Cedi's First Quarter Outlook Largely Remains A Black Swan, Gold -for - Oil Program Not Capable Of Addressing Ghana's Depreciation Issues - Analyst

The main proponents of the Gold-for-Oil program said the program will help address the country’s exchange rate problems; however, with the second consignment arriving last week, the cedi continues to depreciate against major trading currencies. It is against this background that a Financial Analyst and Forex Market Expert, Gifty Annor-Sika, opined that the program though beneficial to some extent, is incapable of addressing the country’s depreciation woes.

In an interview with the Vaultz News, Ms Annor-Sika, thus, predicted that the local currency’s outlook in the first quarter of 2023 remains a black swan event despite the much touted Gold-for-Oil Program.

“Though I’m skeptical about the Gold-for-Oil Program, it will help but it’s just a drop in the ocean. I’m not sure how thoroughly the program was studied and its execution. A good programme executed in desperate times and in a hush way has rippling effects. So, I don’t think it’s capable of addressing the country’s depreciation issues.

“At the other side of the spectrum, the Ghanaian Cedi is expected to underperform its historical returns (i.e. depreciate at a faster pace). Having said that, the cedi’s first quarter outlook largely remains a black swan event.”

Gifty Annor-Sika

According to the analyst who is also the financial advisor to Geldex Invest, she attributes the gloomy outlook of the cedi to political, fiscal, and external vulnerabilities.

“We are facing a systematic breakdown of the cedi that needs perennial solutions and not just jittery maneuvers and interim fixes. Else, we are in for the long haul. We should be looking at the core policies that will totally change the scope of the economy.”

Gifty Annor-Sika

In view of the foregoing, Ms Gifty Annor-Sika noted that the business community and general public should be prepared for further depreciation of the cedi with inflation remaining elevated despite a marginal improvement in January.

The Performance of the Cedi

Meanwhile, the cedi weakened against the dollar, trading at GH¢12.76 from GH¢12.38 at last week’s close of market as Fitch Ratings cut Ghana’s foreign currency credit rating to ‘restricted default’ after the country missed a $40.6m coupon payment on one of its outstanding Eurobonds.

The downgrade aligns with Fitch’s local currency rating, which was cut earlier this month. The foreign debt default was largely expected after Ghana said it would suspend payments on certain bonds as part of its restructuring plan to unlock $3bn in emergency funding from the IMF.

3D illustration of Ghana 200 Cedis bills

According to the Summary of Economic and Financial Data from the Bank of Ghana, the cedi sold at GH¢10.60 to one US dollar in January 2023 on the interbank market, compared with ¢8.57 in December, 2022.

The central bank, however, pegged the cedi depreciation to the American greenback in 2022 to 30 per cent. For the pound and the euro, the local currency lost 21.4 per cent and 20.7 per cent in value respectively in January 2023.

The local currency came under severe pressure to the American greenback at the beginning of the year in January 2023 after recording some sustained stability in the greater part of December 2022. This was after Ghana reached a Staff-Level Agreement with the International Monetary Fund.

By this depreciation, the cedi follows its trend to become the second weakest currency among 15 top currencies in Sub-Saharan Africa in January 2023. It is still currently in that position.

Given this, Ms Annor-Sika explained that the artificial gap that was created towards the end of last year, 2022 is closing rapidly. “The cedi has consolidated for a month since January till now on the global market. After every consolidation, there is a strong move”.

In the intervening time, the analyst implored the government to put in place excellent policy structures, reduce excessive expenditures and borrowings, in order not to worsen the condition of an already ailing economy which she described as “a sinking ship fleeing the rats”.