Our policy makers have consistently failed to take measures to buttress cedi – IEA

Source The Ghana Report

The Institute of Economic Affairs has blamed the economic managers for failing to address the cedi problem head on.

According to the IEA, policy makers have consistently failed to take the requisite measures to buttress the cedi.

In a statement, it said they wait till the situation begins to get out of control before they adopt firefighting, albeit unsustainable, measures

“The question being asked by most people is: what is the solution to the evolving cedi crisis and how do we prevent similar future episodes? To lay economists, the solution may seem monumental—or that is what our economic managers would want us to believe. However, to some of us who are lucky to be more tutored in the subject, we do not see the solution to be rocket science”.

“The problem is that our policy makers 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 pointed out.

For instance, the IEA said “Presently, we seem to be waiting for the IMF’s [International Monetary Fund’s] and other developing partners’ funding before restoring some stability to the cedi. This approach, however, is not sustainable, as history has taught us. We have been to the IMF seven-teen times, but that has not brought any lasting stability to the cedi.

In response to public outcry, the IEA has spelt out in the press release some of the practical measures it believes can be taken to stabilise the cedi on a lasting basis.

 Measures to Address Cedi Depreciation

The IEA stated that measures to address the incessant depreciation must aim at dealing with the underlying determinants of foreign exchange demand and supply.

The measures, it added, must also have timelines, which “we have conveniently categorised into the fire-fighting, short-term, medium-term and long-term phases. The measures for these phases are not necessarily to be undertaken sequentially. Indeed, many of them are required to begin today and to run simultaneously in order to achieve maximum impact”.

aAcceleration of External Debt Restructuring

The first measure the IEA stated is for the government to immediately engage with both the IMF and the external creditors to reach an early agreement on the external debt restructuring exercise.

This, it believes would allow the IMF to release the third tranche of $300 million under the Economic Credit Facility programme. The IMF release, in turn, would unlock funds from other development partners, such as the World Bank, African Development Bank and bilateral creditors. Those funds would boost Bank of Ghana’s reserves, allowing it to provide higher liquidity to the FX market to calm the current panicky and speculative situation.

b. Enforcement of FX Market Regulations

The second option the IEA indicated is for BoG to step up the enforcement of FX market regulations.

According to the institute, this is done everywhere.

“The regulations include: FX carry-on limits for travellers; supportive documentations for FX purchases and outward transfers; non-pricing of goods and services in FX; non-payment of FX to Ghanaians for their services; and trading in FX. Enforcing these regulations would general limit FX demand. We would, however, caution BoG to proceed cautiously and, in particular, operate secretly so as to not give a sense of desperation on its part as this could lead to increased speculative demand for FX, while also driving FX activities underground”.

c. Checks on Illegal FX Dealings

The third option is for the Bank of Ghana to use its Economic Intelligence Unit, working together with the security agencies, to monitor acts of illegal FX transfers through banks, forex bureaux and other channels as well as money laundering to reduce the demand for FX.

Checking these illegal FX dealings, it stressed, would help stem the tide of FX demand.

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