The World Bank’s October 2024 Africa Pulse Report has unveiled Ghana’s cedi as the fourth weakest currency in Sub-Saharan Africa (SSA) this year.

The report highlighted the cedi’s depreciation of about 24% against the US dollar, reflecting broader currency instability in the region. This places Ghana among the worst performers, alongside South Sudan, Ethiopia, and Nigeria, whose currencies have suffered significant devaluation.

This depreciation continues a concerning trend for Ghana’s currency, as it struggles to maintain value amidst rising demand for foreign exchange. The implications for Ghana’s economy are profound, highlighting ongoing issues around foreign exchange management and inflation.

According to the World Bank report, the cedi’s 24% depreciation ranks it behind only South Sudan’s pound, Ethiopia’s birr, and Nigeria’s naira. South Sudan’s pound is the worst-performing currency, having lost over 60% of its value, while the Ethiopian birr and Nigerian naira follow with losses of 51% and over 40%, respectively.

“By end-August 2024, the Ethiopian birr, Nigerian naira, and South Sudanese pound were among the worst performers in the region,” the report stated. These currency depreciations are largely due to a combination of economic mismanagement, political instability, and a persistent demand for foreign exchange.

The surge in demand for US dollars has exacerbated the situation, especially in countries like Nigeria, where the parallel market thrives due to limited official dollar supply.

“Surges in demand for US dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the central bank explain the weakening of the naira.”
World Bank

While some currencies, like the cedi, have continued to depreciate, the World Bank notes that others have stabilized or even appreciated. “The Kenyan shilling is the best-performing currency in Sub-Saharan Africa this year: it appreciated by 21 per cent year-to-date by end-August 2024,” the report revealed. The South African rand has also strengthened, gaining 3.1% after a period of weakness in 2023.

Impact of the Cedi’s Depreciation on Ghana’s Economy

The continued depreciation of the cedi poses significant challenges for Ghana’s economy. A weaker currency leads to higher import costs, contributing to rising inflation, which remains a major issue for the country. The cost of goods such as fuel, machinery, and essential imports has surged, placing an additional burden on businesses and households.

The World Bank report highlights that “Ethiopia, Ghana, and Nigeria are among the worst performing in Africa this year, and their currencies continue weakening while demand for foreign exchange remains pressing.”

This pressing demand for foreign currency not only affects large corporations but also small and medium-sized enterprises (SMEs) that rely on imported raw materials. The increased production costs for these businesses often translate into higher prices for consumers, thereby worsening inflationary pressures.

For Ghana, which has been dealing with persistent inflation, currency depreciation compounds the problem. Rising prices of goods and services are eroding purchasing power, making it difficult for many Ghanaians to afford basic necessities. Inflation has remained elevated, and with the cedi losing value, it’s likely to persist at high levels.

Moreover, the depreciation of the cedi has implications for Ghana’s foreign debt. The World Bank report suggests that “more than one-third of the countries in the region are set to have less than three months of imports in international reserves by end-2024.” With much of Ghana’s debt denominated in foreign currencies, particularly the US dollar, a weakened cedi makes debt servicing more expensive, further straining government finances.

Broader Implications for Sub-Saharan Africa

The World Bank report also presents a broader picture of currency instability across SSA. Many countries in the region face significant challenges in managing their foreign exchange reserves, which are essential for covering import needs and repaying foreign debts.

This issue is expected to persist, as more than one-third of the countries in SSA are projected to have less than three months of import cover in international reserves by the end of 2024.

“Exchange rate pressures and shortages of foreign exchange remain a concern for African policymakers,” the report cautions. Countries like Ghana, Nigeria, and Ethiopia are struggling to maintain adequate foreign reserves, which makes it harder to stabilize their currencies.

As foreign exchange becomes scarce, these countries are left vulnerable to external shocks, limiting their ability to manage inflation and fuel economic growth.

In the meantime, the economic outlook remains uncertain, with many SSA countries facing the dual pressures of exchange rate instability and foreign exchange shortages. Addressing these issues will be critical to fostering long-term economic stability and growth across the region.