The Institute of Economic Affairs (IEA) has proposed several strategies to stabilize the depreciation of the Cedi.
They stressed the need for immediate and concurrent implementation to ensure maximum effectiveness.
In a press statement issued on Monday, May 20, the IEA disclosed the importance of addressing the fundamental factors affecting the demand and supply of foreign exchange (forex).
Key among the IEA’s recommendations is the initiation of discussions with the International Monetary Fund (IMF) and external creditors to expedite the process of external debt restructuring.
The IEA believes that accelerating this process would enable the IMF to disburse the third tranche under the Extended Credit Facility (ECF) programme.
This disbursement is seen as a critical step, as it would trigger the release of additional funds from other development partners, including the World Bank, the African Development Bank, and bilateral creditors.
According to the IEA, these funds are crucial for augmenting the reserves of the Bank of Ghana.
Increased reserves would allow the Bank to inject more liquidity into the forex market, which is essential for mitigating the current panic and speculative activities contributing to the Cedi’s depreciation.
The IEA noted that these measures must be implemented without delay, starting from Monday, May 20, to effectively stabilize the currency and restore confidence in the forex market.
“Measures to address the incessant depreciation must aim at dealing with the underlying determinants of FX demand and supply. The measures must also have timelines, which we have conveniently categorised into the fire-fighting, short-term, medium-term and long-term phases. The measures for these phases are not necessarily to be undertaken sequentially.
“Indeed, many of them are required to begin today and to run simultaneously in order to achieve maximum impact. We decided to include this phase to answer the question often put to us as to what we can do immediately to stop the “bleeding” of the cedi. Obviously, the options here are limited.
“The immediate option we can think of is for the Government to engage with both the IMF and the external creditors to reach an early agreement on the external debt restructuring exercise. This would allow the IMF to release the third tranche under the ECF program.
“The IMF release, in turn, would unlock funds from other development partners, such as the World Bank, African Development Bank and bilateral creditors. Those funds would boost BoG’s reserves, allowing it to provide higher liquidity to the FX market to calm the current panicky and speculative situation.”
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