Renowned finance scholar, Professor Alex Annan Abakah from Bentley University, has addressed and debunked the widespread claims that the Russia-Ukraine war and the COVID-19 pandemic are the primary causes of the depreciation of the Ghana cedi. In his analysis, Professor Abakah argues that while these global events have had some economic impact, they are not the main drivers behind the cedi’s decline.
He suggests that the depreciation of the Ghana cedi is largely due to more localized and structural issues within the Ghanaian economy. These include the country’s reliance on imports, a high trade deficit, and limited foreign exchange reserves. According to Professor Abakah, these factors have placed consistent pressure on the cedi, leading to its continued depreciation against major currencies, especially the US dollar.
Additionally, the finance scholar pointed to domestic fiscal management issues, such as high government debt levels, insufficient revenue generation, and inflationary pressures, which have further contributed to the weakening of the currency. He emphasized that the government’s monetary policies, including interventions by the Bank of Ghana, have been insufficient to offset the underlying structural problems affecting the cedi.
While acknowledging that external factors like the Russia-Ukraine war and the pandemic have certainly exacerbated global inflation and disrupted supply chains, Professor Abakah clarified that these global issues are not the core reasons for the cedi’s performance. Instead, he argued that Ghana needs to address its internal economic challenges, including improving its production capacity, increasing export revenues, and managing its fiscal policies more effectively to stabilize the currency.
His remarks suggest that while external events may have intensified some economic difficulties, long-term solutions to the Cedi’s depreciation lie in strengthening the domestic economy and implementing more robust economic reforms. Speaking at a policy dialogue organized by the Public Financial Management (PFM) Tax Africa Network in Accra, Professor Alex Annan Abakah from Bentley University emphasized that the depreciation of the Ghana cedi is primarily driven by deep-rooted structural weaknesses within the country’s economy, rather than by external factors like the COVID-19 pandemic or the Russia-Ukraine war.
According to Prof. Abakah’s research, external factors such as the pandemic and the war in Ukraine have had a minimal impact on the cedi’s depreciation. He noted that the pandemic contributed only 11% to the cedi’s decline, and the impact of the Russia-Ukraine war on the currency was deemed insignificant. This challenges the widely accepted narrative that global events were the primary causes of the cedi’s poor performance in recent years.
In his study, Prof. Abakah highlighted that during the COVID-19 pandemic, the Ghanaian currency showed relative resilience, experiencing a moderate depreciation compared to the sharp decline that followed the pandemic. This suggests that the cedi’s challenges were more a result of underlying structural issues, such as fiscal mismanagement, high debt levels, and reliance on imports, rather than the direct effects of external shocks.
Prof. Abakah’s findings call for a deeper focus on addressing internal economic problems, including improving fiscal discipline, diversifying exports, and strengthening the country’s economic fundamentals, rather than attributing the cedi’s struggles solely to global factors.
Professor Alex Annan Abakah further emphasized that the dramatic shift in the value of the Ghana cedi over recent years raises critical questions about the internal economic factors at play. He strongly asserted that Ghana’s weak economic fundamentals, rather than external factors, are the primary drivers behind the cedi’s ongoing depreciation.
His research findings directly challenge the commonly held belief that the Russia-Ukraine war has been a significant contributor to the cedi’s decline. Prof. Abakah pointed out that during the period of the conflict, the currencies of both Russia and Ukraine appreciated against the Ghana cedi, which undermines the argument that the war was a major factor in the cedi’s depreciation. “Even the currencies of Russia and Ukraine appreciated against the cedi during the war, so there is no point blaming the two warring countries for the cedi’s depreciation,” he remarked.
This analysis suggests that the real causes of the Cedi’s depreciation lie within the structure of Ghana’s economy. Key issues such as high public debt, fiscal mismanagement, excessive reliance on imports, and an insufficient export base have created persistent pressure on the currency, leading to its sharp decline. Prof. Abakah’s insights underscore the importance of addressing these internal weaknesses through sound economic policies and reforms, rather than attributing the cedi’s struggles to global events.
Professor Alex Annan Abakah’s research also revealed that the Ghanaian cedi has depreciated at a significantly faster rate compared to other African currencies. According to his findings, Ghana experienced a depreciation rate five times greater than that of Kenya’s shilling. Specifically, post-COVID, the cedi depreciated by an alarming 104.69%, while Kenya’s currency only depreciated by 21.17%.
