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Ghana’s Economy Will Sustain Its Currency Gains Prompted by a Surge in Cocoa Exports and Foreign Aid

ghana-2_0Moves to stabilize and diversify Ghana’s economy will sustain the recent gains in its currency prompted by a surge in cocoa exports and foreign aid inflows, according to the country’s finance minister.

The cedi was Africa’s worst performing currency in 2014 and lost a quarter of its value between January and June this year, but has risen 23 per cent this month alone.

Seth Terkper said in an interview with the Financial Times that the gains were primarily “seasonal” and were driven by an influx of foreign exchange for cocoa, Ghana’s biggest foreign currency earner. The recent return of donor support would provide the conditions for the currency to stabilize, he said.

Donors, including the EU, are resuming budget support after a $1bn International Monetary Fund bailout agreed in February and a favorable first review by the fund of Ghana’s progress in implementing fiscal tightening policies that are part of the deal.

“But moving forward out of this high point, cedi gains can be sustained because of the measures we are taking,” said Mr Terkper, referring to those policies.

“The recent appreciation of the Ghana cedi will only have an effect on confidence if it is sustained,” said Razia Khan, head of Africa research at Standard Chartered bank. ”A firm commitment to the reforms required under the IMF program would help, but even this is no watertight guarantee of cedi stability.”

Ghana has been among the fastest growing African economies over the past decade. But in recent years it has struggled with budget and current account deficits, brought about by the fall in world prices for its main commodity exports — gold, cocoa and oil — at a time when government spending on salaries and subsidies was being ramped up.

For now, Mr Terkper said, “structured swaps” of cedis for foreign exchange and dollars for cedis was helping the country’s currency to gain value. However, he warned of the risk of speculation when the dollar supply began to taper off after the present forex influx.


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