To the ordinary Ghanaian on the street, terms like “hight interest rate,” “depreciation of the cedi,” “fiscal deficit,” and “forex” sound meaningless and leave them at sea.
What matters to them is being able to pay for rent and school fees, goods and services, and even to invest something with their meager income. Nothing else! But whether they understand the meanings of these terms or not, they are feeling the impact of them in their daily lives.
For the last two weeks, these words have pervaded Ghanaian media, and they’ve brought Ghana into the international spotlight, as well. Why? Because the situation is reaching crisis level. The cedi continues its free fall in value against the dollar, deficits continue to widen, and prices are skyrocketing.
Translation for the ordinary Ghanaian on the street: They may now have to dig deeper into their pockets to shop for their daily necessities. And in a country where about 70 percent of daily household essentials are imported, they may be in for a rough economic ride that will demand tough choices from the government. We’re already seeing spikes in the cost of daily imported essentials like petroleum products, groceries, toiletries, drinking water, and even utilities that are dollar-indexed.
The Bank of Ghana, analysts believe, has few choices.
Effective January 27, 2014, the country’s Minister of Transport has approved a 20 percent increase in transportation fares, following on the heels of an increase in fuel prices. And the most basic of all commodities — the most popular sachet water — rose by a staggering 50 percent on February 7, 2014, sending the cost from 10 to now 15 pesewas!
Value Added Tax was increased from 12.5 percent to 15 percent in January 2014. And that is far from the end. The Finance Minister announced in the 2014 Budget to Parliament that the government is considering placing a moratorium on increases in public sector salaries next year. This would mean a freezing of any planned increases in salaries for public sector workers.
The cedi’s free fall has reached a point where well-known pastors, like Archbishop Nicholas Duncan-Williams, are expressing their dismay as only they can, looking to God for salvation with their prayers “I hold up the cedi with prayer,” he said, “and I command the cedi to recover, and I declare the cedi will not fall; it will not fall any further. I command the cedi to climb. I command the resurrection of the cedi. I command and release a miracle for the economy.”
According to Bloomberg, Ghana’s cedi weakened to a record level as the Bank of Ghana imposed limits on foreign-exchange transactions and ordered sales and purchases be done in the local currency.
The cedi’s drop pushed inflation to a year-high in December, as companies sought dollars to pay for imports. On February 6, 2014, the Bank of Ghana increased policy rate from 16 to 18 percent, up 200 basis points.
So the question is Why? Why are we seeing such a precipitous fall in the country’s currency?
The short answer is energy. More specifically, the cost of energy. Ghana’s economy continues to experience fiscal pressures, exchange rate depreciation, and cost-push effects from higher petroleum and utility prices.
The longer answer is, in addition to the persistent energy crisis, low internally generated funds, poor divestiture implementation, high taxes, and over-importation.
And then there is the Central Bank’s answer. It cites developments in the advanced countries, especially the U.S., as causing foreign exchange market pressures in emerging market economies. Their opinion is supported in part by Ghana not being the only emerging economy experiencing a falling currency value against the major trading currencies in the world. A daily chart at The Economist website mentions Argentina, India, Turkey, South Africa, and Ukraine, among others, as other countries seeing a steep decline in the value of their currencies. Most of these countries have shed between 10 and 20 percent of their value since May 2013!
All of these explanations and terms are well and good in their own rite. Ultimately, however, the ordinary Ghanaian on the street doesn’t care about the Why nearly as much as the When…When are things going to turn around and their lives get better? And unfortunately, that question is even harder to answer.