After enduring a turbulent first half of 2023 marked by losses, the Ghanaian cedi is poised for a smoother ride in the latter half of the year, underpinned by substantial foreign exchange (FX) inflows and a recovery in investor confidence.
Signs of relief emanate from Ghana’s prospects of receiving a substantial funding injection, with the World Bank’s committed US$900 million and the potential second tranche of US$600 million from the IMF scheduled for disbursement in November 2023, following a successful review in September. Moreover, the country’s external debt restructuring, progressing steadily, is expected to conclude in H2-23, instilling a sense of optimism among investors.
Financial experts at Databank, the asset management company, have expressed confidence in the cedi’s stability, forecasting a range-bound trading scenario between GH¢10.9 and GH¢11.1 to the US dollar for the Bank of Ghana (BoG) interbank reference rate by year-end. Databank’s optimism is underpinned by the anticipated bolstering of investor confidence through the debt restructuring process, likely to attract portfolio inflows and support FX liquidity in the market.
The expected inflows from cocoa syndicated loans, approximately US$2 billion, have emerged as another significant catalyst for boosting FX reserves, thereby enhancing the central bank’s intervention capabilities and, consequently, reinforcing the stability of the Ghanaian cedi.
Despite initial turbulence, the foreign exchange market has exhibited relative stability during H1-23, with positive market sentiments deriving from the IMF’s initial disbursement of the ECF first tranche, forex purchases from the mining and oil sectors, and weakened demand, all contributing to this resilience.
Having depreciated by 20.6 per cent against the US dollar in January 2023, the cedi has demonstrated commendable resilience since then, with a cumulative depreciation of only 1.8 per cent between February and June 2023.
Furthermore, the potential strain on FX reserves and limited sell-side interventions arising from the maturity of the Aug-2023 Eurobond with a face value of US$148.76 million is being closely monitored. The central bank aims to meet its US$120 million target for the Bulk Oil Distribution Companies (BDC) forex (FX) forward auction in Q3-23, a measure aimed at maintaining the cedi’s stability amidst such potential challenges.
Notwithstanding Cedi’s impressive performance in recent months, concerns linger over the vulnerability of the reserve buffer to external shocks, with gross reserves estimated to cover a meagre 0.8 months of imports by December 2023. Such a thin reserve cushion poses a potential threat to the near-term outlook of the local unit.
In the face of a hypothetical period of increased volatility, the cedi could be susceptible to speculative attacks, albeit such scenarios are deemed unlikely at present. Additionally, Saudi Arabia’s decision to reduce oil production could exert upward pressure on oil prices, consequently impacting Ghana’s import bills and potentially leading to depreciating pressures on the cedi, as cautioned by Databank.
Nonetheless, the overall outlook for the Ghanaian cedi appears positive, buoyed by the expected funding inflows and successful debt restructuring, both of which are poised to contribute significantly to improved investor confidence and enhanced stability in the currency market.