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Ghana's cedi faces existential threat — IEA declares

The Institute of Economic Affairs (IEA) has voiced concerns about the persistent instability of Ghana's local currency.

Dr Mohammed Amin Adam Finance Minister

The IEA highlighted that the cedi has depreciated by 99.99% from 1983 to 2024, blaming successive economic managers for failing to address the issue effectively.

The IEA emphasized the lack of proactive measures by policymakers to strengthen the cedi, criticizing their reactive approach of waiting until the situation escalates before taking action.

In a press statement released on Monday, May 20, 2024, the IEA further expressed concerns about Ghana's reliance on the International Monetary Fund (IMF) and funding from development partners to stabilize the cedi, describing this approach as "unsustainable."

The IEA argued that Ghana's numerous engagements with the IMF have not resulted in lasting stability for the cedi.

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The IEA warned that the cedi is facing a significant threat and urged for immediate measures to mitigate this risk.

It said since the country adopted a flexible exchange rate regime in 1983, with the cedi pegged to the dollar at 2.75, the currency has generally declined, experiencing only brief periods of stability.

The statement noted that "since Ghana adopted a flexible exchange rate regime from 1983 when the cedi was pegged to the dollar at a rate of 2.75, the currency has continued on a declining path with only short intermittent periods of stability-to May 16, 2024, when the official rate is quoted as GH¢13.77=USD1.00 (or 137,700 old cedis=1 US dollar). On a cumulative basis, the cedi has depreciated by 99.99% from 1983 to 2024. It has to be noted that, mathematically, any quantity that depreciates (or devalues) by 100% falls to zero or virtually vanishes."

"…This tells us that the cedi is under an existential threat and requires urgent actions to rescue it from that threat. Unfortunately, over the years, our economic managers have failed to address the cedi problem head-on. The problem is that our policymakers have consistently failed to take the requisite measures to buttress the cedi. Almost invariably, they wait till the situation begins to get out of control before they adopt firefighting, albeit unsustainable, measures," it added.

Earlier, Dr. John Kwakye, Director of Research at IEA likened the management of Ghana's economy to the handling of English Premier League powerhouse Manchester United, citing both as being poorly managed, resulting in dismal performance.

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He contended that the economic managers of Ghana, akin to those of Manchester United, lack the insight needed to tackle their respective challenges.

He indicated that the managers of the economy are promising economic transformation, lean government, fiscal discipline, and natural resource ownership, among other things.

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