Renowned finance scholar, Professor Alex Annan Abakah, from Bentley University, has debunked widespread claims that the Russia-Ukraine war and the COVID-19 pandemic are the main contributors to the depreciation of the Ghana cedi.

Speaking at a policy dialogue organised by the Public Financial Management (PFM) Tax Africa Network in Accra, he emphasised that the cedi’s decline is largely attributed to deep-rooted structural weaknesses within Ghana's economy.

Prof Abakah’s research findings suggest that external factors, including the pandemic and the war in Ukraine, had a minimal effect on the cedi’s depreciation, with the COVID-19 pandemic contributing only 11%.

“Impact of Russia-Ukraine war on cedi depreciation is insignificant; Covid-19 contributed only 11% to the cedi’s depreciation,” he stated, challenging the common narrative surrounding these external events.

The study found that during the pandemic, Ghana’s currency exhibited relative resilience, with a moderate rate of depreciation compared to the severe post-pandemic decline.

Prof Abakah explained that this shift in the cedi’s value raises important questions about the internal factors at play.

“Ghana's weak economic fundamentals are the primary drivers of the cedi's depreciation,” he stressed.

Contrary to popular claims, the research found no significant impact of the Russia-Ukraine war on the cedi's depreciation. In fact, it pointed out that both the Russian ruble and the Ukrainian hryvnia appreciated against the cedi during this period.

“Even the currencies of Russia and Ukraine appreciated against the cedi during the war so there is no point blaming the two warring countries for the cedi's depreciation,” Prof Abakah remarked.

Cedi declines faster than other African currencies

The findings also revealed that the Ghanaian cedi depreciated at a rate far faster than that of other African currencies, with Ghana experiencing a decline five times greater than that of Kenya’s shilling.

The study further showed that post-COVID, the cedi depreciated by a staggering 104.69%, in stark contrast to Kenya’s 21.17%.

External shocks such as the COVID-19 pandemic, Prof Abakah noted, can affect economies worldwide; however, the severity of their impact is determined by the strength of a country’s economic fundamentals.

He went on to explain that Ghana’s economic framework, unfortunately, has proven inadequate, leaving the economy vulnerable to prolonged challenges.

Prof Abakah also cited Ghana’s fiscal imbalance as a key factor exacerbating the country’s economic difficulties, adding that in 2022, Ghana’s interest-to-revenue ratio stood at 47.27%, which is above pre-HIPC (Highly Indebted Poor Countries) levels “this means nearly half of the country's revenue is consumed by interest payments, limiting the resources available for vital investments in infrastructure and human capital”.

Restoring fiscal discipline will anchor cedi stability

To address the ongoing depreciation of the cedi, the professor proposed a comprehensive approach that focuses on restoring fiscal discipline.

He suggested introducing debt ceilings and ensuring that government spending aligns with revenue.

“There is the need for legislating fiscal discipline by introducing debt ceiling and ensuring that government spending aligns with revenue,” he advised.

In addition, he emphasised the need for long-term investments in infrastructure and human capital development, which are critical for generating future revenue and creating employment opportunities.

Prof Abakah also called for Ghana to leverage its abundant natural resources to foster industrialization and recommended implementing stronger foreign exchange regulations to stabilize the cedi, including controlling the repatriation of profits and dividends by foreign companies.

He emphasised that such measures would help reduce the pressure on the local currency.

A senior fellow at the Africa Centre for Economic Transformation, Prof. John Asafo Agyei, who shares Prof Abakah’s perspective, echoed the call for structural reforms.

He lamented that since Ghana’s independence, the country has continued to rely heavily on imports, making the economy vulnerable to external pressures.

“We are still relying on imports and it's made the economy very vulnerable. We are depending on others, and whenever there is a downturn, we suffer for it,” he noted.