Introduction
THE Ghanaian cedi has long served as a mirror of the country’s economic health, symbolising both its achievements and persistent challenges. As a vital component of national identity and economic stability, the cedi’s performance directly impacts inflation rates, public debt, and the cost of living for millions of Ghanaians. Over the years, however, the cedi’s depreciation has emerged as a recurring concern, eroding public confidence, increasing the cost of imports, and adding to the burden of external debt. This depreciation has amplified inflationary pressures, contributing to a challenging fiscal environment and widening the gap between Ghana’s economic aspirations and its current realities.
On January 13, 2025, a sense of cautious optimism emerged as Finance Minister-designate Dr. Cassiel Ato Forson addressed Parliament’s Appointments Committee. With a clear understanding of the stakes, Dr Forson outlined an ambitious strategy to stabilise the cedi and lay a sustainable foundation for Ghana’s economic growth. Recognising that currency depreciation accounts for nearly 90 per cent of the increase in external debt, his proposed measures aim to tackle systemic issues, including fiscal mismanagement, export underperformance, and weak foreign reserves. Dr Forson’s vision, if executed with precision and diligence, could mark a watershed moment in Ghana’s economic journey, a bold step toward fiscal resilience, sustainable development, and renewed global confidence in the nation’s economic framework.
The cedi crisis and its impacts
The persistent depreciation of the cedi has been one of Ghana’s most formidable economic challenges, underscoring deep structural vulnerabilities in the nation’s fiscal and monetary systems. Over the past decade, the cedi has steadily lost value against major global currencies like the US dollar, euro, and British pound. This decline has eroded investor confidence, increased the cost of doing business, and left the economy more susceptible to external shocks.
One of the most concerning effects of the cedi’s depreciation has been its impact on Ghana’s external debt. Finance Minister-designate Dr. Cassiel Ato Forson highlighted that currency depreciation accounts for a staggering 90 per cent of the increase in Ghana’s external debt. By the end of 2024, external debt had ballooned to $29.9 billion, creating a significant financial strain on the country. This issue is exacerbated by the fact that a substantial portion of Ghana’s debt is denominated in foreign currencies, making repayments more expensive as the cedi weakens. Servicing this debt consumed 40 per cent of the government’s total revenue in 2023, diverting critical resources away from essential sectors like education, healthcare, and infrastructure.
The effects of the depreciating cedi are felt not only at the macroeconomic level but also in the lives of ordinary Ghanaians. Inflation soared to 40.1 per cent in October 2023, driven in part by the increased cost of imported goods, from food staples to industrial equipment. Households have faced rising prices for everyday essentials, while businesses have struggled to absorb the higher costs of imports, resulting in reduced profit margins and, in some cases, layoffs. This inflationary environment has further eroded the purchasing power of citizens, deepened inequality and reduced overall economic stability.
Moreover, the depreciation of the cedi has strained Ghana’s foreign exchange reserves, which stood at a precarious $4.1 billion in 2024–covering only two months of imports, far below the recommended minimum of three months. This limited reserve buffer has made it increasingly difficult for the Bank of Ghana (BoG) to intervene effectively in the foreign exchange market to stabilize the cedi. As a result, speculative activity has heightened, further exacerbating currency volatility.
Ghana’s total public debt reached GH₵575 billion in 2024, equivalent to 77.5 per cent of GDP, placing the country in a precarious fiscal position. This level of debt far exceeds the 70 per cent threshold considered sustainable for emerging markets, raising alarms about the potential for debt distress. The high debt burden, combined with a weakening cedi, has diminished the government’s fiscal space, making it challenging to fund development projects and social programs crucial for economic growth and poverty alleviation.
The urgency of addressing the cedi crisis cannot be overstated. The depreciation of the currency is not merely an economic issue; it is a national priority with far-reaching implications for Ghana’s fiscal health, business environment, and social stability. Stabilizing the cedi is essential not only to reduce the debt burden but also to restore confidence in the economy, attract foreign investment, and create a sustainable path to economic recovery. Without decisive action, the cedi’s downward trajectory could undermine the nation’s broader development goals and further strain the livelihoods of its citizens.
