This project is termed as ‘Ghana’s Marshall Plan’ equivalent to the USA Marshall Plan designed to rehabilitate the economies of 17 Western and Southern European countries after world war 2

By: Dr. Richmond Akwasi Atuahene (Corporate Governance/Banking Consultant) & Isaac Kofi Agyei (Data & Research Analyst)

Introduction/Background

Ghana’s principal sources of foreign exchange reserves have been through the export of primary commodities—cocoa, gold, non-traditional products, and lately oil—that have volatile prices in the international markets where they are traded since Sir Frederick Gordon Guggisberg 1919-1927.

Ghana’s foreign exchange reserves are held to provide a buffer against adverse shocks to the country’s Balance of Payment (BoP) and ensure the stability of local currency as well as enhancing confidence in the country’s economic management and ability to meet its international payment obligations such as debt servicing, without disruption. Because of this price volatility foreign exchange earned from exports has been prone to the vagaries of the international commodity markets, meaning export revenue tends to be depressed when commodity prices are low.

The most prominent episode of this problem was the term-of-trade shock over the years that impacted both the demand and supply ends of the foreign exchange market, leading to record instability and rapid depreciation. Other, less severe episodes of terms-of-trade weakness have also created or fueled depreciatory pressure in the foreign exchange market. Commodity dependence and lack of export diversification have caused chronic trade and persistent current account deficits in Ghana have led to the recent depreciation of the local currency since independence.

Policy failures of the past and present governments to have export diversify the economy had been the major cause of the persistent depreciation of local currency as well as over-dependency on imports. Depreciation is a currency's exchange rate falling against other currencies. In addition to a lack of export production and diversification, weaker macroeconomic fundamentals including high policy. high interest rates, inflation, and high fiscal deficits have all caused currency depreciation. Countries like Ghana with weak economic fundamentals, such as persistent current account deficits and excessive inflation, have declining currencies.

Orderly and progressive currency depreciation increases export competitiveness and may reduce trade imbalance. Ghana imports and exports raw commodities. Ghana needs foreign currency but has a limited supply. The Cedi depreciates against major currencies occasionally.  Ghana’s currency, the Cedi, is depreciating against the US and is now one of the worst-performing global currencies. This is one of the main factors of the inflation rate in Ghana. 

A weakened currency means that hikes in import costs are passed on to individuals within the country, adding pressure to already higher costs of food and transportation. Ghana needs workable, actionable, and achievable long-lasting solutions to the persistent depreciation of the local currency against the major trading currencies.

Causes of the persistent depreciation of ghana cedi against the major trading currencies

First, Ghana’s dependence on commodities is a major vulnerability for the Ghanaian economy and a contributor to the current debt crisis as well as persistent currency depreciation. Ghana’s dependence on commodities dates back to colonialism. The borders of the country now known as Ghana were established by the British colonists in the late 19th century. The Europeans first started coming to the ‘Gold Coast’ in the late 15th century to open up alternative trade routes to the Sahara to access the region’s gold.

The Portuguese, Dutch, British, Germans, Swedes, and Danes all built or occupied castles and forts which were used as prisons for the slave trade. Whilst Ghana was the first colonized country to achieve independence in 1957, almost 60 years on, the country’s economy remains dependent on the export of just four major primary commodities – gold, cocoa, other mineral resources, and now oil, which together make up over 80% of Ghana’s export.

The marginal returns of natural resources like gold contributed to the persistent depreciation of the local currency.  Lack of economic diversification not only weakens the foundation of Ghana’s structural transformation, it also makes her particularly vulnerable to sudden external shocks and slows their development. The pandemic-induced oil price crash, which saw crude oil entering negative territory, and the crisis in Ukraine, which has caused a sharp spike in global oil prices, are two examples of commodity price volatility that may have an impact on Ghana’s resource exporters.

Commodity price swings are of particular concern to Ghanaian policymakers, as natural resources account for the lion’s share of Ghana’s economy, including their export earnings and government revenues.

Commodity dependence and lack of export diversification have caused chronic trade and current account deficits in Ghana since its 1957 independence. For example, in 2022 the total value of Ghana’s imports of US$ 17.75 billion (GH₵148.6 billion) was about GH₵8.5 billion higher than exports of US$ 15.90. billion (GH₵140.1 billion) thus leaving trade deficit (US$-1.85billion) (Ghana Statistical Service).

