Ghanaian economist Dr. Ishmael Yamson has proposed a new approach to address the cedi’s depreciation – a focus on government spending cuts. He disagrees that debt restructuring alone will solve the currency’s struggles.
Prioritizing Expenditure Reduction:
- Dr. Yamson believes that demonstrating a commitment to reduced spending will send a “signalling effect” to investors, boosting confidence in the government’s ability to manage the economy and debt.
- He emphasizes the need for “verifiable measures” to cut expenditures, specifically targeting the amount of new borrowing required.
Concerns Over Short-Term Borrowing:
- Dr. Yamson expresses apprehension regarding the government’s reliance on short-term borrowing through treasury bills. He warns that this strategy could negatively impact both the cedi’s value and the overall debt situation.
The Cedi’s Performance:
- Despite efforts to restructure Ghana’s external debt, the cedi continues to depreciate against major currencies.
- As of July 19th, 2024, the cedi traded at:
- ¢15.56 to the US dollar
- ¢20.23 to the British pound
- ¢17.02 to the Euro
Impact of Exports:
- Dr. Yamson highlights the importance of the cocoa sector for bolstering the cedi. He’s concerned about the recent decline in cocoa production, fearing its negative effect on Ghana’s export earnings.
- “With Ghana shut out of the Eurobond market,” Dr. Yamson stresses, “export proceeds are crucial for improving our international reserves.”
Election Year Spending Concerns:
- Dr. Yamson expresses doubt about the government’s ability to maintain fiscal discipline in an election year, despite commitments made under the International Monetary Fund program.
- He cites historical examples where past governments failed to uphold promises of responsible spending during election cycles.
Dr. Yamson’s suggestions offer a unique perspective on tackling the cedi’s depreciation. Time will tell if the government prioritizes expenditure cuts alongside debt restructuring efforts.
