Rather than blaming the John Mahama-led National Democratic Congress government’s mishandling of the Ghanaian economy, which has resulted in a fall in the value of the Cedi against all major trading currencies, the Bank of Ghana yesterday put the blame at the door-steps of the United States of America.
At the Monetary Policy Committee meeting of the Central Bank, Paul Kofi Wampah, Governor of the Central Bank, stated that activities in the USA were to blame for the 7.9% depreciation of the cedi within a period of some 37 days.
According to the Dr Wampah, “The commencement of tapering in asset purchases in the US, alongside weakening economic conditions in some economies, have spurred reversal of capital flows and volatility in currency and equity markets across many emerging and developing countries.”
He added that the “fallouts have been most severe in countries such as Turkey, Argentina, Indonesia, India, Malaysia, and South Africa.”
As a result of these developments, exchange rate depreciation and inflationary developments have resulted in the fall of the cedi.
“The development has also heightened inflation expectations. Similar developments were observed in the first half of 2012, which warranted policy responses by the Central bank that restored stability.
The uncertainties in the outlook and weakened domestic fundamentals underscore the need for continued tight fiscal and monetary policies and measures that would reduce the country’s vulnerability to shocks, re-anchor inflation expectations and sustain macroeconomic stability. These informed the decision to increase the policy rate by 200 basis points,” he added.
Meanwhile, the Trades Union Congress says the Government is to blame mostly for the fast depreciating value of the cedi.
It says while the dollarisation of the economy can be fingered as the cause of Cedi's predicament, Government is the biggest culprit.
A lengthy statement issued by the Congress on Wednesday said: “The TUC shares the view that the dollarisation of the economy is partly to blame for the current messy situation. But Government itself is most guilty on this”.
It added: “We are in a country where custom duties charged by government are dollar-indexed. State agencies, like the Tema Development Corporation (TDC) sell land at dollar-indexed prices. The Ghana Institute of Management and Public Administration (GIMPA), along with other public educational institutions, have indexed their fees to the US Dollar. In such an environment, one can only expect rational economic actors to procure dollars ahead of time to shield themselves from exchange rate losses. Yet, Government turns round to blame innocent Ghanaians for dollarizing the economy”.
Besides its recent injection of US$20 million into the economy to shore up the cedi’s strength, the Central Bank also, on Tuesday announced a series of measures toward arresting the fast depreciating local currency.
The Bank warned in a statement that violation of any of the measures would attract punishment, including pecuniary sanctions, jail terms, suspension and revocation of operating licences amongst others.
The statement issued on February 4, 2014, said the Bank had revised rules governing the operations of Foreign Exchange Accounts and Foreign Currency Accounts with effect from Wednesday February 5, 2014.
It therefore ordered authorised dealers not to sell foreign exchange for the credit of FEA or FCA of their customers.
It also stated that cash withdrawals over the counter from FEA and FCA shall only be permitted for travel purposes outside Ghana and shall not exceed US$10,000.00 or its equivalent in convertible foreign currency, per person, per travel.
Also, no bank shall grant a foreign currency denominated loan or foreign currency linked facility to a customer who is not a foreign exchange earner.
The Central Bank in another statement also said all exporters were required to collect and repatriate in full, the proceeds of their exports to their local banks within 60 days of shipment.
According to the TUC, “the US$20 million that the Bank of Ghana says it has injected into the economy is roughly equivalent to what one telecom company will have to transfer out of the country in a month”.
It added that: “With the value of the Cedi declining on a daily basis, the domestic prices of imports keep rising and this has adverse implications for the living conditions of workers whose salaries are fixed throughout the year”.
The statement signed by Secretary General Kofi Asamoah said: “…It is not just imported items that experience price increases. Landlords adjust their rents to be able to cope. Lorry fares continue their upward trend. In general, Ghanaians are facing difficult times as nearly all prices are going up. Government functionaries are in A state of denial and are descending heavily and crudely on people who echo the general sentiments of Ghanaians. This may be understandable given that such functionaries live on state resources and they do not have to worry about soaring prices. But the truth of the matter is that the rest of Ghanaians are facing severe social and economic hardships. And it is important that Government and its functionaries wake up to the realities and do something about the plight of Ghanaians”.
Source: The New Statesman
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