According to Bank of Ghana data (02/24) on international trade the country’s trade account recorded a surplus of US$2.63 billion for 2023, lower than a surplus of US$2.87 billion recorded in 2022. The merchandise exports declined by 4.9 percent to US$16.6 billion. However, he said gold exports increased by 15.0 percent to US$7.6 billion benefiting from both volume and price increases. Cocoa beans exports on the other hand fell marginally by 1.1 percent to US$1.3 billion on the back of lower volumes and prices. Crude oil exports also decreased significantly by 29.3 per cent to US$3.8 billion driven by reduced volumes and lower prices. 

Other exports, including non-traditional exports, also decreased slightly by 1.9 percent to an estimated value of US$3.1 billion.  On the imports side, payments were lower by 4.2 percent to US$14.0 billion, driven by both non-oil imports and oil and gas imports.

Non-oil imports were estimated at US$9.5 billion, down by 4.6 percent. The Policy failures on the part of successive governments to deal with the consistent depreciation of the Ghanaian Cedi since 1957 independence as a result of commodity dependency and lack of export diversification. Ghana’s economic growth has been strong over the past decade, with annual GDP per capita growth at 4.4% between 2006 and 2017.

The growth has been heavily concentrated in the natural resources and commodity sectors which has had an impact on how and where jobs can be created. Ghana’s main constraints for economic diversification have been (i) lack of access to cheaper finance (ii) affordable agricultural and industrial land (iii) access to well-located services and (iv) access to qualified labor, which is particularly important for firms operating at the agricultural and technological frontiers.

Ghanta's trade deficits for 2018-2022

• Ghana's trade balance for 2022 was $-1.858B, a 71.69% decline from 2021
• Ghana's trade balance for 2021 was US$-2.07B, a 16.33% decline from 2020
• Ghana's trade balance for 2020 was $-2.47B, an 87.61% increase from 2019
• Ghana's trade balance for 2019 was US$-1.32B, an 86.45% increase from 2018

All the trade deficits recorded have translated into currency depreciation.

According to the Auditor General reports on consolidated foreign exchange receipts of the Bank of Ghana for cocoa beans and products exports from 2019 to 2023. Exports of cocoa beans and products valued at US$ 2.1 billion in 2019 but decreased to US$1.48 billion in 2020 but declined further to US$.7 million in 2021. In 2022, cocoa beans and products earned US$ 1.88 billion but declined significantly to US$ 1.3 billion in 2023.

According to the Auditor General reports on Consolidated Foreign Exchange Receipts and Payments of the Bank of Ghana showed that surrendered exports by mining companies of US$226 million in 2016; US$ 876 million in 2017; US$ 918 million in 2018: US$ 1 billion in 2019; US$1.1 billion in 2020; US$ 990 million in 2021; US$ 863 million in 2022 and US$ 960 million in 2023. From the above data on cocoa beans and products and gold. Unfavorable external developments, including adverse terms of trade as well as low production of cocoa and gold, have also played a role in the instability of the exchange rate.

The principal source of foreign exchange income for the economy has been the export of primary commodities—cocoa, gold, and now oil—that have volatile prices in the international markets where they are traded. Because of this price volatility foreign exchange earned from exports has been prone to the vagaries of the international commodity markets, meaning export revenue tends to be depressed when commodity prices are low.

Another clear example is from 2014 to 2023, mining companies extracted a total value of gold worth US$50.2 billion, out of which Ghana received only a surrendered value of US$4.56 billion just about 10% over the eleven years.

Most players in this sector are a source of foreign exchange generation from the export and sale of gold, manganese, and diamonds on the international market. Hence a source of FX inflows for most of the banks in Ghana. Volatility in the price of these commodities on the international market as well as production output has adverse implications on the total amount of foreign exchange inflows. Fluctuation in exchange rates has adverse implications on the cost of sales of FX from the players in the industry and the banks.  

Second, over the past four years, the failure on the part of the government/ Bank of Ghana for not tracking, tracing, and capturing the foreign remittances over the past four years have affected the depreciation of the local currency. The data available from the Bank of Ghana audited financial statements for 2019 to 2022 and World Bank Data on the country’s remittances for the same period showed huge discrepancies.

The country’s inability to track, trace, and capture all foreign remittances over the period contributed to the depreciation of the local currency against the major trading currencies. Ghana is said to have lost approximately US$ 9 billion in inward remittances since the passing of the Payment Systems and Services Act 2019 Act 987 to newly licensed Money Transfer Companies, Fintech, and Blockchain companies.

