Ghana’s President John Dramani Mahama and Finance Minister Seth Terkper
justified steps taken to restrict foreign-currency trading in the West
African nation, saying it will help strengthen confidence in the cedi.
Mahama
and Terkper, speaking to reporters in the capital, Accra, late
yesterday, said measures announced last week by the central bank to
limit dollar sales were necessary to address demand for the foreign
currency that far outstrips supply.
“No respectable government can have a situation like this continue,” Mahama said. “We need to build confidence in the cedi.”
The
Bank of Ghana last week raised its benchmark rate by 2 percentage
points to a four-year high of 18 percent and placed limits on dollar
withdrawals and transfers in a bid to stem a decline in the cedi. The
local currency has plunged 24 percent against the dollar in the past
year, the worst-performer of 24 African currencies tracked by Bloomberg
after Sudan’s pound.
“There is a huge demand for dollars in the
economy,” Mahama said. “The forex rules are meant to correct a lot of
laxity that existed before.”
Slumping Cedi
The cedi
has dropped 4.1 percent to a record low since Feb. 5, when the bank
announced the currency measures, making it the second-worst performer
among the more than 160 currencies tracked by Bloomberg during that
period. The currency was unchanged at 2.52 per dollar at 10:38 a.m. in
Accra.
Import costs may continue to rise, adding to pressure on
inflation, Terkper said. Demand for imports has soared since the world’s
second-largest producer of cocoa began exporting oil in 2010. Inflation
quickened
to 13.8 percent in January, the highest since it was rebased last year,
from 13.5 percent in December, the statistics agency said today. The
government cut fuel subsidies and raised tariffs on water and
electricity last year.
“There is a cost to every measure we implement,” Terkper said. “Inflation might rise but it will finally find its levels.”
The
currency has come under pressure as Ghana struggles to rein in a budget
deficit that reached 10.2 percent of gross domestic product last year
and curb a current-account shortfall of 12.3 percent of GDP. Fitch
Ratings downgraded Ghana’s debt by one level to B in October, while
Standard & Poor’s and Moody’s Investors Service in December cut
their outlook on the nation’s credit rating to negative.
Formal Banking
Bank of Ghana Governor Kofi Wampah
last week ordered cedis to be used for transactions domestically, and
prohibited offshore currency deals by resident Ghanaian companies.
People holding foreign-currency accounts now need to provide
documentation for transfers outside the West African nation, where
rents, real estate and major purchases such as cars are usually priced
in dollars.
The foreign currency rules will push more people
toward the formal banking sector, Gabriel Engmann, a currency trader at
Ghana Commercial Bank in Accra, said by phone.
“They are good in
a way, the other side is its implementation,” he said. “The banking
sector will now be lively, as the measures seek to direct all activities
through the banking sector.”
Investor confidence will recover as the measures take effect, Terkper said.
“We’re quite confident that we will be able to get out of this,” Terkper said. “We don’t see a major loss of confidence.”
To contact the reporter on this story: Pauline Bax in Accra at pbax@bloomberg.net
To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net
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