Dr Forson’s strategic vision
1. Stabilising the cedi
Dr Forson’s priority is to stem the tide of cedi depreciation. This involves:
1. Coordinated Policies:
Collaborating with the Bank of Ghana to implement monetary policies that curb inflation and stabilise the currency.
2. Foreign Reserves Management:
Strengthening reserves, which stood at $4.1 billion in 2024, to support import cover and currency defense.
2. Debt Restructuring and Management
With external debt service consuming 40 per cent of revenue in 2023, Dr Forson proposed:
1. Renegotiation of External Debt:
Working with international creditors to restructure repayment terms.
2. Sustainable Borrowing:
Aligning borrowing with growth-driven projects to ensure long-term returns.
3. Export Growth and Diversification
A diversified export base is crucial for reducing reliance on foreign exchange. Plans include:
1. Promoting Non-Traditional Exports (NTEs):
Ghana’s NTEs, valued at $3.3 billion in 2023, can be expanded through agro-processing and industrial minerals.
2. Value Addition:
Shifting from raw exports to finished products to enhance export earnings.
4. Fiscal Discipline
Restoring fiscal discipline is vital for economic recovery. Dr. Forson’s measures include:
1. Expenditure Control:
Cutting wasteful spending while prioritizing essential sectors like education and healthcare.
2. Revenue Mobilisation:
Increasing tax compliance and broadening the tax base to boost domestic revenue.
3. Economic Transformation: What’s at stake?
The implementation of these strategies has the potential to transform Ghana’s economic landscape:
4. Reduced Debt Pressure:
Stabilizing the cedi would lower the cost of external debt servicing, freeing resources for development.
5. Economic Growth:
With GDP growth projected at 3.8 per cent in 2024, fiscal discipline and export diversification could accelerate this figure significantly.
6. Job Creation:
Investments in local industries and export-oriented sectors could generate thousands of jobs.
7. Improved Living Standards:
A stronger cedi would curb inflation, making goods and services more affordable.
Conclusion
Dr Cassiel Ato Forson’s bold blueprint to stabilize the cedi represents not just a plan but a vital opportunity for Ghana to reclaim its economic footing and secure a brighter future. His comprehensive approach, which prioritises fiscal discipline, debt restructuring, export diversification, and coordinated monetary policies, offers a pragmatic and hopeful pathway for addressing Ghana’s economic challenges. While the obstacles are significant, ranging from entrenched structural weaknesses to global economic uncertainties, the potential rewards of a successful implementation are transformative.
The success of this initiative hinges on several critical factors. First, strong institutional coordination between the Ministry of Finance, the Bank of Ghana, and other economic stakeholders is essential to ensure the seamless execution of monetary and fiscal policies. Second, public accountability and transparency will be crucial to building trust, both domestically and internationally, while fostering a culture of compliance and fiscal prudence. Lastly, unwavering commitment to fiscal discipline must remain at the core of the nation’s recovery efforts, ensuring that resources are allocated efficiently, and wastage is minimised.
The stability of the cedi will not only symbolise economic resilience but also serve as a cornerstone for broader national progress. A stable currency has the potential to reduce inflation, ease the burden of external debt servicing, and attract much-needed foreign direct investment. It can also revitalise critical sectors such as agriculture, manufacturing, and services, creating jobs and fostering inclusive economic growth.
If Dr Forson’s strategies take root, Ghana could position itself as a model for economic reform across the African continent. By addressing the root causes of fiscal instability and leveraging its unique strengths, the nation could lead by example, demonstrating how sound economic policies can translate into tangible benefits for its people. The ripple effects of such success would extend beyond Ghana’s borders, inspiring neighbouring countries to adopt similar reforms in pursuit of stability and prosperity.
The road to recovery will undoubtedly be challenging. The journey requires not only determined leadership but also the collective effort of government institutions, private enterprises, and ordinary citizens. However, with a clear vision and a united front, Ghana has the potential to revive the cedi, rebuild confidence in its economy, and unlock the vast opportunities that lie ahead. Dr Forson’s vision is more than a plan; it is a call to action for a nation ready to rise to its challenges and chart a new course for the future. Through resilience, innovation, and collaboration, Ghana can turn its economic trials into triumphs and ensure a sustainable and prosperous legacy for generations to come.
