Ghana’s Currency Controls Can’t Stop Cedi Falling 19th Year

Measures planned by the Bank of Ghana to control lenders’ foreign-exchange trading may not halt a slide in the cedi as it heads for a 19th straight annual depreciation against the dollar, Standard Bank Group Ltd. said.

Budget and current-account deficits in the West African nation, which has the region’s second-largest economy, will determine the cedi’s rate more than the central bank’s plan to introduce new trading rules and direct lenders to report prices on a common platform, Samir Gadio, an emerging-markets strategist at Standard Bank’s London unit, said in an e-mailed response to questions on Dec. 17.

“The root cause remains the sizable fiscal deficit, which adds to aggregate demand and external imbalances,” he said. “There’s a need for further fiscal consolidation and measures to slow economic growth if one wants to reduce the pace of depreciation of the cedi.”

The currency of the world’s second-biggest cocoa producer plummeted 19 percent this year against the dollar, driving up inflation as Ghana missed a target to reduce the budget deficit to 9 percent of gross domestic product. The cedi’s decline is the worst among 22 African currencies tracked by Bloomberg after the Malawian kwacha and Sudan’s pound.

The cedi has depreciated every year since at least 1995, according to Bloomberg, which began compiling the data in May 1994. It retreated 5.1 percent to 2.36 per dollar by 12:08 p.m. in Accra.

Rating Cut

Ghana’s fiscal deficit is now forecast to be 10.2 percent of GDP this year before narrowing to 8.5 percent in 2014, Finance Minister Seth Terkper said on Nov. 19. The International Monetary Fund projects a deficit in the current account, the broadest measure of trade in goods and services, of 11.9 percent of GDP this year and 9.1 percent in 2014.

“The pace of fiscal consolidation over the next two years will be slower than the government projects,” Fitch Ratings said on Nov. 25. The agency lowered Ghana’s creditworthiness one step to B, five levels below investment grade, on Oct. 17. Standard and Poor’s changed Ghana’s outlook to negative from stable on Dec. 6.

The cedi may drop to 2.78 per dollar by the end of 2014, Angus Downie, the London-based head of economic research at Ecobank Transnational Inc., said in an e-mail Dec. 17. That’s even as Ghana’s oil output is projected to reach 120,000 barrels a day next year at the Jubilee field, its main crude-exporting site, from the January to September daily average of 102,503 barrels, according to the Finance Ministry.

Moribund Market

When the Bank of Ghana gives details on the reforms next year, Downie said he expects enforcement of stricter rules on currency sales from banks to foreign-exchange bureaus as in Nigeria and a tightening of conditions for lenders to access the central bank’s overnight lending facility.

The changes may also seek to unify the various foreign-exchange rates in the market, Gadio said. Quoted rates often vary between commercial lenders, foreign-exchange bureaus, hotels and the central bank. Adams Nyinaku, head of Treasury at the Bank of Ghana, didn’t immediately respond to phone calls seeking comment on Dec. 19.

The cedi slumped as trading of foreign currency among banks retreated an annual 17 percent in the second quarter of 2013, the lowest since the third quarter of 2010, according to calculations made using Bank of Ghana data. The changes will probably do little to revive the moribund interbank market as the central bank seeks to shore up reserves, Downie said. Gross reserves were $5.6 billion in November, or enough to pay for 2.9 months of imports, compared with three months at the end of December, the central bank said Nov. 27.

“The revival of a liquid and robust interbank currency market requires sufficient foreign currency to be traded and made available to the market,” Downie said. “Given the likelihood that foreign reserves will remain relatively low, which will in effect ration foreign exchange to the market, the prospects of a revival of the interbank currency market are not good.”

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