Renowned economist Dr. Ishmael Yamson has advised the Government to focus on expenditure cuts as a crucial measure to address the cedi’s ongoing depreciation.
Speaking in an interview on Joy News’ PM EXPRESS on Thursday, July 18, Dr. Yamson emphasized that reaching an agreement with external creditors on debt restructuring alone will not solve the cedi’s poor performance in recent years.
Expenditure Cuts as a Signal to Investors
Dr. Yamson pointed out that significant expenditure reductions by the government could signal to investors a commitment to stabilizing the economy and managing the debt situation effectively.
“There is always a signalling effect that could convince investors about government commitment to stabilize the economy and help deal with our debt situation,” he stated.
He stressed the importance of taking practical and verifiable steps to cut expenditure, which would reduce the need for borrowing fresh money.
Short-term Borrowing and Its Impact
Expressing concern over the government’s short-term borrowing through the Treasury bill market, Dr. Yamson warned that this could further impact the cedi and exacerbate the country’s debt situation.
He emphasized the need for a more sustainable approach to fiscal management to support the cedi’s stability.
As of July 19, 2024, the cedi was trading at GHS 15.56 to the US dollar, GHS 20.23 to the British pound, and GHS 17.02 to the euro, according to average transactional quotes from major commercial banks.
Dr. Yamson highlighted that the telecommunications and manufacturing sectors continue to lead the demand for foreign currency, with interbank market trades ranging around GHS 15.38.
Cocoa Sector’s Role in Improving Cedi’s Fortunes
Dr. Yamson urged the government to closely monitor developments in the cocoa sector, noting its potential to positively influence the cedi’s performance.
He expressed concerns about the recent decline in cocoa production and its potential impact on Ghana’s export earnings, which are vital for bolstering international reserves, especially as the country remains shut out of the Eurobond market.
Election Spending and Fiscal Prudence
Dr. Yamson also expressed worries about the government’s ability to maintain fiscal discipline in an election year, despite commitments under the International Monetary Fund (IMF) program.
He recalled previous instances where governments failed to adhere to fiscal prudence during election periods, citing efforts by former Finance Minister Yaw Osafo Marfo to prevent significant election-year spending overruns.
Dr. Yamson’s assertions underscore the importance of prudent fiscal management and strategic expenditure cuts in stabilizing the cedi and supporting Ghana’s economic recovery. His cautionary advice comes at a critical juncture as the government navigates both economic challenges and the pressures of an upcoming election year.
