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Over-dependence on imports and low local content affecting exchange rate – Prof Bokpin

A finance and economics professor at the University of Ghana, Professor Godfred Bokpin, has expressed concerns about the country’s heavy reliance on imports and the resulting impacts on households and businesses.

According to Bokpin, over-dependence on imports and a lack of local content in the economy have significant consequences for the exchange rate, affecting both consumers and businesses.

The professor noted that there are currently no adequate measures in place to tackle these problems, emphasising the importance of addressing these challenges to strengthen the economy and protect citizens from its negative consequences.

Speaking on JoyNews’ Newsfile, he stated that “elsewhere, in some jurisdictions, the pass-through of the exchange rate deprecation takes some lag, but because of over-dependence on imports and the low local content in our economy, the exchange rate has almost immediate effect or impact on households and businesses, and there is practically no shield and no mitigation measures, and therefore we are just exposed in the manner that it happens.”.

When asked by host Samson Lardy Anyenini about the government’s previous efforts to stabilise the currency, Professor Godfred Bokpin stated, “I do not disagree with that largely, but Samson that will be for how long? And within those periods you will notice that part of our foreign exchange management has been going to the international capital market to take dollars from Eurobonds, and then we also support that with the syndicated cocoa loan.

“These are the two major inflows and some relative fiscal discipline, but Samson as we speak these two major inflows are at risk. We have lost market access”.

Professor Bokpin stated that the country’s dependence on the Eurobond market and syndicated cocoa loans has been shoring up international reserves since 2007.

According to him, Ghana has been issuing around $2.5 to $3 billion in Eurobonds annually and obtaining cocoa loans.

However, Bokpin noted that Ghana lost market access in the third quarter of 2021.

“From the third quarter of 2021, we lost market access. Also look at the other major inflows, cocoa. Ghana is doing poorly now in cocoa productions. So, I mean, all of this put together actually undermine confidence in the economy, and you see that also manifesting in the negative sentiment that we see.”

Cedi can only stabilse temporarily but will keep on depreciating – Prof Bokpin

In a previous interview on the Joy Super Morning Show, Prof Bokpin noted the cedi can only be stabilised temporarily but continue slipping as has been the trajectory since its introduction in 1965.

He attributed this trend to the lack of a robust macroeconomic policy support for the cedi.

“If we do everything right we will still expect that the cedi will depreciate by a certain margin given the relative strength of the economy.

“It’s a shame that we haven’t been able to provide the cedi with the necessary support through sound macroeconomics policy making, including responsible fiscal management and prudent monetary policy.

“As a result, we’ve denied the cedi some basic rights and then expect it to perform magic, when in reality, the cedi’s behaviour is a reflection of weak underlying fundamentals”explained.

The Cedi currently

As of today, May 18, one US dollar averages GH¢14.9 according to Joy Business.

Analysts are envisaging a continuous weakening trajectory of the local currency as foreign exchange demand-supply disparity remains substantial.

They, however, anticipate improved liquidity conditions towards the end of quarter two of 2024 after the International Monetary Fund (IMF) board approves the second review of Ghana’s programme. This will lead to a tranche disbursement of US$360 million under the IMF programme.

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