The Institute of Economic Affairs (IEA) has called on managers of the economy to arrest the depreciating local currency by seriously taking every requisite measure needed to strengthen it.
The IEA, which gave the advice in a recent statement, said policymakers have consistently failed to take the requisite measures to buttress the cedi, emphasising that almost invariably, “they wait till the situation begins to get out of control before they adopt firefighting, albeit unsustainable, measures.”
It indicated that “Presently, we seem to be waiting for the IMF’s [International Monetary Fund’s] and other developing partners’ funding before restoring some stability to the cedi. This approach, however, is not sustainable, as history has taught us. We have been to the IMF seven-teen times, but that has not brought any lasting stability to the cedi.”
In continuing that policymakers have resorted to waiting till the situation begins to get out of control before they adopt firefighting, albeit unsustainable, measures.
“The question being asked by most people is: what is the solution to the evolving cedi crisis and how do we prevent similar future episodes? To lay economists, the solution may seem monumental—or that is what our economic managers would want us to believe. However, to some of us who are lucky to be more tutored in the subject, we do not see the solution to be rocket science,” it stated.
Further calling on policymakers to deal with the underlying determinants of foreign exchange demand and supply, it also recommended that there should be timelines, which “we have conveniently categorised into the fire-fighting, short-term, medium-term and long-term phases. The measures for these phases are not necessarily to be undertaken sequentially. Indeed, many of them are required to begin today and to run simultaneously in order to achieve maximum impact.”
Touching on the acceleration of external debt restructuring, it advised the government to immediately engage with the IMF and the external creditors to reach an early agreement, adding this would allow the IMF to release the third tranche of $300 million under the Economic Credit Facility programme, while releasing funds from other development partners, such as the World Bank, African Development Bank and bilateral creditors.
Such funds, the IEA said, would boost the Bank of Ghana’s reserves, and help it to provide higher liquidity to the FX market to calm the current situation.
The IEA also urged BoG to step up the enforcement of FX market regulations.
“The regulations include: FX carry-on limits for travellers; supportive documentations for FX purchases and outward transfers; non-pricing of goods and services in FX; non-payment of FX to Ghanaians for their services; and trading in FX. Enforcing these regulations would general limit FX demand. We would, however, caution BoG to proceed cautiously and, in particular, operate secretly so as to not give a sense of desperation on its part as this could lead to increased speculative demand for FX, while also driving FX activities underground.”
The IEA further asked the Central Bank to use its Economic Intelligence Unit, in collaboration with the security agencies, to monitor acts of illegal FX transfers through banks, forex bureaus and other channels as well as money laundering to reduce the demand for FX.
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