Ghana: Cedi weakens amid unfavorable external pressures and limited access to markets
The Russian invasion of Ukraine drove commodity prices up and exerted external pressure on the Ghanaian currency. This comes on top of downgrades to the country’s sovereign debt by Fitch Ratings on 14 January and by Moody’s on 4 February. The cedi ended 18 March at GHS 7.45 per USD, which was down 12.1% from the previous month, and down 23.0% from the same day last year, and down 17.5% since the beginning of the year.
In mid-January, Fitch Ratings downgraded Ghana’s sovereign bonds to ‘B-’ from ‘B’, with a negative outlook. The decision was taken within the “context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions.” Moreover, the agency highlighted that the country’s loss of international credit market access questions the government’s ability to comply with medium-term financing requirements. Moody’s followed suit, downgrading the country’s credit rating to ‘Caa1’ from ‘B3’, with a stable outlook, also referring to “the increasingly difficult task the government faces addressing its intertwined liquidity and debt challenges.”
On the cedi’s depreciation, Bojosi Morule and Andrew Matheny, economists at Goldman Sachs, commented:
“The Cedi depreciated [and] is now trading near all-time lows, while the oil price increased sharply (Ghana is a small net exporter of oil). In addition to being inflationary, Cedi depreciation affects debt dynamics adversely given FX debt, worsening fiscal dynamics.”
Regarding the outlook, analysts at EIU said:
“In a bid to stabilise the cedi, the BoG announced foreign-exchange interventions, with USD 450 million to be released via foreign-exchange forward auctions in the first quarter of 2022; USD 225 million had already been released as at midFebruary. Regardless, strengthening growth and domestic sentiment will reinforce import dependency, causing the cedi to depreciate on average in 2022. Pressure from the widening of sovereign bond spreads and consequently from investor sell-offs will also exert negative spillover effect on the domestic foreign-exchange market.”