As Ghana approaches its general election this Saturday, the government is engaged in an urgent battle to stabilise the Ghanaian cedi, a currency under intense pressure from both domestic and global economic forces. Amid soaring inflation and a precarious macroeconomic landscape, the cedi’s dramatic depreciation has become a pivotal issue in the election campaign.
The Ghanaian currency has been in freefall for several years, facing significant setbacks during the COVID-19 pandemic as global investors flocked to the perceived safety of dollar-denominated assets. This weakened the cedi dramatically, a trend compounded by Ghana’s 2022 default on much of its external debt. This default, alongside rising debt costs, soaring interest rates, and excessive government borrowing, has placed immense strain on the local economy. Since 2020, the US dollar has surged nearly 180% against the cedi, which currently trades at approximately 15 to the dollar, up from 11 in May 2023.
The cedi’s decline has become an electoral battleground as ruling party candidate Mahamudu Bawumia, who is replacing incumbent Nana Akufo-Addo, faces former President John Mahama in what is expected to be a highly competitive race. Economic conditions, particularly the public’s experience of rampant inflation, could heavily influence voter decisions.
In response to the currency crisis, the Ghanaian government has implemented a series of aggressive measures to curb further declines in the cedi. Among the most notable is a directive aimed at pension fund managers, restricting their ability to invest in offshore assets. The national pensions regulatory authority has sought to contain foreign exchange outflows by enforcing limits on pension fund investments abroad, although many fund managers have increasingly turned to international markets following the country’s debt default. While current regulations allow pension funds to invest up to 5% of their assets overseas, there have been reports that the regulatory body has threatened sanctions against those seeking to bypass these restrictions. However, most analysts are doubtful that these measures will be effective in addressing the underlying structural issues affecting the cedi.
Joseph Appiah, vice president of the Accra-based investment banking firm Black Star Group, noted that while the authorities’ interventions have led to some short-term stabilisation—particularly in the lead-up to the elections—the currency’s recovery remains fragile. Over the past month, the cedi has appreciated by approximately 7% against the dollar, but Appiah cautions that this rebound is likely to be temporary. “The current foreign exchange rate is not being supported by robust economic fundamentals or sustainable government policies,” he said. “Rather, it is the result of central bank efforts to stabilise the cedi in a volatile market.”
Appiah forecasts that the cedi could again weaken to as high as 18 or 20 to the dollar in the coming months, once these short-term interventions subside. This uncertainty underscores the fragility of Ghana’s currency and its vulnerability to external shocks.
The weakening cedi has been a significant contributor to inflation, particularly in essential imports such as rice, poultry, and other food staples. Inflation in Ghana reached an alarming rate of over 37% in 2023, with food prices disproportionately driving the rise. The World Bank has warned that high inflation, particularly in food, has severely impacted living standards, pushing more people into poverty and heightening the risk of food insecurity.
Furthermore, the devaluation of the cedi exacerbates Ghana’s debt burden, which remains stubbornly high despite a debt restructuring agreement in early 2024. The country’s total debt exceeds $50bn, and the weakening currency makes repayments on dollar-denominated debt increasingly expensive. The agreement to restructure $5.4bn in debt to official creditors and the acceptance of a 37% haircut on $13bn of bonds in November 2024 offer some relief, but the overall debt crisis remains a significant challenge.
The government’s focus on stabilising the cedi is critical, not only for the economy but also for the election. The public’s frustration with inflation, high living costs, and the perceived mishandling of the economy will likely shape voting decisions. With both candidates, Bawumia and Mahama, vying for support in the face of a faltering economy, the future of the cedi—and the broader economic recovery—will be crucial factors in determining the outcome of the election.
Ghana’s experience offers a sobering lesson in the complexities of managing a national currency amidst external pressures and internal fiscal challenges. As the election approaches, both candidates will need to convince voters that they possess the leadership and economic acumen to navigate these turbulent times.
