Ghana’s local currency, the cedi, has recorded a 5.3% depreciation against the US dollar as of March 2025. This persistent decline has raised concerns among businesses, investors, and the general public regarding inflationary pressures and the rising cost of living. To address the situation, economic analysts and financial experts suggest a range of strategies to stabilize the currency and restore investor confidence.
- Strengthening Foreign Exchange Reserves
One of the most effective measures to stabilize the cedi is to increase Ghana’s foreign exchange reserves through enhanced export earnings and strategic financial management. The Bank of Ghana should continue accumulating forex reserves by purchasing excess dollars during periods of inflows to cushion against fluctuations. Additionally, securing bilateral currency swap agreements with trading partners could reduce demand for the US dollar in cross-border transactions.
- Promoting Export Diversification and Industrialization
Ghana remains largely dependent on commodity exports, particularly cocoa, gold, and oil, which are subject to price volatility. The government should accelerate export diversification efforts by investing in value-added manufacturing and agro-processing industries to reduce reliance on primary commodity exports. By increasing non-traditional exports, Ghana can generate more foreign exchange, boosting the cedi’s stability.
- Tightening Monetary Policy and Interest Rate Adjustments
The Bank of Ghana (BoG) should adopt a balanced monetary policy that ensures stability without stifling economic growth. Raising interest rates cautiously can attract foreign investment into government securities and reduce excessive demand for forex, thereby stabilizing the cedi. However, the central bank must also monitor the impact on borrowing costs for businesses and individuals.
- Reducing the Import Bill and Encouraging Local Production
Ghana’s high import dependence continues to put pressure on the cedi. The government should implement policies to reduce imports of goods that can be produced locally. Encouraging the “Made in Ghana” agenda through incentives for local manufacturers, tax breaks for domestic industries, and support for agriculture will decrease the reliance on foreign goods and lower forex demand.
- Attracting Foreign Direct Investment (FDI) and Remittances
Sustained efforts should be made to attract more Foreign Direct Investment (FDI) into key sectors such as technology, renewable energy, and manufacturing. Simplifying business regulations, improving ease of doing business, and ensuring political stability will make Ghana more attractive to investors. Additionally, boosting remittances from the Ghanaian diaspora by offering attractive investment opportunities in the real estate, banking, and capital markets can increase forex inflows.
- Enhancing Fiscal Discipline and Debt Management
Excessive government borrowing and fiscal deficits contribute to cedi depreciation. The government should prioritize prudent debt management, reduce unnecessary expenditures, and enhance revenue collection. Implementing strict fiscal policies, curbing corruption, and ensuring transparency in public finances will boost investor confidence and reduce pressure on the cedi.
- Strengthening the Gold-for-Oil Policy
Ghana’s gold-for-oil policy has helped reduce the demand for forex to purchase petroleum products. Expanding this initiative by including other key imports, such as machinery and essential raw materials, could further reduce the need for US dollars in trade transactions.
Conclusion
The 5.3% depreciation of the cedi signals the need for proactive economic policies to safeguard Ghana’s currency. A multi-faceted approach combining forex reserve management, export growth, import substitution, investment attraction, and fiscal discipline is crucial for long-term stability. By implementing these measures effectively, Ghana can mitigate currency volatility and build a resilient economy in the face of global financial uncertainties.
Source: www.nsemgh.com
