The Bank of Ghana has given strong indication that the recently approved $750 million Afriexim loan facility by Parliament once disbursed, among other measures, will boost the foreign exchange position of the country and help restore confidence in the cedi.
The additional measures include the cocoa syndication loan which is expected in the last quarter of 2022 and expected to provide more foreign currency to help address the cedi depreciation, the Gold Purchase Programme to increase foreign exchange reserves and the Special Foreign Exchange Auction for the Bulk Distribution Company’s (BDCs) to help with the importation of petroleum products.
The rest are a cooperation agreement with the mining companies to provide the Central Bank with the opportunity to buy gold as when it becomes available and foreign currency liquidity support to the banking sector to help meet demand for external payments.
In the short term, the Central Bank said “we expect that when the International Monetary Fund programme is finaliSed, it will also go a long way to help restore confidence in the economy and drive portfolio flows.
“These measures will go a long way to increase the foreign exchange reserve position of the Central Bank”, it added.
Reasons for depreciation of the currency so far in 2022
The Bank of Ghana attributed it to the strength of the US dollar, adding, the US dollar has become stronger and making other currencies including the Ghana cedi weaker.
It added that from the beginning of the year to date, the pound sterling has weakened against the US dollar by 10.8%, while the Euro has also weakened by 10.1%.
Secondly, it pointed out that the investor reaction to Credit Rating Downgrade has affected the cedi.
“When they decide to leave, the Central Bank has to provide dollars for them to exit the bond market and this exerts enormous pressure on reserves, causing the cedi to depreciate”.
Again, the Central Bank attributed the depreciating cedi to the non-roll over of maturing bonds
It said these bonds are held in local currencies and a decision by the non-residents not to roll over results in the Central Bank providing for dollars to help externalize these funds, a situation which puts pressure on the currency.
Historically, non-resident rollover of maturing bonds, held by non-residents have been in excess of 80%, but the figure this year is much lower. This has added another layer of demand pressure from non-residents and hence causing the cedi to depreciate.
Furthermore, it said the sharp rise in crude oil prices and impact on the oil bill also have an impact on the cedi.
“International price of crude oil has risen significantly in the year. What this means is that our crude oil and petroleum product bill has gone up significantly. The import bill for oil and oil products has led to a reduction in trade surplus”.
It added, the Central Bank, is providing more dollars for the country’s oil import bill and this has had an adverse impact on the its reserves.
Finally, it mentioned the loss of external financing, saying “with ratings agency downgrade, Ghana was not able to tap the Eurobond market. Over the past three years, Ghana has consistently raised $3 billion from the Eurobond market to help finance the budget. Loss of market access this year implies that no new fresh injection of capital and this has created a huge FX [foreign exchange] supply problem and constrained the ability of the Central Bank to provide for greater support for the currency.”
It added that the intervention data shows that the Bank of Ghana’s presence in the market this year so far has been lower compared to 2021.
The cedi has so far this year lost about 29% value to the US dollar.
It is presently selling at ¢9.70 to the dollar on the retail market.