The Bank of Ghana plans to review the string of foreign exchange controls it introduced in February in a bid to assess its impacts on the economy.
The Central Bank Governor, Dr Henry Kofi Wampah, who dropped the hint to the Graphic Business on the sidelines of the Monetary Policy news conference in Accra on April 2, said the review, which was expected in May, would thoroughly take into consideration the exchange control and other measures to assess their impacts.
“So far, our initial assessment is that it has helped to halt the fast rate at which the cedi was falling and has brought some stability in the exchange market”, he said.
It is not clear what the nature of the review will be although trade groups such as the Association of Ghana Industries (AGI), Ghana Union of Traders Association and the Ghana Real Estate Developers Association (GREDA), among many others, have vehemently described the BoG directive as unfavourable to their business.
“This review that we’ll be having in May is to enable us to improve the systems taking into consideration all the concerns that had been raised from various groups”, Mr Wampah said.
The Bank of Ghana in February imposed some foreign exchange restrictions in a bid to halt the depreciation of the cedi, resulting from chronic trade and current account imbalances.
The measures limited access to foreign exchange and restricted trade transactions to the cedi within the country that was until recently described as one of Africa’s top performing economies and most popular frontier markets.
The regulations are intended “to streamline the collection and repatriation of export proceeds to Ghana”, the bank said after publishing a series of notices in the media.
Cedi still nosediving
But in spite of the measures, the cedi had depreciated by 17.6 per cent against the United States Dollar for the first quarter of 2014, compared with 1.1 per cent in the corresponding period in 2013.
Meanwhile, the central bank governor explained that the phenomenon was due to the imbalances in the fiscal and external sectors, together with continued uncertainties in the external economic environment which had exerted significant pressure on the domestic currency in the first quarter.
But Dr Wampah said the impending review of the restrictions would enable the central bank to tighten the loopholes in the system or impose further measures to close the gaps.
Other emerging markets, including Turkey, India and South Africa, have been raising interest rates in a bid to halt declining currency values in the face of reductions to the US Federal Reserve stimulus programme.
But the Ghanaian currency has depreciated by more than 23 per cent over the past year – 17.6 per cent this year alone – for mostly homegrown reasons.
For instance, the government ran a budget deficit of 10.2 per cent of GDP in 2013, and may miss its pledge to reduce this to 8.5 per cent this year. The country is also importing far more than exporting and that is also putting a lot of pressure on the cedi as importers scramble for dollars to import. Until the directives were issued, companies including government agencies were quoting their prices in dollars to the neglect of the cedi. The situation brought about what many referred to as the “dollarisation of the cedi”.
Under the new regulations, foreign exchange account (FEA) and foreign currency account (FCA) holders are expected to provide documentation for transfers outside Ghana and will only be able to withdraw up to the equivalent of US$10,000 to travel abroad.
Offshore currency transactions by resident Ghanaian companies will be “strictly prohibited”, the bank said, and exporters will be required “to collect and repatriate in full the proceeds of their exports to their local banks within 60 days of shipment.”
Banks would then have five working days to convert the proceeds into cedi.
Ms Razia Khan, Head of Research for Africa at Standard Chartered Bank, said the fact that the central bank seemed to be tackling the cedi’s decline there was no shortcut to tackling the root cause of the depreciation, which was linked to government spending and public sector salary increases that had seen recurrent costs rise.
“Restricting access to foreign exchange is not going to be great for confidence,” she added.
There was also some skepticism in the market about how effective the central bank will be in enforcing the regulations.