each year from 2017.” – he demands
Speaking to Awake News, Prof. Gatsi discloses that the best way to manage the depreciation of a currency is through your foreign earnings but when you have no such earnings equivalent to the demand of such currencies on your local market but rather choose to borrow a huge amount of for example dollar to inject into the economy, the ripple effects is double – you will pay back that loan with interest and yet the loan you tool will not translate into the improving the livelihoods of the masses.
He further explained that “Cocoboad goes for a syndicated loan to inject into the cocoa sector may be to improve roads and other infrastructure in cocoa-growing aways and you take part of that loan to consume in a form of leasing it to the economy to stabilize your current, at the end of the day, that currency may be stabilized for a short while but the projects that the part of the money you took should have done will not be done hence the intended benefit to the people may never come”.
“It is better to borrow to invest in improving infrastructure like roads, schools, hospitals that will improve the livelihoods of the people that just consuming in managing your currency. You cannot say your currency has seen the lowest percentage depreciation or achieve low inflation figures when in actual fact the reality in the lives of the masses if different” – he maintained
For him, it is also wrong for managers of the economy to “assume that because there is a Coronavirus Pandemic there should be a worse form of depreciation and conclude that Ghana has managed her depreciation better than other countries.” adding that “the rate of depreciation may not be a sign of better management of depreciation never seen before.”
“The disclosure will help assess the cost dynamics of the frequency of BoG interventions and perhaps understand why the gross international reserve is projected to 5.2months of import cover but just about 2.2 months of import cover as the net international reserve.” – he said