The Ghanaian cedi has long been under pressure, battling a host of economic challenges, including high import dependency and vulnerability to global financial shocks.
Recently, some measures have been implemented to address the cedi’s volatility, but experts and analysts argue that these short-term fixes may not be enough to secure long-term stability.
The International Monetary Fund (IMF) has provided a US$360 million boost to Ghana’s foreign reserves after completing its third review of the country’s Extended Credit Facility (ECF) program. This injection is expected to help stabilize the cedi in the short term, but its lasting impact will depend on how well Ghana can address the structural issues underpinning the currency’s volatility.
At the same time, the Bank of Ghana (BoG) has injected dollars into the economy to meet the rising demand for foreign exchange. While this move helps to curb speculative trading and provides some immediate relief, it cannot be seen as a sustainable solution. Prolonged reliance on such interventions could strain the country’s reserves and further weaken the cedi in the long run.
The path forward for the cedi will depend largely on Ghana’s ability to address key challenges, such as its heavy reliance on imports, the external debt burden, and the lack of export diversification. The country remains heavily dependent on gold, cocoa, and oil for foreign exchange, leaving it exposed to fluctuations in global commodity prices. Without significant diversification into non-traditional exports, Ghana will struggle to build a more resilient foreign exchange base.
Moreover, the government faces the pressing issue of reducing fiscal deficits and controlling inflation. Until these fiscal imbalances are addressed, the pressure on the cedi will likely continue. There’s also the matter of Ghana’s growing debt obligations, which require foreign currency for servicing, further depleting reserves.
For long-term stability, Ghana will need to undertake deeper structural reforms. Promoting export diversification should be at the top of the agenda. Non-traditional sectors, such as horticulture, textiles, and digital services, present opportunities to increase foreign exchange earnings and reduce the country’s reliance on a narrow range of commodities. In addition, adding value to the country’s gold, cocoa, and oil industries by processing raw materials locally could provide a significant boost to export revenues.
Strengthening local industries is another crucial step. Investing in domestic manufacturing and supporting small and medium enterprises (SMEs) will help reduce import dependency and create more jobs. This would, in turn, reduce the outflow of foreign currency for imported goods and services.
Furthermore, fiscal discipline must become a cornerstone of Ghana’s economic policy. Prudent public spending, better revenue collection, and limiting foreign-currency borrowing are essential to avoid exacerbating the cedi’s depreciation. Improving foreign exchange management is equally important. Ghana needs to explore options like forward foreign exchange markets to better manage currency risks and volatility.
Attracting foreign direct investment (FDI) should also be a priority for the government. By creating a more conducive business environment and offering incentives for long-term investments, Ghana can tap into capital that will help build a more robust economy. Additionally, encouraging remittances from the Ghanaian diaspora could provide another source of foreign currency to support the cedi.
Despite the temporary relief provided by the IMF and the Bank of Ghana’s interventions, it is clear that without addressing the core structural issues of Ghana’s economy, the cedi will continue to face instability. While short-term fixes offer some breathing room, the real challenge lies in creating an economic environment that fosters sustainable growth, diversifies sources of foreign exchange, and reduces vulnerability to external shocks. Only through these deeper reforms can Ghana hope to achieve lasting currency stability and secure a resilient economic future.
