An economist, Dr Josh Bamfo, has revealed that some $750 million loan from the Afrexim Bank received by government will have a signalling effect on the economy.

According to him, agents and speculators within the markets who initially had dollars and held on to them “until the cedi continues to depreciate” in a bid to maximize and sell it only when the price has hit its peak will have a rethink on their decision. He indicated that the injection of the Afrexim loan into the economy could possibly be the reason for the slight appreciation of the cedi.

“Apart from the fact that we have the Afrexim loan of $750 million hitting the account of BoG, you need to also bear in mind the importance of signalling effects when it comes to speculators. You know, whenever there’s a shortage, what happens is that it’s a self-fulfilling prophecy. Agents within that market also feed into it.”
Dr Josh Bamfo

Dr Bamfo noted that agents will less likely “hoard the USD” as they are aware that government has received the $750 million loan. He indicated that other reasons such as the realization that in the last quarter of this year, government is going to have the syndicated cocoa loan of about $1 billion being injected into the market, coupled with the likelihood it might get another $1 billion in the next quarter of 2023, via IMF programme as a potential first tranche of loans will inform their decision to let go of the dollars.

He highlighted that speculators are going to react quickly by trying to sell off and inject more USDs into the market and that will lead to a further appreciation of the Ghana cedi against the US dollar and other hard currencies.

“So, apart from the funds being available now to meet the excess demand, it’s also going to have some signalling effect for speculators and that will reinforce the appreciation of the cedi in the short to medium term.”
Dr Josh Bamfo

Restructuring the economy

Dr Bamfo expressed the need for government to “restructure the economy” so that it can become more export oriented. This, he explained, will avert the problem of the cedi depreciation from recurring.

The economist emphasized that Ghana cannot be dependent on dollars to solve the problems it is encountering as it is a short term remedy. He urged government to be export oriented and engage in more import substitution to have a sustained solution to the problems.

“In the interim, I think that government is doing the best they can do under the circumstances because until they get access to the international market, they didn’t have full control of accessibility to USD in the short term. Luckily for them, they’ve gotten Afrexim loan, the cocoa syndicated loan is going to come in and you’re going to have the IMF programme. My expectation is that all this is going to build confidence in the economy, especially in the investment market.”
Dr Josh Bamfo

Dr Bamfo expressed optimism that next year, the depreciation will stabilize with inflation coming down and Ghana experiencing an upgrade of “our sovereign credit ratings”. He noted that if that happens, government can always fall back in terms of borrowing from the investment community when it comes to the international market.

“All these are short term remedies. I can expect the economy on a path of stabilization, but we need to go back to our growth strategy of industrialization and export orientation. That is the only way we can have a sustained stabilization of the economy…”
Dr Josh Bamfo