Renaissance Capital: Cedi depreciation adding to Ghana's inflationary pressures

Ghana's economy is facing significant challenges as inflation pressures soar to an 18-year high of 23.6%. Yvonne Mhango, a sub-Saharan Africa Economist and Head of Research at Renaissance Capital, highlighted the issues contributing to this economic turmoil in a recent interview with CNBC Africa. Inflation in Ghana has skyrocketed, driven by food inflation at 27% and non-food inflation at 21%. The sharp increases in food and fuel prices, related to global events in Russia and Ukraine, have had a significant impact on the economy. Ghana heavily relies on imported commodities such as food and fuel, making it vulnerable to price spikes. The Ghanaian currency, the Cedi, has been depreciating since last August, stabilizing around 7.5 Cedi to the dollar. The outlook for the Cedi remains uncertain, with a forecast of 8.4 Cedi to the dollar by the end of the year. However, the currency is considered undervalued, posing risks either way. The Ghanaian authorities are facing challenges on both the monetary and fiscal fronts. The central bank is expected to implement further rate hikes to stabilize prices internally and externally. Meanwhile, the finance minister has ruled out seeking assistance from the International Monetary Fund (IMF) to address the country's fiscal woes. Despite facing high debt levels and a ballooning budget deficit, Ghana is determined to resolve its fiscal challenges independently. The authorities are focusing on stabilizing the currency and reducing the budget deficit to ensure debt sustainability. The worst-case scenario for Ghana would be a default on external debt, including euro bonds. To avoid this, the government is working towards maintaining fiscal discipline and seeking revenue-generating opportunities. The best-case scenario involves successfully managing the deficit by cutting spending and boosting revenue through economic growth. Ghana is projected to achieve a modest growth rate of 4.2% this year, down from 5.4% in the previous year. The extractive sector's performance, a significant contributor to the economy, has been declining, posing a challenge to sustainable growth. Overall, Ghana's economic outlook remains uncertain, with inflationary pressures and currency depreciation adding to the complexities faced by the authorities.