Third, the decline in foreign direct investment in the country in the past two years has contributed significantly to the persistent depreciation of the Cedi against major trading currencies. The Ghana Investment Promotion Center (GIPC) has disclosed a financial deficit in its operations over the past two years. Foreign Direct Investment inflows to Ghana fell by 39% in 2022 to $ 1.472 billion, as greenfield projects remained flat while international project finance and Mergers and Acquisitions deals declined. Ghana also experienced a further decline in foreign direct investment as the Ghana Investment Promotion Centre (GIPC) recorded a 16 percent drop in investment projects in the first half of 2023..

According to GIPC in 2023, Ghana received foreign direct investments totaling US$ 649.5 million and this is a 55% drop from the previous year which recorded US$1.47 billion. China emerged as the country with the highest investment amounting to US$211.89 million while Turkey and India came in second and third US$173.27 million and US$77.93 million respectively.

Fourth, the rising public debt, coupled with declining donor support, falling cocoa production, and a surge in demand for imports have contributed to the recent currency depreciation. The underlying causes of the return to a debt crisis are therefore the continued dependence on commodity exports, as well as borrowing not being responsible enough, meaning that new debts do not generate sufficient revenue to enable them to be repaid. At the moment, all the costs of the crisis are being borne by the people of Ghana.

Fifth, Ghana’s fiscal and monetary policies have been relatively loose over the past four years, the exchange rate has tended to experience large depreciations. Thus, undisciplined fiscal and monetary policies have been an important driver of exchange rate instability in Ghana. 

One of the main channels by which excessive government spending and money creation reduce the value of the domestic currency is that excess liquidity is generated, which, in a small open economy like Ghana with a large import bias, is easily funneled into the foreign exchange market through rising import demand. Weak macroeconomic fundamentals over the periods have contributed to the persistent depreciation of the Ghana Cedi.

Ghana’s fiscal policy has witnessed repeated periods of overspending and unrealistic revenue projections. The existing fiscal rules present weaknesses—e.g., no specified debt target, complex operational rules, narrow perimeter, and weak escape clauses and enforcement mechanisms—and have remained suspended since 2020 (15.2% of GDP in 2020 12.4% of GDP in 2021; 9.4% of GDP in 2022 and 7.7% of GDP in 2023) As most of excessive fiscal deficits by Government were financed by Bank of Ghana thus caused the persistent currency depreciation as well as inflation in the economy

Sixth, the exchange rate has been subject to intermittent shocks to the country’s terms of trade and overall net external position. (ie Geopolitics in the Middle East concerning the supply of oil and the Russia/Ukraine War about Grains supply). Continued uncertainty regarding the exchange rate path, large domestic financing needs, and policy slippages due to the approaching end of 2024 general elections represent additional domestic vulnerabilities.

The projections are also predicated on a benign external environment. Intensification of regional conflicts or spillovers from the war in Ukraine, Hamas, and Israeli conflict and commodity price volatility, would negatively impact Ghana through higher imported inflation and risk aversion (IMF, Country report, 24/30, January 2024).

Seventh, the Bank of Ghana’s limited intervention approach in the FX market under the current IMF program seemed to accelerate the recent local depreciation against major trading currencies. According to the IMF Country Report (24/30, 2024) the Bank of Ghana will eventually conduct all its FX interventions through auctions designed in line with best practices and adopt an FX reference rate computation method that fully reflects the wholesale market rate.

Eight, the adverse of excessive debt dynamics in 2022 fueled negative sentiments on Ghana’s creditworthiness and caused the country’s credit ratings downgraded has accelerated the rapid depreciation of the local currency. The major factors at the core of the currency’s rampant fall in 2023-2024 were a marked deterioration in the fiscal and external positions, weakened economic confidence as a result of slowing GDP growth, and deteriorating public debt dynamics. These adverse debt dynamics fueled negative sentiments on Ghana’s creditworthiness and caused the country’s credit ratings to be downgraded in 2022.

Ninth, anticipated Excessive Fiscal Expansion in the run-up to the 2024 Presidential and Parliamentary Election as well as Speculative Behaviour of the Uncertainties Surrounding the Stability of the Cedi over the First quarter of the year 2024.  The chief culprit was the loss of fiscal and monetary control in the run-up to the epoch-making 2012, 2016, and 2020 elections, and the failure to rein in the excesses thereafter. The ensuing economic imbalances drove down the value of the cedi and sparked an inflationary spiral that blighted Ghana’s economic performance during much of the 2000s.

