By: Adnan Adams Mohammed
Recently event of the cedi recovery against the major trading foreign currency including the US dollar, euro and the UK pounds sterling had have mixed assertions from some financial analysts and economists.
Whiles, others believe that that it is a short-term event, proponents also believe it has basis to sustain the gains for at least up to the end of the year.
One of such proponents is currency analyst, Sammy Ampah who is projecting that the cedi will gain more value in the third and fourth quarter of this year as government awaits more dollars to inject into the economy.
Sammy Ampah explained that, the coming in of the second tranche of the IMF balance of payment support, as well as inflows from the cocoa syndicated loan as well as the 1 billion Eurobond will to a large extent ensure the stability of the local currency.
??From the third to the fourth quarter of 2015 we could have the cedi seemingly gaining some value due to the expected inflows and all these are just indicators of a clear stability push that can sustain the currency. ??
The Governor of the Bank of Ghana (BoG), Dr. Henry Wampah has also responded in the positive to assertions that the cedi?s recovery will not be sustained.
The cedi began making some significant gains against major foreign currencies including the dollar, pound sterling and Euro two weeks ago after depreciating in excess of 25 percent this year.
According to the Bank of Ghana, the local currency recovered strongly against the major currencies in July 2015.
The cedi was trading at 4.33 to the US dollar as at June 30, 2015 (year-to-date depreciation of 26.2 %).
However, as at July 14, 2015 it was trading at GH?3.31 to the US dollar (year-to-date depreciation of 3.4%).
Despite the impressive recovery, there are fears the cedi will go back to its losing ways due to the central bank?s approach to dealing with the cedi?s recovery.
However, Sammy Ampah recounted that, the weekly injection of dollars by the central bank and expected inflows are just short term remedies to shore up the currency and therefore want the Bank of Ghana to step up its fiscal discipline efforts to sustain the current performance of the cedi.
He is of the view that , ??the 0.3 percent deficit recorded in the first quarter of 2015 is an improvement of our high budgetary deficit records but that notwithstanding there is an indication of government?s inability to sustain that successes it has chalked as we enter into an election year 2016.??
According to him, the challenge lies with government to show that ??indeed it has fiscal prudence and fiscal management practices that is sustainable.??
The central bank as part of moves to shore up the value of the cedi began pumping huge tranches of dollars into the economy on daily basis which yielded the positive results seen today for the cedi on the exchange market.
Yet, some economists and industry players have criticized the central bank over the move saying it will not be able to sustain the huge injections of cash and the move will also not save the cedi in the medium to long term.
The Chief Executive Officer of Dalex Finance, Ken Thompson has asserted that, sustaining the cedi?s current performance cannot be guaranteed due to volatility in the economy.
?The volatility is what scares people and not the depreciation because the cedi?s appreciation is not sustainable; we may sail through this year but what happens next year, we give too much credence to the issue of speculation and hoarding of dollars; most people trade because this country has been turned into a nation of shopkeepers,? he fumed.
Apparently, Dr Wampah says the central bank has put in place measures to ensure the cedi?s recovery is sustained.
?The stock of gross foreign assets at the end of June 2015 was $4.5 billion, enough to finance 2.9 months of imports of goods and services. Going forward, the anticipated inflows of more than US$4 billion from the Eurobond issue, syndicated cocoa financing as well as other programmed inflows in the second half of the year will provide a strong buffer and help sustain stability in the foreign exchange markets…sustainability is two ways, what we do is that we stand ready to support, sometimes you may pump in more than the 20 million, sometimes less depending on what the market can take?.