Ghana Cedi Plunge Driven by Structural Flaws, Not Macroeconomic Woes

Prof. Isaac Boadi highlights persistent demand for foreign exchange over available supply.

Ghana’s cedi currency is depreciating due to structural weaknesses in foreign exchange supply and demand. This is according to Professor Isaac Boadi, Executive Director of the Institute of Economic Research and Public Policy (IERPP). The local currency has fallen by more than 10 percent year-to-date, making it the worst-performing currency in sub-Saharan Africa. Professor Boadi’s analysis suggests an imbalance where demand for foreign currencies consistently outstrips available supply. This problem persists even though several key macroeconomic indicators show signs of recovery. Importer needs, especially from the energy sector, drive this high demand for foreign exchange. This currency depreciation highlights a puzzling disconnect in Ghana's economic narrative. While official figures suggest economic improvement, everyday citizens face continued hardships. The cedi’s struggle impacts import costs, inflation, and the purchasing power of average Ghanaians. This situation raises questions about the effectiveness of current economic policies in addressing fundamental market dynamics. “When demand always outpaces supply, your currency will always have problems,” Professor Boadi stated on Asaase Radio’s “The Forum” programme. He pointed to Ghana’s high reliance on imports and limited value addition to exports as key contributors. He added that export earnings and Bank of Ghana foreign exchange auctions are insufficient to meet this strong demand. This persistent currency weakness has significant implications for Ghana’s economic stability. Businesses importing goods will face higher costs, which could lead to increased prices for consumers. Policymakers must address these structural issues to prevent further cedi depreciation. Watch for potential government interventions aimed at boosting exports and reducing import dependency. Professor Boadi noted that inflation has fallen from about 21 percent to 3.4 percent. Public debt also dropped from 54 percent of GDP to 42.2 percent. Foreign exchange reserves increased from about $3 billion to $13 billion. The Ghana Stock Exchange recorded gains of around 75 percent. These improvements, however, have not halted the cedi’s decline. The Executive Director warned that seasonal spikes in import demand, particularly before the Christmas period, will intensify pressure on the cedi. This indicates a recurring annual challenge for the currency market. Addressing these seasonal pressures requires long-term strategies, not just short-term fixes. Long-term stability for the cedi will depend on Ghana’s ability to boost exports and expand domestic production. Reducing the country’s reliance on imports is also crucial. “If a country is not selling things that have value and bringing in more reserves, this paradox will not be settled,” Professor Boadi explained. This underscores the need for a shift towards a more export-oriented and less import-dependent economy. Such a transformation would involve strategic investments in sectors with high export potential. It would also mean policies that encourage local manufacturing and value addition. Without these changes, Ghana may continue to see its currency struggle despite positive macroeconomic data. The ongoing debate over the cedi’s performance highlights the complexity of economic management. It shows that strong macroeconomic indicators alone cannot guarantee currency stability. Fundamental structural changes are essential for sustained economic health.

Ghana Cedi Plunge Driven by Structural Flaws, Not Macroeconomic Woes

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