The Vice President, Dr Mahamudu Bawumia has explained what accounted for the sharp depreciation of the Cedi against the major trading currency.
Speaking at a TESCON forum on Thursday April 7, he said “We had so much stability in the exchange rate but in the first quarter of this year, 2022, we have seen the sharpest depreciation of the cedi since 2015. Data from the Bank of Ghana shows that at the end of March, the Cedi had depreciated by 15.5 per cent. So what explains this?
“Why did we see this? A number of factors can be adduced to explain what explain what happened. The financial market assessment of the 2022 budget unfortunately, generally, concluded that our projected 40 per cent increase in revenue which underpinned the 2022 budget , the Financial market assessed that it was not likely to materialized and therefore our deficit would increase. This was not helped by the chaotic battle in Parliament over the passage of the budget.
“This created uncertainties and signaled to the market that the government may not be able to get most of its programme passed in a tightly balanced Parliament. This further reinforced the lack of confidence by investors in the budget.
“Furthermore, delays in implementing major tax reforms such as the benchmark policy reversal , tax exemptions common platform property tax appeared to support the assessment of the market that the government would have difficulty in getting its programmes through Parliament
“To add to this negative market sentiment, there was a sovereign credit rating downgrade by Fitch and Moody’s, as a result of the concerns about fiscal and debt sustainability. If you are unable to pass your budget with the revenue measures in there, then your fiscal situation and debt will not get better, this was their assessment. This resulted in unwillingness of foreign investors to rollover their holdings of our domestics debt and they demanded foreign exchange to repatriate their investments.
“The lack of access to the sovereign bond market by emerging markets globally and Ghana’s announcement that it would not issue sovereign bond in 2022 also worried investors about the adequacy of our foreign exchange reserve.”