The cause of the fiscal deterioration in 2020 was a weak revenue outturn coupled with a substantial rise in government expenditure in an election year. Another factor that appeared to be contributing to the recent depreciation is that investors became concerned about the government’s ability to maintain fiscal discipline in the leading-up to the 2024 elections, given Ghana’s history of fiscal slippages in election years during the Fourth Republic. This seemed that prudent investors had shifted preferences away from cedi to dollar assets contributing to the weakening of the domestic currency.

Effects of the depreciation

Depreciation of any currency makes its imports more expensive and exports cheaper. Some countries intentionally devalue their currencies to make their exports cheaper. However, because Ghana’s export sector is not significantly developed, the country is not able to take advantage of Cedi’s depreciation by exporting more and earning more foreign exchange.

The effect of currency depreciation has been an increase in the cost of imported goods. Most of the imported goods are intermediate goods that are used for local production. This has led to rising inflation. Ghanaian importers are struggling to stay in business due to the high cost of importing and clearing goods from Ghanaian ports. Some importers are unable to raise enough money to finance planned shipments. 

Increasingly restricted access to foreign exchange (forex) delays trade: As Ghana’s balance of payments account is severely constrained, the Bank of Ghana (central bank) is closely managing the distribution of forex. Some importers have reported delays in obtaining foreign exchange to pay for both large and small transactions. The Chamber of Bulk Oil Distributors, for example, cited an acute dollar crunch as the Bank of Ghana is only able to supply its members with 30% of the forex they need to import petroleum products. For example, the ex-pump prices of fuel depend a lot on the exchange rate since a greater part of the refined fuel is imported.

Currently, there is increased global demand for crude oil as most industries are now recovering from the effects of geopolitics in the Middle East. At the same time, the supply of crude oil has slowed down after the Russian invasion of Ukraine. The international crude oil price is expected to continue increasing for some time. The combined effect of cedi depreciation and increases in international crude oil prices means that the ex-pump price of fuel in Ghana is expected to keep rising, at least until the end of the year 2024.

Effects of Inflation and depreciation of the local currency on Eroding Consumer Demand:

The depreciation of the cedi, in turn, is contributing to high inflation rates in the local market. In April 2024, inflation surged to 40.4% year-on-year, driven by higher food and fuel prices, in particular. Inflation for locally produced items was 16.1%, while inflation for imported items was 25.0% in April. 2024.

Inflation is sharply eroding the purchasing power of consumers as prices of most consumables go up almost every other week. The consequence is reduced demand for goods that cost more. A secondary effect is reduced demand for some products that average consumers now consider to be luxuries and no longer see as affordable, not necessarily because the prices of such products have gone up, but because the prices of competing basic needs have increased dramatically.

Affected Sectors: the situation is affecting all sectors of the economy; however, some key sectors that are particularly affected by depreciation affecting consumer demand include:
1. Consumer and household goods
2. Agricultural Inputs like fertilizers and pesticides
3. Oil and gas (gas and diesel)
4. Agribusiness and processed foods
5. Pharmaceuticals and Drugs

6. Raw materials and semi process products

7. Poultry products and Meat Products; Tomatoes, Onion and carrots

Short, Medium, and Long Solutions to Help Stabilize the Ghana Cedi and the Economy (GHANA’S MARSHALL PLAN)

Economic diversification must be viewed as a policy priority for all political parties if the country could reduce dependence on gold, cocoa, and oil by expanding the sources of exports and fiscal revenues. The urgency of export diversification has often been underscored by the periodic booms and bust cycles of international commodity prices.  

The entire country including the government, all political parties, Ghana National Development Planning Commission, Bank of Ghana, Ghana Export Development Authority, Ghana Investment Promotion Centre MDAs, Private sector including AGI, GNCCI GUTA, relevant NGOs, Civil Society groups and Multi-lateral and bilateral agencies must organize national dialogue on the Ghana’s Marshall plan to find lasting short, medium and long-term solutions to the persistent depreciation of the local currency against the major trading currencies.