Prof. Abakah noted that while external shocks like the COVID-19 pandemic can affect economies globally, the severity of their impact largely depends on the underlying strength of a country’s economic fundamentals. He highlighted those countries with more resilient economic structures, such as Kenya, were better able to mitigate the impact of these global events, leading to a much smaller depreciation of their currencies.
In contrast, Ghana’s weak economic fundamentals—such as fiscal mismanagement, high debt levels, and over-reliance on imports—left the cedi more vulnerable to external shocks, exacerbating its rapid depreciation. This stark difference underscores the need for Ghana to focus on strengthening its economic fundamentals to shield the cedi from similar volatility in the future. Professor Abakah highlighted that Ghana’s economic framework has proven inadequate in addressing the country’s long-standing challenges, leaving the economy vulnerable to persistent crises. He pointed to the nation’s fiscal imbalance as a key factor exacerbating its economic difficulties. Specifically, he noted that in 2022, Ghana’s interest-to-revenue ratio stood at an alarming 47.27%. This is notably above the levels seen before the country’s Highly Indebted Poor Countries (HIPC) initiative, signaling an unsustainable fiscal situation.
The professor explained that such a high interest-to-revenue ratio means that nearly half of Ghana’s revenue is consumed by interest payments, severely limiting the resources available for crucial investments in infrastructure and human capital. This fiscal strain undermines the country’s ability to foster economic growth and development, thus exacerbating the cedi’s depreciation.
To reverse this trend and stabilize the cedi, Professor Abakah proposed a comprehensive approach that emphasizes the restoration of fiscal discipline. He argued that addressing the root causes of fiscal imbalances, such as excessive borrowing, inefficient public spending, and a failure to increase domestic revenue generation, is essential for creating a stable economic environment. By focusing on these foundational issues, Ghana can work toward ensuring a more resilient economy and a more stable currency in the long term.
Professor Abakah outlined several critical recommendations to help stabilize Ghana’s economy and curb the depreciation of the cedi. He stressed the importance of introducing debt ceilings to ensure that government borrowing remains within sustainable limits. Additionally, he called for a closer alignment between government spending and revenue, emphasizing that fiscal discipline is necessary to prevent further fiscal imbalances.
Furthermore, he advocated for long-term investments in infrastructure and human capital development. According to Prof Abakah, these investments are crucial for generating future revenue, fostering economic growth, and creating employment opportunities for the population. These structural improvements, he argued, will not only enhance the overall productivity of the economy but also provide a solid foundation for long-term financial stability.
On a more strategic level, Prof Abakah also recommended that Ghana should leverage its abundant natural resources to drive industrialization. By processing raw materials locally, Ghana could add value to its exports and reduce its dependency on imports, ultimately improving the country’s trade balance and stabilizing the cedi.
Finally, he suggested implementing stronger foreign exchange regulations, including controlling the repatriation of profits and dividends by foreign companies operating in Ghana. By managing the outflow of capital more effectively, Ghana could preserve its foreign exchange reserves, which are crucial for maintaining currency stability.
Through these combined efforts, Prof Abakah believes that Ghana can strengthen its economic fundamentals, stabilize the cedi, and put the country on a more sustainable path to development. Professor Abakah outlined several critical recommendations to help stabilize Ghana’s economy and curb the depreciation of the cedi. He stressed the importance of introducing debt ceilings to ensure that government borrowing remains within sustainable limits. Additionally, he called for a closer alignment between government spending and revenue, emphasizing that fiscal discipline is necessary to prevent further fiscal imbalances.
Furthermore, he advocated for long-term investments in infrastructure and human capital development. According to Prof Abakah, these investments are crucial for generating future revenue, fostering economic growth, and creating employment opportunities for the population. These structural improvements, he argued, will not only enhance the overall productivity of the economy but also provide a solid foundation for long-term financial stability.
On a more strategic level, Prof Abakah also recommended that Ghana should leverage its abundant natural resources to drive industrialization. By processing raw materials locally, Ghana could add value to its exports and reduce its dependency on imports, ultimately improving the country’s trade balance and stabilizing the cedi.
Finally, he suggested implementing stronger foreign exchange regulations, including controlling the repatriation of profits and dividends by foreign companies operating in Ghana. By managing the outflow of capital more effectively, Ghana could preserve its foreign exchange reserves, which are crucial for maintaining currency stability.
Through these combined efforts, Prof Abakah believes that Ghana can strengthen its economic fundamentals, stabilize the cedi, and put the country on a more sustainable path to development.
