'This strengthening of the cedi risks undermining local production,' says Prof Bokpin

Economist Prof. Godfred Bokpin is worried about the cedi's recent strength. He believes it could harm local production capacity if not managed properly.

On Newsfile, he warned that the government's strategy to lower the exchange rate might backfire. He said, “If we can’t boost supply, I won’t support this currency strengthening.”

Prof. Bokpin noted that the cedi's appreciation seems policy-induced, not accidental. He expressed concerns about its sustainability and underlying reasons.

He explained that fiscal discipline and monetary tightening are driving this trend. The government is spending less, leading to low imports and subdued demand.

Prof. Bokpin praised the coordination between the Ministry of Finance and the Bank of Ghana. He commended both leaders for working towards a common goal.

However, he highlighted potential downsides of this policy. Lowering the exchange rate makes imports cheaper but does not create jobs.

He pointed out data showing local producers are struggling. From November 2023, inflation on locally produced items surpassed imported inflation.

Prof. Bokpin believes the central bank uses the cedi to combat inflation but warns it’s not enough without boosting production. “Focusing only on exchange rates isn’t sustainable,” he said.

He criticized the lack of clarity in the Bank of Ghana’s strategy. “The central bank has a target exchange rate in mind but hasn’t communicated it,” he stated.

This uncertainty creates market confusion and risks short-term gains. “Strengthening the cedi leads to instability, which is bad for planning,” he added.

Instead, he advocates for a long-term approach to build reserves for stability and predictability in business planning.

While acknowledging that the Bank of Ghana operates within IMF guidelines, he stressed that stability is crucial for businesses and investors alike.

Prof. Bokpin argued against controlling inflation solely through exchange rate manipulation. He called for supply-oriented policies instead.

He concluded with a warning: “If we continue this way, we’ll weaken our local industry and lose jobs.”