Because of the impact that the Ghana Cedi's depreciation against other major international currencies (particularly the US Dollar) has had on the economy, we believe that the following actions should be taken to assist in stabilizing the Ghana Cedi and, as a consequence, the economy as a whole. The lasting solutions must have timelines, which could be categorized into short-term, medium-term, and long-term strategies to address endemic currency depreciation.

The Ghana National Development Planning Commission must be a coordinating agency for the country’s Marshall Plan. This will be in pursuance of their mandate as stated in Acts 479 and 480 of the 1992 Constitution, as the NDPC is to the country’s development through short-, medium-- and long-term national development policies and plans.

 Ghana does not need the current fire-fighting strategy where the country depends on donor support to beef up the country’s foreign exchange reserves, because this strategy is not sustainable, but let us all a country confess our sins repent, and begin to look at the short-, medium- and long-term strategies which are measurable, actionable and achievable to address this persistent depreciation of the Ghana Cedi against major trading currencies since the 1957 independence.

This syndrome has been Ghana’s problem in dealing with the depreciation of local currency since 2007 when Ghana issued its debut US$750 million sovereign bond on the international markets to fund some projects as well as shoring up the local currency.

Ever since Ghana has borrowed consistently up to US$14 billion from international capital markets to finance various projects as well as shore up the local currency from depreciation against major trading currencies. I want to it clear to all and sundry that this type of funding is unsustainable because all borrowing from the Eurobond markets, IMF, World Bank, and all other donor partners have compounded the country’s worst public debt position.

From empirical evidence, Ghana seemed to have chosen the debt trajectory path of only Venezuela and  Argentina in South America and Greece in Europe respectively which could destroy the future generation. Let us all as a country adopt aggressive workable, actionable, and achievable lasting solutions to deal with this endemic problem which has bedevilled the country since its 1957 independence. Let those in authority act in good faith on this presentation and Ghana will not be the same.

According to the World Bank (2019), for Ghana to create a pathway to a more diversified economy, the government must take advantage of short-term wins in promising sectors for growth such as agric-businesses in the areas of rice, maize, tomatoes, soybeans, cashews, industrial salt and other non-traditional products through upgrading of existing production and product differentiation.

This calls for government interventions for the private sector to lay the foundation for economic activity to flourish, such as human capital and physical infrastructure development like good road network systems and linkable railway systems, bettering the business enabling environment by removing some of the constraints to productivity growth and addressing structural issues to attract more foreign direct investment and domestic investments.

The more diverse Ghana’s economy the more that it could help to reduce economic volatility from commodity cycles and offer new opportunities for more people to benefit. Growth in the non-oil sector will be expected to accelerate as policy interventions in agriculture and industry will revitalize the productive sectors. Ghana needs to better invest in current natural resource wealth in non-natural resource sectors for sustainable growth in the medium to long -term.

First, in the short-term by ensuring Regulatory Compliance with Foreign Exchange Act 2006 Act 723 by the newly licensed Money Transfer Companies and Fintech Companies in the Foreign Remittances Space since the passage of Payment Service and Systems Act 2019 Act 987 as part of the short-term strategy. The proper tracking, tracing, and capturing of foreign remittances of an average of US$ 4 billion yearly bigger the cocoa and gold combined will be able to support the persistent depreciation of the local currency.

According to Bloomberg countries like Bangladesh and Sri Lanka have been using foreign remittances to support various currencies to support imports and also build up the foreign exchange reserves. For example, in 2023, Bangladesh's foreign remittances of US$21.9 billion contributed to the country’s foreign exchange reserves.

The Ministry of Finance and Bank of Ghana must strengthen its procedures and processes of capturing global inward remittance data collection and analysis (including an assessment of the World Bank yearly remittance aggregates) to improve on remittance data and the need for the Bank of Ghana to adopt specific practical guidance on data sources and compilation methods to improve on the existing methodology to address the discrepancies between Bank of Ghana data and World Bank inward remittance data.

The Ministry of Finance and Bank of Ghana ensure that the newly licensed Money Transfer Companies, Fintech, and Blockchain companies comply with the Foreign Exchange Act 2006 Act 723 which empowers only the central bank and 23 authorized foreign exchange dealer banks to hold the country’s foreign exchange and total compliance will rake in additional US$ 2 billion to the existing US$ 2.2 billion captured by all authorized dealer banks and this will go a long way to address the short term shortages of foreign exchange to ensure the stability of local currency.

