By: Franklin ASARE-DONKOH
The Vice President, Dr. Mahamudu Bawumia, in his attempt to give reasons for the troubling Ghanaian economy, especially the Cedi, faulted Parliament for the currency’s woes.
The Head of the New Patriotic Party (NPP), led the government’s economic management team blamed the woes of the cedi largely on negative credit ratings, challenges in getting the 2022 budget passed, and the refusal of investors to roll over their monies in Ghana’s economy among others.
According to Dr. Bawumia, fuel prices on the international market, as well as the Russia-Ukraine war, also contributed to the challenges of the Ghanaian currency.
Speaking at a forum organised by the Tertiary Education Confederacy (TESCON) of the New Patriotic Party (NPP), in collaboration with the think-tank Danquah Institute on Thursday, April 7, 2022, Dr. Bawumia, took time to explain what in his opinion has accounted for the free fall of the troubling cedi and the wobbling Ghanaian economy.
“The financial markets’ assessments of the 2022 budget, unfortunately, concluded that our projected 40% increase in revenue which underpinned the 2022 budget was not likely to materialize and therefore, our deficit will increase. The chaotic battle in Parliament over the budget and the passage of the budget did not also help matters. This created uncertainty and signal to the market that government may not be able to get most of its programmes passed in a tightly balanced Parliament. This further reinforced the lack of confidence by investors in the budget”.
“Furthermore, delays in implementing major tax reforms…appeared to support the assessment that the market will have difficulties in passing its programmes. To add to these negative market sentiments, there was a sovereign credit rating downgrade by Fitch and Moody’s as a result of concerns about fiscal and debt sustainability.”
The Vice President insisted these issues resulted in an unwillingness of foreign investors to roll over their holdings of Ghana’s foreign bonds.
In his attempt to paint a beautiful picture of the gloomy Ghanaian economy the Vice President added that Ghana’s announcement of not issuing a sovereign bond in 2022 also worried investors, and thus sent a negative signal about the adequacy of Ghana’s foreign exchange reserves.
“So they (investors) wanted to get a hold of the foreign exchange now, and this led to the demand for the US dollar on the market. The increases in interest rates in the US and other economies also made the cedi unattractive. And in February we had the conflict between Russia and Ukraine. Associated fuel price increases also put pressure on the local foreign exchange market.”
Dr. Bawumia further noted that the combination of these variables resulted in the sharp depreciation of the cedi within the first quarter of 2022.
He pointed out that the government through the Finance Ministry and the Bank of Ghana subsequently introduced a number of measures to boost the cedi’s strength, including the strategic injection of $2 billion into the economy as well as expenditure cuts.
Data from the Bank of Ghana show that the cedi depreciated by about 14.6% to the US dollar within the first quarter of 2022, while Bloomberg described the Ghana cedi as the worst-performing currency on the global market.