Ghana’s Cedi Falls 20% YTD to Record Low of 14.9335/USD on Import Dollar Demand

Key Takeaway

• Ghana's cedi hit a record low, depreciating 0.2% to 14.9335 per dollar due to high dollar demand for imports.
• The cedi has fallen 20% YTD, making it the fourth-worst performer among ~150 currencies tracked by Bloomberg.
• Despite increased reserves of $6.6 billion in April, foreign exchange supply issues persist due to reduced cocoa export revenue and ongoing debt restructuring.

Ghana's Cedi Hits Record Low

Ghana's cedi has weakened to a record low, depreciating 0.2% to 14.9335 per dollar by the close of trading in Accra. This marks the lowest level since Bloomberg began compiling the data in 1994. Year-to-date, the cedi has fallen 20% against the US dollar, making it the fourth-worst performer among approximately 150 currencies tracked by Bloomberg, trailing only the Egyptian Pound, Nigerian Naira, and Lebanese Pound. The primary drivers of this depreciation are increased dollar demand from oil importers, the pharmaceuticals industry, and fast-moving consumer goods (FMCG) companies. "Dollar demand from oil importers, pharmaceuticals industry and FMCG companies are still strong," said Samantha Singh-Jami, Africa Strategist at Rand Merchant Bank.

Central Bank's Role and Reserves

Ghana's gross international reserves have risen to $6.6 billion in April, the highest in over 19 months, according to Bloomberg data. The Bank of Ghana has been actively managing these reserves to ensure adequate market supply, including directly meeting the foreign exchange needs of some companies to ease dollar demand from commercial banks. Governor Ernest Addison emphasized the central bank's role in stabilizing the market last month. The increase in reserves follows Ghana's decision to halt servicing most of its external debt since December 2022, a move aimed at qualifying for an International Monetary Fund (IMF) program. The $3 billion IMF package and additional inflows from multilateral and bilateral sources have bolstered the reserves.

Cocoa Export Revenue Decline

A significant factor weighing on the cedi is the sharp decline in cocoa export revenue. Revenue from cocoa shipments fell by 49% to $599 million from January through April. This drop is attributed to a slump in cocoa output, with the 2023-24 season's production estimated between 422,500 tons and 425,000 tons, half of the country's initial estimate. "The weakening of the cedi seems to reflect foreign exchange flow mismatches," noted Samir Gadio, head of Africa Strategy at Standard Chartered Bank. He added that while foreign exchange demand has recovered this year, it remains broadly constant and continues to exceed supply.

Street Views

• Samantha Singh-Jami, Rand Merchant Bank (Bearish on Ghana's currency):

  "Dollar demand from oil importers, pharmaceuticals industry and FMCG companies are still strong. Authorities have propped up foreign exchange reserves quite sharply in recent months while there are still some constraints on foreign exchange liquidity in the market."

• Samir Gadio, Standard Chartered Bank (Bearish on Ghana's currency):

  "The weakening of the cedi seems to reflect foreign exchange flow mismatches. Foreign exchange demand recovered this year, though it has remained broadly constant in recent months, and continues to exceed supply."

Management Quotes

• Ernest Addison, Governor of Bank of Ghana:

  "[The central bank] has been managing the reserves in a way that ensures the market is adequately supplied, which includes directly stepping in to absorb the foreign exchange needs of some companies to ease dollar demand from commercial banks."