Renowned academic and Bentley University professor, Dr. Alex Annan Abakah, has debunked the widely held notion that the Russia-Ukraine war is a major contributor to the depreciation of the Ghanaian cedi.
Speaking at an event organised by the Public Financial Management (PFM) Tax Africa Network on Thursday, November 28, Dr. Abakah presented findings from a comprehensive study on the drivers of Ghana’s currency depreciation.
His research revealed that the ongoing war has had an insignificant impact on the cedi’s performance, challenging the unrepented narratives.
The study also revealed that the COVID-19 pandemic contributed about 11% to the cedi’s depreciation.
Findings from the study showed that during the pandemic, Ghana’s currency exhibited relative resilience, with a moderate rate of depreciation compared to the significant decline observed in the post-pandemic period.
According to Dr. Abakah, this shift raises important questions about the underlying factors affecting the currency.
He pointed out that the dramatic depreciation following the pandemic reflects deeper structural issues within Ghana’s economy, rather than external shocks.
Contrary to popular claims, the research found no significant correlation between the Russia-Ukraine war and the depreciation of the cedi.
Dr. Abakah explained that, in fact, the currencies of Russia and Ukraine appreciated against the cedi during the period in question.
This finding, he said, underscores the importance of examining internal economic factors rather than attributing it to external factors.
He added that the Ghanaian cedi’s depreciation outpaced other African currencies, with Ghana experiencing a decline five times greater than that of Kenya’s shilling.
The study found out that post-COVID, the cedi depreciated by a staggering 104.69%, compared to the Kenyan shilling’s 21.17%. During the Russia-Ukraine war period, the cedi depreciated by 128.26%, while the Kenyan shilling recorded a 25.66% decline.
The study highlights that Ghana’s weak economic fundamentals are the primary drivers of the cedi’s depreciation.
Dr. Abakah explained that external shocks like the COVID-19 pandemic can affect economies worldwide, but the severity and duration of their impact depend on the strength of a country’s economic framework.
He said, unfortunately, Ghana’s fundamentals have proven inadequate, leaving the economy vulnerable to prolonged challenges.
Dr. Abakah noted that Ghana’s fiscal situation before the recent debt restructuring compounded the problem.
In 2022, the country’s interest-to-revenue ratio stood at 47.27%, a figure exceeding pre-HIPC levels. This means nearly half of Ghana’s revenue was consumed by interest payments on loans, leaving limited resources for infrastructure development, human capital investment, and other critical expenditures. This imbalance has hindered Ghana’s ability to strengthen its economy and respond effectively to external shocks.
To address the persistent depreciation of the cedi and foster economic resilience, Dr. Abakah recommended a multi-faceted approach.
He called for legislating fiscal discipline by introducing debt ceilings and ensuring that government spending aligns with revenue.
He emphasised the importance of prioritising investments in infrastructure and human capital development, arguing that these are critical for generating future revenue and creating employment opportunities.
Dr. Abakah also stressed the need for Ghana to leverage its natural resources to support industrialisation.
He argued that modernising agriculture is crucial for achieving food security and promoting long-term economic growth. Furthermore, he advocated for enforcing foreign exchange market regulations to stabilize the currency and controlling the repatriation of profits and dividends by foreign companies to reduce pressure on the cedi.
The findings underscore that while external factors like the COVID-19 pandemic and global conflicts may play a role in economic fluctuations, the magnitude of their impact on Ghana’s economy is largely determined by the country’s internal structural weaknesses.
Giving some remarks at the event, Dr. John Asafo Agyei, Senior fellow at the Africa Centre for Economic Transformation shared a similar view to that of Dr. Alex Annan Abakah.
He argued that the fundamentals of Ghana’s economy remain weak because the structure of the country’s economy since independence has not changed.
“We are still relying on imports and it’s made the economy very vulnerable. We are depending on others and whenever there is a downturn, we suffer for it,” Dr. John Asafo Agyei bemoaned.
He stressed that from 2025, Ghana must start to do things differently and implement policies that will strengthen the fundamentals of the economy to withstand external shocks.