Another recommendation to the Ghanaian government is to adopt the Bangladeshi government’s remittance incentive program launched in July 2019 which was intended to encourage Bangladeshi people working abroad to use legitimate remittance channels instead of the informal Hawala Hundi system. The program offered a cash reward as a direct deposit in the worker’s bank account for every amount sent through legal procedures.

The incentive began at 2% but raised to 2.5% in 2022 and was elevated to 5% in 2023. This program was a deliberate initiative by the government to promote official banking systems for foreign remittances increasing transparency and contributing to Bangladesh’s overall economic growth as well as supporting the stability of local currency. Bangladeshi foreign remittances have increased from US$ 17 billion in 2019 to US$ 21.9 billion in 2023.

 Ghana must adopt Bangladesh’s model to improve inward remittance to support the depreciation of the Ghanaian Cedi in the short term to the medium term.

Second, the Government must initiate to re-negotiate existing leasing contracts with Mining Companies Operating in the Country Based on Botswana’s Model with Anglo/American De Beers could be classified as part of a medium-term strategy to address the persistent depreciation of Cedi. The average return on the total Gold exported is between 13.1% to 14.1%.

The exported total value of US$ 50.2 billion for the period 2014 to 2023 and surrendered value to the Bank of Ghana’s Account was US$5.46 billion just about 10%. In 2022 Ghana extracted and exported a total value of US$ 6.6 billion with a surrendered portion of US$ 865 million just about 13.1%. and in 2023 Ghana extracted US$ 7.2 billion with surrendered value of US$ 960 million or 13.3%. The returns from existing mining contracts are relatively low compared to Botswana’s Diamond deal with Anglo-American De Beers of 30%-40% of the Diamond exports.

The average current return of 13.5% of the  Gold exports is insignificant compared to that of Botswana’s Diamond export deal with Anglo-American De Beers.

Third, as part of the long-term strategy, Ghana must improve on the current commodity dependence and increase export diversification in the non-cocoa sector like Industrial salt, Rice, Maize, Cashew, Soya beans, shea butter, and poultry products to improve trade and current account surpluses to ensure the exchange rate stability in Ghana.

Traditionally, economic diversification involves transitioning away from dependence on one or a few commodities such as gold, and cocoa to agriculture production toward a broader range of sources of production, employment, trade, revenues, and expenditures.  It is a structural transformation that facilitates the diversification of sources of production and employment, international trade, revenues, and expenditures through various dimensions. Given the importance of diversifying the Ghanaian economy, it is critical to recognize how various dimensions of diversification can have different implications for the menu of policy options.

Closely associated with the process of structural transformation from lower to higher productivity sectors, economic diversification has three evident dimensions. The first relates to the expansion of economic sectors that contribute to employment and production or gross domestic product (GDP) diversification, and the second is associated with international trade or export diversification. The third dimension is fiscal diversification.

This fiscal element involves expanding government revenue sources and public expenditure targets and can therefore play a central role in helping to catalyze broader economic transformation through the expansion of activity in specific industries and sectors. To be able to achieve export diversification in the medium to long term, the Agricultural Development Bank must refocus on its original core mandate while Development Bank Ltd and Ghana Exim Bank must re-position themselves from the current wholesale mandate to retail mandate by focusing on a critical sector like production of industrial salt, rice, maize, cassava, pineapple tomatoes, onions, cashew, soya beans, rubber and poultry etc. to support the long term stability of the local currency.

Fourth, the Government must build sustainable external confidence in the economy, by implementing disciplined fiscal and monetary policies to ensure exchange rate stability. The government must work hard to create a stable and enabling macroeconomic environment of lower inflation, lower policy rate, lower bank lending rate, and improved the persistent fiscal deficits financed by the central bank which impact negatively on the stability of local currency and the rate of inflation in the country.

The Bank of Ghana should restrain from monetary financing of the government’s fiscal deficits. In this regard, the Bank of Ghana must adhere to zero financing between the IMF, the Bank of Ghana, and the Ministry of Finance

Fifth, the government must hard to ensure the exchange rate is subjected to intermittent shocks to the country’s terms of trade and overall net external position. (ie Geopolitics in the Middle East concerning the supply of oil and the Russia/Ukraine War about Grains supply). This could be achieved by diversifying the economy from monoculture to multicultural by making more investments in the non-cocoa sector and aggressively tracing, tracking, capturing, and monitoring foreign remittances in the country.

