Ghana Government curbing enthusiasm for the dollar amid black market boom fears

President John Dramani Mahama on Tuesday reiterated government’s plan to rescue the depreciating cedi and add value to the country’s commodities that are currently exported in their raw form. Mahama pointed to the global effects of the American Federal Reserve’s recovery on tapering that has led to currency reactions in emerging markets.

He stated that this economic situation, coupled with the demand for dollars in Ghana’s import-dependent economy, are reasons why the local currency has devalued so quickly over the last year. The President also said that he was not too keen on making the dollar the key currency for the economy.

The president went on to say, “We need to build confidence in the cedi as a currency… Because that’s our currency. There is also the laxity in our foreign exchange relations that makes it easy for people to speculate and move foreign currency around.” Furthermore, the forex regulations announced last week by the Bank of Ghana put limits on local financial institutions and foreign exchange bureaus that deal in foreign currency.

Black Market boom

Currently, there are no clear measures in place to counter economists and bankers’ fears that the regulations will encourage a black market boom. The reforms come at a time when the government has employed methods to address its fiscal problem. Right now, the country is struggling with a large budget deficit, provisionally standing at 10.2% of GDP in 2013, which was exasperated by the implementation of the Single Salary Spine Structure.

The removal of fuel subsidies and the increase in utility charges also had created adverse effects on the economy and therefore the pockets of Ghanaians. According to Finance minister Seth Terkper, the inflation rate, which stood at 13.5 percent year-on-year in December, could initially rise as an effect of the reforms but is expected to stabilize.

Public finance management, which also includes a freeze on new contracts and loans to address the general economic standing, is expected to be consolidated in the next three to four years. Mahama advised, “Reforms will yield dividends in the medium term, but certainly in the short term we need to continue to make these adjustments.” He also warned in an ominous manner, “And that is going to come with pain. No pain no gain.”

Source: The Africa Report