40% exchange rate loss by Ghana in a year highest in Africa – World Bank

Data from the World Bank has shown that Ghana experienced the highest exchange rate loss in Africa between January 1, 2022, and January 1, 2023, with a depreciation of nearly 40%.

The World Bank notes that exchange rates across the region largely depreciated during this period, leading to increased costs for imported goods, including food and energy.

The Bretton Wood institution said countries such as Ghana that practice “crawl-like arrangements” recorded very sharp exchange rate depreciation. This was due to the expensive fiscal measures that are often used to limit the pass-through of exchange rates to inflation, with the resulting deteriorating fiscal position potentially further stressing exchange controls and exacerbating inflationary pressures.

“One key concern for managed and crawl-like arrangements is the possibility that parallel markets can influence exchange rate movements. Capital controls that often accompany such arrangements can lead to scarcity of forex reserves, forcing the government to prioritize specific transactions and charge a premium for official foreign exchange transactions”.

Sudan ranked second, experiencing a currency depreciation of approximately 23% during the same period. Following closely were Malawi (-20%), The Gambia (-16%), and Madagascar (-10%), securing the third, fourth, and fifth positions, respectively.

Fitch Solutions has provided a forecast, indicating that the Ghana cedi is expected to close at ¢11.40 against the US dollar by the end of 2023. This projection is lower than the earlier ¢12.40 estimate made earlier in the year when Ghana had yet to finalize an agreement with the International Monetary Fund for a bailout package.

The UK-based firm is also anticipating a further improvement in the exchange rate, with ¢10.90 to one US dollar in 2024. This is expected to be driven by anticipated inflows resulting from the International Monetary Fund program and an increase in investor confidence.