The strength of a country’s currency is anchored in robust productivity, improvement in international trade records and effective formulation and implementation of policies in key sectors that influence demand and supply of foreign currency.
The strength of the Ghanaian currency cannot be improved or restored and sustained through inflow of money in transition which is in this case borrowing.
We borrowed more than US$10Billion in the past two years but the cedi demonstrated consist depreciation .It sounds very alarming when we expect cumulatively about US$4Billion to appreciate and restore the value of the cedi in two weeks.
This expected loans will definitely give some very short term respite to the cedi and perhaps stabilize around the Ghc5 zone.
We however, expect to repatriate over US$2Billion to settle foreign loan repayment in 2019. Therefore borrowing to fix the depreciation of the cedi is not a solution that addresses the structural issues which are well known. This transition money does not address the demand factors affecting the cedi.
The supply of foreign currency through diversified exports, friendly remittances regime and inclusive domestic production are examples of the things that strengthen currencies and not borrowing.
This is not the first time managers of our economy are going to use borrowing to provide foreign currency support . In all the cases because such borrowed funds are in transition , the cedi only experience very short term strength and thereafter worsened. Cocoa syndicated loans and others loans are usual foreign currency support and cannot do what they have usually failed to do.
We must deal with the structural issues. Borrowing cannot replace inclusive productivity and policy oriented improvements in the structure of the economy.
In 2014 a National Economic Forum was organized to collate views from Ghanaians to guide in formulating an economic and financial strategy that reflect the economic aspirations of our people. Many issues were identified including the danger of ethnicity, over expenditure and prudent fiscal and monetary policy management. The issue of fiscal policy undermining monetary policy was highlighted to promote continuous autonomy but strong collaboration between monetary policy and fiscal policy.
The policy framework developed thereafter fed into the new agenda of the IMF not to impose policy package on countries hence the adoption of the homegrown strategy in the IMF extended credit facility program. If for nothing at all, the major reforms, enactments in banking, securities industry, Public Financial Management, energy sector among others are some of the outcomes of the National Economic Forum. It was agreed at that forum that if certain economic indicators were not improved in about three months, considering an IMF program should be prioritized to gain from the strength and credibility of the IMF so that the government and economic programs could receive the needed credibility attract the international community hence the term policy credibility.
The IMF program was actually a strategic move to gain the support of homegrown strategies to reform the key sectors and restore the country on the path of enhanced growth, fiscal management and improve resource generation.
One can conclude that the Forum helped a lot.
However, some politicians didn’t participate and encourage their key members not to attend. Dr. Paul Acquah , a former governor of BoG attended though.
The question is , as useful as a National Economic Forum could be, are we expecting the government to bring NDC and NPP together? Does the environment support this idea of a National economic forum? A nation must be built through consensus and the believe that others count. There are many developments from security, job safety, uninclusive productivity,
polarization,nepotism, weak agriculture and massive unemployment among the youths , continuous depreciation of the cedi that call for such a forum . However, mistrust and ideological differences , disregard for other citizens depending political party affiliation may not create the environment needed for a National economic forum.
Key points:
- Borrowing doesn’t restore and sustain the strength of a currency.
- Export diversification, domestic production and policies that address the demand side of depreciation must be implemented
- National economic forum cannot take place in polarized system
By: Professor John Gatsi