Ghana’s economy: A cabinet full of bitter pills

There was clear relief when the Ghanaian currency, the cedi, eventually stopped its alarming slide in September but few are convinced that the economy, which has been limping badly, is on the mend. The re-entry of the IMF in the country’s policy space has also reawakened fears of the disastrous structural adjustment plans of decades ago. This is not an easy time for President John Mahama’s administration, writes Eric Kwame from Accra.

Against the backdrop of a ballooning import bill, a shortfall in the supply of the US dollar and a generally haemorrhaging economy, even the most optimistic observer of Ghana’s economy would have exercised a high level of caution in predicting a comeback of the world’s worst-performing currency, the Ghanaian cedi. But whether through a stroke of luck or prudent economic policies, pessimists are being proved wrong and Ghana’s President, John Dramani Mahama, has found a reason to smile – the cedi is on a rebound! Returning from a recent trip abroad, he cautioned that the Ghanaian economy was “not out of the woods yet” but he looked a very relieved man.

After nearly a year of continuous slide, the local currency, the cedi, finally found some brakes to slow down the downhill plunge.

 President John Dramani Mahama returning from a recent trip abroad, cautioned that the Ghanaian economy was “not out of the woods yet” but he looked a very relieved man

A quick recap of events will show that the cedi traded at 2.34 against the US dollar in January 2014, and as of Friday 1^st August it stood at 3.035 to the US dollar, reflecting a cumulative depreciation of 22.9% over the period, according to figures from the Bank of Ghana. International media platform, the Financial Times, however, thought the figure was actually 40%, citing IMF sources. But in a strong show of character, the local currency has, since 24^th August fought back from a high of 3.90 to the US dollar, to its current rate of 3.13 to the US dollar.

Derided by critics as the worst performing currency in the world, the cedi has been the most visible indicator of how bad things have been for the country once considered Africa’s economic star. So one may be tempted to forgive pro-government spokespersons for rejoicing at the change in the narrative.

Many are not so sanguine, however. Sydney Casely-Hayford, a financial analyst, for example, has warned that the cedi’s rise may be artificial and not indicative of the turnaround that is being desperately sought.

He argues that the rise could be due to the $1bn Eurobond that the country issued in September as well as the $1.7bn syndicated cocoa loan. Casely-Hayford’s point may be valid in some ways. But ultimately, government’s ability to sustain this recent strong performance of the cedi will determine whether the currency’s rise is artificial or not.

There are other factors as well. The Eurobond itself was delayed twice this year, on account of conditions “not being right”. Those conditions improved following a confidence-boosting intervention from the IMF, to whom the government finally appealed for assistance after months of prevarication. In the wake of the announcement, the markets had kinder words to say about the Ghanaian economy than they had had for months, resulting in a more positive response to the bond issue.

Discussions with the IMF have themselves exposed the deep challenges that the economy faces. After the first round of discussions were concluded in Accra in late September, both sides spoke of frank and open discussions that had been generally fruitful.