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Ghana Cedis Anticipated To Stabilize in H2-23

Amid Foreign Inflows and Debt Restructuring

After navigating a turbulent first half of 2023 marked by losses, Ghana Cedis, the country’s currency, the cedi, is poised for a smoother ride in the latter half of the year. This positive outlook is attributed to anticipated significant foreign exchange (FX) inflows and a rebound in investor confidence.

The nation is on the brink of securing substantial financial support, with the World Bank’s commitment of US$900 million and a potential second tranche of US$600 million from the IMF in November 2023. These pledges follow a successful review in September 2023. Furthermore, Ghana’s ongoing external debt restructuring efforts are progressing well and are projected to conclude in H2-23.

Databank, a prominent asset management company, forecasts that the cedi will maintain a range-bound trading pattern, fluctuating between GH¢10.9 and GH¢11.1 to US$1 for the Bank of Ghana (BoG) interbank reference rate by year-end.

“We forecast the GH¢ to remain range-bound and trade around GH¢11.0/US$ (±GHp10) for the BoG interbank reference rate to end the year. We believe the conclusion of external debt restructuring will bolster investor confidence and help attract portfolio inflows, which will help support FX liquidity on the market,” Databank stated.

Anticipated inflows from cocoa syndicated loans, approximately US$2 billion, are expected to reinforce FX reserves and empower the central bank’s intervention capabilities, consequently enhancing the stability of the GH¢.

During the initial six months of 2023, the foreign exchange market sustained a relative stability, benefiting from positive market sentiment stemming from the IMF’s disbursement of the ECF first tranche of US$600 million, forex acquisitions from the mining and oil sectors, and reduced demand.

Although the cedi initially experienced a 20.6 percent depreciation against the US dollar in January 2023, it has demonstrated stability since then, registering a cumulative depreciation of 1.8 percent between February and June 2023.

The government’s debt service is not projected to significantly impact foreign investor holdings of the four maturing domestic bonds in H2-23, as these bonds constitute only 2 percent of the total outstanding bonds. This outlook suggests that the cedi will likely remain stable in H2-23, with the central bank targeting to meet its US$120 million objective for the Bulk Oil Distribution Companies (BDC) forex (FX) forward auction in Q3-23.

Despite the cedi’s commendable performance from February 2023 onward, concerns persist regarding the reserve buffer’s vulnerability to potential shocks. By December 2023, gross reserves (adjusted for petroleum funds and encumbered assets) are estimated to cover merely 0.8 months of imports. This delicate reserve cushion poses a challenge to the short-term prospects of the local currency.

The upcoming maturity of the Aug-2023 Eurobond, valued at US$148.76 million, is anticipated to exert significant pressure on FX reserves and potentially limit the central bank’s interventions.

While speculative attacks on the GH¢ are deemed unlikely, increased oil prices resulting from Saudi Arabia’s decision to reduce daily oil production by a million barrels could heighten Ghana’s import bills, consequently putting downward pressure on the cedi, as noted by Databank.

In spite of these potential risks, the overall outlook for the cedi remains positive. The expected financial inflows and ongoing debt restructuring efforts are expected to contribute to improved investor confidence and overall stability in the currency market.


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