Ghana Cedi Falls Second Month as Growth Spurs Dollar Demand

Updated on
  • Cedi heading for lowest against U.S. currency since February
  • Volatile exchange rate seen as risk to debt repayments

Ghana’s cedi is heading for a second straight month of losses against the dollar as an acceleration in economic growth boosts demand for dollars to pay for imports.

The currency of the world’s second-biggest cocoa producer weakened 3 percent in June after sliding 0.7 percent in May, the first instance of back-to-back monthly losses since November. The cedi fell 1 percent to 3.9550 per dollar by 11:55 a.m. on Thursday in Accra, the weakest level on a closing basis since Feb. 23.

Economic growth in Ghana quickened to 4.9 percent in the first quarter from 4.1 percent in the previous three months as farming output and telecommunication services expanded, according to the statistics agency. The government expects gross domestic product to increase by 5.4 percent this year after growth slowed to a two-decade low of 3.9 percent in 2015.

“Where economic activity is growing, then you’d expect imports to rise,” Gaimin Nonyane, a London-based macro-economic analyst at Ecobank Transnational Inc., said by phone on Wednesday. “As imports rise it puts down a little pressure on the currency.”

The cedi is weakening as Ghana seeks to rein in public debt, which measured 71 percent of gross domestic product in 2015. The West African nation agreed to an International Monetary Fund program of almost $1 billion in April 2015 as cocoa output declined and prices of commodities including oil fell.

Foreign Reserves

The government will prudently manage foreign exchange reserves to keep the cedi stable even though some factors such as weaker commodity prices are outside of its control, Finance Minister Seth Terkper said June 28.

A weaker cedi will undermine Ghana’s efforts to consolidate debt, Rick Harrell,  a sovereign analyst at Boston-based Loomis Sayles & Co., which oversees $229 billion of assets, said in an e-mailed response to questions on June 29.

“They’re extremely vulnerable to the exchange rate,” Harrell said. “The cedi is key to determining the sustainability of Ghana’s debt.”

The currency may weaken to 4.2 per dollar by the end of the year as spending by the government before elections, which is scheduled for as early as November spurs demand, Nonyane said. Though Ghana is to gain from rising gold prices this year, being Africa’s second-largest exporter of the metal, the impact of that is being muted by “high” government spending, she said.

“They are trying to reduce spending but it still remains high so the foreign exchange receipts going to the economy is being absorbed by corporates and the government,” Nonyane said.