A Professor of Finance at the University of Ghana Business School, Godfred Bokpin has said that more work needs to be done to sustain the current appreciation in value of the cedi against major foreign currencies, especially the dollar.
According to him, the recent “aggressive” gains made by the cedi, although remarkable, could pose challenges in the long-term if not backed by more sustainable economic policies.
“… sustainability is the big issue. That is why the market is concerned that if you see this aggressive strengthening, the question is, can we sustain it? Given that it is the same cedi we are talking about, people are gradually concerned. We will face considerable challenges in terms of sustaining it because government cannot operate same 2025 budget in 2026 and 2027,” he said on TV3’s Keypoints on May 24.
He was contributing to discussions on what accounts for the appreciation of the value of the cedi against major foreign currencies, especially the dollar. As of May 24, the exchange rate was GHC11 to $1. A drop from GHC15 to $1 at the beginning of the year.
He attributed the current appreciation in the value cedi against major foreign currencies largely to reduction in expenditure by the government.
He said unlike the New Patriotic Party (NPP) administration which engaged in excessive spending, the National Democratic Congress government has cut down expenditure in five months by GHC10 billion compared to 2024.
“If you look at what the economy has been through in the last 3 years, the excess injection of liquidity into the economy through high expenditure. We have seen this government do within five months what we have been calling for since COVID-19 (2020-2025). Since COVID, we’ve been saying that we need to cut wasteful spending, so that we choose a gradual fiscal consolidation that will be less painful, we didn’t do that.”
The Professor of Finance further noted that, “to make matters worse, in 2022, the Bank of Ghana moved in strongly with excess liquidity that created inflationary pressures that pushed over 800,000 into poverty. Then in 2024, you realised that the IMF programme, we missed all the targets, with the exception of GDP growth that was higher than programmed and international reserves. When it comes to the main anchor for fiscal consolidation, we missed it.
He pointed out that, “We were supposed to do 0.5% of GDP on primary surplus, but we did a negative of more than 3%. So, they have used the 2025 budget to more or less correct some of these imbalances. to the extent that they have had to restore the IMF programme back on track by moving from a negative surplus of more that 3% of GDP to a primary balance-positive of 1.5% of GDP.
What that means is that we’ve done this but there is a tradeoff- growth projection was lower than the fiscal outturn in 2024. So, to a large extent government is not spending as we have seen in the last couple of years. In nominal terms, we shrunk expenditure by GHC10 billion compared to 2024. So, in a lay man’s terms, the economy was overheating, they had to cool it down.”
However, Prof Bokpin noted that, “You cannot continue to subdue expenditure because you have to begin to roll out your policies and as you launch those policies, you now have to back it with cashflow by spending. And as government begins to spend optimally and the whole economy triggers in, we will see actually the forces of demand and supply now determining where it should be.
In line with this, he expected Bank of Ghana’s Monetary Committee (MPC) to reduce the policy rate from the current 28% during its recent meeting.
“I was expecting that the Monetary Policy Committee will cut the policy rate in line with what we are seeing. It looks to me that they are adopting the cautionary approach. That’s let’s be very careful. It’s better we watch the data a little bit before we cut the rate. Look at it that in the market, all the variables do not align. That should tell you that there is more work that we have to do to sustain this going forward,” he said.
Responding to a question whether the appreciation of the value of the cedi is not too sudden, he said, “I will say the answer is yes. If the strengthening is as a result of general improvement in the economy, you are likely to see gradual strengthening of the cedi. In the short term, the optics are good because inflation is likely to trend downwards. Actually, the President was right when he said by 1st quarter 2026, inflation will come down to single digit. That is largely consistent with projections.”
Read also: Rise of the cedi: NPP administration can take some credit – Bokpin