Sixth, Ghana needs to review its import strategies by introducing selective import substitution and restrictions, especially in the non-critical areas where the country has competitive and comparative advantages. As a result of the fact that Ghana's balance of payment account has been showing a deficit balance as a result of Ghana's participation in international trade, it stands to reason that we spend more Ghana cedi to exchange for other foreign currencies before trade is made possible, which results in a decline in the relative value of our currency.

Putting limits on the number of products and services that may be imported is one approach that might be taken to address this issue. Tariffs, embargoes, quotas, regulatory trade restrictions (government-imposed procedural rules), voluntary restraint agreements (agreements in which countries voluntarily restrict their imports), and the establishment of efficient import substitution firms are all examples of international trade policies that the government can adopt and implement, Because of all of these steps, imports are made to be relatively expensive and limited, which in turn encourages local entrepreneurs to engage in successful companies, which in turn boosts the government's capacity to acquire income.

This also encourages the exporting of both traditional and non-traditional goods with added value, which demands high prices on the international market, resulting in an influx of foreign cash that can be employed on infrastructure and other developmental projects throughout the economy. In the short to medium term the government must have selective import substitution and restrictions must be introduced to mitigate the depreciation of local currency. (Domestication by the late General Kutu Acheampong and the Late Mr Dan Lartey). The import substitution would help to alleviate the initial foreign exchange crisis.

Seventh, the Demand Side Exchange Rate Management including the Gold for oil. How can the Bank of Ghana track foreign currencies from foreign travelers arriving in Ghana? Countries like South Africa, Australia, and India can track all foreign currencies through foreign exchange declaration forms at the point of arrival and departure. The central feature of Ghana's exchange rate stability must be accompanied and supported by a tightening of demand management policies, notably through a reduction of fiscal deficits that had bedeviled the economy over the past decade.

Conclusion

 The paper identifies undisciplined fiscal and monetary policies and poor external outcomes—including terms-of-trade weakness and failure to attract the necessary capital flows to support external balance—as the major factors that Poor external fortunes, including adverse terms-of-trade developments, have also played a role in the instability of the exchange rate. The principal source of foreign exchange reserves for the economy is the export of primary commodities—cocoa, gold, timber, and now oil—that have volatile prices in the international markets where they are traded.

Because of this price volatility, foreign exchange earned from exports has been prone to the vagaries of the international commodity markets, meaning export revenue tends to be depressed when commodity prices are low causing exchange rate instability and weakness in the period (IFS. 2016)  Vulnerability to adverse terms-of-trade and other unfavorable external developments should be minimized through the diversification of export products.

This requires government investment and incentives to improve economic infrastructure, reduce business costs and regulatory barriers, and develop new export growth poles. The paper found that whenever Ghana’s fiscal and monetary policies have been relatively loose, the exchange rate has tended to experience large depreciations. On the contrary, prudent fiscal and monetary policies, as well as more favorable external outcomes, have tended to support stability in the exchange rate.

The paper recommends policies to ensure exchange rate stability as a means of fostering macroeconomic stability and economic growth. Thus, undisciplined and persistent fiscal deficits and loose monetary policies have been an important driver of exchange rate instability in Ghana.

Notable in this regard is the period from 2020 to 2023, when government spending and money creation increased rapidly, triggering inflation and currency depreciation. Depreciation has happened as a result of supply and demand fluctuations, the lack of access to international capital markets, shortage of foreign direct investment, poor cocoa harvests, government/ Bank of Ghana avert leakage of foreign remittances.

The government and Bank of Ghana must track, trace, and capture foreign remittances including those being captured by new money transfer companies and newly authorized fintech companies licensed by the Bank of Ghana under the Payment Systems and Services Act 2019 Act 987 in contravention to Foreign Exchange Act 2006 Act 723.

The Government through the Attorney General can initiate negotiations with the existing mining companies to up the surrendering portion of 13.5% to 25-30% based on the Botswana Model with Anglo-American De Beers in the short to medium term. The long-term solution is for the country to diversify rice, maize, onion, tomatoes, soya beans, and cashews, add value to its exports, increase local production, and cut down on imports so that there will be enough foreign exchange in the country.

The government’s policy of modernizing agriculture and creating an enabling business environment for the private sector to speed up the process of agriculture industrialization. Vulnerability to adverse terms of trade and other unfavorable external developments should be minimized through the diversification of export products. This requires government investment and incentives to improve economic infrastructure, reduce business costs and regulatory barriers, and develop new export growth poles.