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The strength of a country’s currency is anchored on robust productivity, improvement in international trade records and effective formulation and implementation of policies in key sectors that influence the demand and supply of foreign currencies. The strength of the Ghanaian currency cannot be improved or restored and sustained through the present approach of inflow of monies in transition – borrowing.
Ghana 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 stabilize and possibly restore the value of the cedi in the next two weeks. These expected loans will definitely give some very short term respite to the cedi and perhaps stabilize it around the Ghc5 zone.
However, over US$2Billion is projected to be used to settle foreign loan repayments in 2019.
Therefore borrowing to fix the depreciation of the cedi is not a solution that addresses the structural issues which are well known. These monies in transition cannot address the demand factors affecting the cedi.
The supply of foreign currency through diversified exports, friendly remittances regime and inclusive domestic production are the needed factors that can sustain the currency’s value but not borrowings. From Ghana’s economic history, 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 experiences very short term strength and thereafter worsens.
Cocoa syndicated loans and others loans are usual foreign currency support and cannot do what they have usually failed to do. Economic managers 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 economic and financial strategies that reflect the economic aspirations of our people. Many issues were identified including the dangers of ethnicity, imprudent expenditures and the needs for fiscal discipline and monetary policy management. The issue of fiscal policy undermining monetary policy was highlighted in the Senchi consensus 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 imposing 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 2014 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 also that the government and economic programs could receive the needed credibility to 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 to the path of enhanced growth, fiscal management and improved resource generation.
One can conclude that the forum helped a lot.
However, some politicians did not participate and encourage their key associates 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 actors in the NDC and NPP together? Does the environment support this idea of a National Economic Forum? A nation must be built through consensus and inclusion.
There remains serious challenges including security, job safety, uninclusive productivity, polarization, nepotism, weak agriculture and massive unemployment among the youths, continuous depreciation of the cedi and these, indeed, 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 the National Economic Forum.
Prof. John Gatsi