Cedi risks further decline
-When govt resumes debt servicing-Prof. Mensah
By Isaac AIDOO, Accra
A finance expert and senior lecturer at the University of Ghana Business School, Professor Lord Mensah, has pointed to the conditionalities of Ghana’s programme with the International Monetary Fund (IMF) as a key factor behind the weakening of the Ghana cedi.
According to Prof. Mensah, the restructuring and suspension of debt service payments have significantly impacted the foreign exchange market and the local currency.
“The debt suspension, particularly external debt suspension, indirectly fixes your currency because it reduces demand. When the government is not servicing its debt, it is not on the market demanding dollars,” Prof. Mensah explained.
He warned that the true value of the cedi would become apparent once debt payments resume, suggesting that the current situation is artificially suppressing the currency’s value.
While the IMF programme aims to implement economic reforms and promote growth, it also requires substantial adjustments to the exchange rate regime and local currency management. Prof. Mensah emphasized that these adjustments have contributed to the cedi’s suppression, as reduced demand for dollars has temporarily stabilized the currency.
However, Prof. Mensah cautioned that structural policies are essential to maintaining stability in the long term.
He stressed that the IMF programme alone could not resolve Ghana’s economic challenges.
Instead, the country needs to prioritize expenditure and restructure its economy, focusing on critical areas like agriculture to reduce the import bill.
“We need to prioritize restructuring our economy. In our last budget, the government should have been more conscious of its expenditure, especially regarding imports and funding allocation. For example, simply allocating funds to ‘Planting for Food and Jobs’ is insufficient if past results have not met expectations,” he noted.
Prof. Mensah criticized the government for not providing clear signals to the market that Ghana is ready to emerge from the IMF programme.
He expressed disappointment that the government has not presented a comprehensive plan to tackle the import bill and boost local production, particularly in agriculture.
“My expectation was that under the IMF programme, we would reduce our import bill significantly. For instance, rice is one of the largest import items, costing about GH₵2 billion annually. The government should allocate funds to local rice production with a goal to reduce rice imports by 80% within two years,” Prof. Mensah suggested.
The finance expert concluded by lamenting the lack of substantial action from the government to signal readiness to exit the IMF programme.
“Apart from expecting IMF money, there has been little indication that we are tackling the situation effectively,” he said.
Prof. Mensah’s comments highlight the delicate balance between implementing necessary economic reforms and protecting the local currency’s value, underscoring the need for strategic planning and targeted investments to achieve sustainable economic stability.
