Depreciation, high interest rates, bane of economy – Experts

Story: Isaac AIDOO, Accra

PROMINENT economists speaking on Zed in the Morning’s Economic Roundtable on Zed 101.9FM have identified the depreciation of the cedi and high interest rates as the main challenges currently facing Ghana’s economy.

Chief Executive Officer of Dalex Finance, Joe Jackson, and Financial Economist, Prof. Lord Mensah, highlighted the severe impact these issues are having on the average Ghanaian and the country’s overall economic performance.

Cedi depreciation eroding wealth

Joe Jackson, reflecting on the cedi’s performance, painted a grim picture of the currency’s decline. According to the Bank of Ghana’s recent Summary of Economic and Financial Data, the cedi has lost 24.3% of its value against the U.S. dollar in the first nine months of 2024 alone, worsening the financial strain on individuals and businesses reliant on imports or dollar-denominated transactions.

Jackson noted that two years ago, in January 2024, the exchange rate was around six cedis to the dollar, but today, that figure has plummeted to a much lower rate, drastically reducing purchasing power.

He illustrated this by comparing earnings in cedis over time: “If you were paid GH₵6,000 two years ago, you could purchase goods and services worth $1,000. Fast forward to today, that same GH₵6,000  is worth only $320. In just two years, your purchasing power has eroded by over 60%.”

This stark depreciation has led to a massive reduction in the value of wages, savings, and investments for most Ghanaians. Jackson emphasized that even salary increases haven’t been sufficient to offset the loss.

“Imagine a company giving its workers a 25% salary increase over two years—a figure that would typically be seen as generous. Yet, even with that increase, your real earnings have fallen significantly,” he said.

Jackson urged Ghanaians to face the reality of the economic situation. “We are all worse off, and many are living in denial. We are making adjustments, but the standard of living has dramatically dropped,” he remarked, calling for a national reckoning on how to address this economic decline.

Disconnect between economic growth and citizens’ welfare

Financial Economist Prof. Lord Mensah, speaking on the same platform, raised concerns about the disconnect between the country’s headline economic growth figures and the experiences of ordinary Ghanaians. Despite Ghana’s economic growth being recorded at 6.9% in recent months, Prof. Mensah questioned whether this growth is truly benefiting the majority of citizens or businesses.

“You may see positive growth numbers on paper, but the question remains: where is this growth coming from, and is the typical Ghanaian or small business part of it? The answer is often no,” Prof. Mensah asserted. He stressed that, while aggregate growth may look promising, the benefits are not trickling down to the broader population, especially in a country grappling with high inflation and skyrocketing interest rates.

Prof. Mensah further explained that high inflation, currently standing at double digits, is eroding real income and savings. “When you combine high interest rates with high inflation, the result is a financial environment where putting your money in the bank or investing in treasury bills offers little to no real returns,” he said.

He pointed out that, over the past three years, Ghanaians have seen their savings diminish in value, even as interest rates remain prohibitively high, making borrowing expensive for individuals and businesses alike.

The real impact on businesses and individuals

The economists also touched on the broader implications of these economic conditions. Joe Jackson stressed that businesses, particularly those reliant on imports or foreign currency, are feeling the full brunt of the cedi’s depreciation.

With the cost of goods rising and access to foreign currency becoming more difficult, many businesses are struggling to stay afloat. This, in turn, has led to higher prices for consumers and reduced disposable incomes.

“The depreciation has caused importers to spend more cedis to buy dollars, pushing up the prices of imported goods. Ghanaians are paying significantly more for food, fuel, and other essentials than they were two years ago,” Jackson explained.

He noted that inflationary pressures are especially pronounced in industries such as construction, manufacturing, and retail, which rely heavily on imports. On the flip side, Prof. Mensah warned that Ghana’s small and medium enterprises (SMEs), which form the backbone of the economy, are being squeezed by both high interest rates and