Vice President Dr Mahamudu Bawumia says the sharp depreciation of the Ghana cedi can be blamed on restrictions by the International Monetary Fund (IMF) for the Bank of Ghana to build its foreign reserves to about $800 million.

Speaking at the Maiden Town Hall Meeting, Head of the Economic Management Team, Dr Mahamudu Bawumia said the situation has affected the supply of the dollar to businesses and the trading public between February and March this year.

Dr Bawumia said “the most important and the proximate cause of the recent depreciation is the time inconsistency of an IMF prior action of the reserve target. At the end of January, as part of the seven prior action to complete the IMF program which went to the Board on March 20, 2019 the Bank of Ghana was required to ensure net international reserves (NIR) target on March 14, 2019 are the same levels as it was at the end of December 2018.”

He said, contrary to some speculation, the Bank of Ghana did not spend any reserves to revive the following the initial depreciation. Some people have misunderstood the requirement by the IMF for the Bank of Ghana to build up its reserves by some $800 million to mean that the Bank of Ghana used that money to reverse the depreciation of the cedi.
“The reason for the sudden reversal in the sharp depreciation that we observed was that the market corrected itself. Investor sentiments, expectations and uncertainty acknowledged that the fundamentals are much stronger than suspected and that even without IMF the fiscal and monetary disciple are assured.”

Dr Bawumia added, “To meet the IMF program prior action, the Bank of Ghana had to rather build up reserves in a period of extreme demand pressures by some $800 million, and had no room to intervene in the foreign exchange market in line with approved intervention policy. This partly explains why Ghana came under significant pressure during this period which was exacerbated by speculation.”

President Akufo-Addo had earlier expressed worry at the depreciating cedi but assured that all efforts are being made to arrest the decline and restore it to stability, in order to improve the competitiveness of Ghanaian industry.

Speaking at the commissioning of the Fujian Sentuo Ceramics Company at Kpone in Accra, Wednesday, February 27, President Akufo-Addo said he feels “…extremely upset and anxious about it [depreciation of the cedi] too..”

Bipartisan Committee

Finance Minister Ken Ofori-Atta told Parliament the government is to set up a bipartisan committee to investigate the depreciation of the Ghana cedi in recent times.

Mr Ofori-Atta, addressing Parliament last Thursday, said “Mr Speaker, the President has directed that I investigate the structural causes for the depreciation of the cedi and to propose measures to address the situation. The Governor and I will put a bipartisan committee together to proceed immediately.”

He was in parliament to make a statement on Ghana’s exit of a three-year IMF bail-out programme, the Eurobond success as well as the depreciation of the Ghana cedi.

Mr Ofori-Atta said the recent depreciation of the Ghana cedi was not as a result of weak economic fundamentals, an argument supported by Professor of Economics at the University of Ghana, Eric Osei Assibey.

Trading 1 cedis for $4.9 on January 27, 2019, the dollar hit 5.6 to a cedi by March 17, 2019, triggering widespread panic by businesses.

The Ghana cedi was trading at GH¢5.35 Wednesday morning against the US dollar.