Bloomberg News

Ghana’s Cedi Extends Decline as Growth Widens Trade Deficit

January 16, 2012

(Updates with comment from central bank official in seventh paragraph, analyst comment in eighth.)

Jan. 13 (Bloomberg) -- Ghana’s currency, the world’s third- worst performer against the dollar this year, extended its decline as a widening trade deficit amid growing import demand curbs supplies of foreign currency.

The cedi weakened 0.4 percent to 1.7090 per dollar, a third day of declines, by 2:05 p.m. in Accra, the capital. It traded at the lowest since May 1994, when Bloomberg began compiling data on the currency of the world’s second-biggest cocoa producer.

Demand for dollars “is coming from importers across all industries,” said Kojo Darpaah, a currency trader at the local unit of Barclays Bank Plc, by phone today.

Economic growth has led to rising demand for imports and a wider trade deficit, said Nii Ampa-Sowa, head of research at Accra-based Databank Financial Services Ltd. Ghana’s economy grew 13.6 percent in 2011 and is expected to expand 9.4 percent this year, according to the Finance Ministry.

“If the value of your imports is more than your exports, your currency will be under pressure because it means you cannot accumulate enough foreign exchange,” Ampa-Sowa said by phone today. He expects the cedi to weaken 5 percent to 7 percent against the dollar this year.

The December 2010 start of oil production for export and rising cocoa output were not enough to steady Ghana’s trade deficit, which widened 8.3 percent to $2.6 billion in the 11 months of last year to November, according to the Bank of Ghana.

Oil Services

The burgeoning oil industry has led to the appearance of related service companies that bring their goods into the country, said Collins Antwi, assistant director of the treasury department of the Bank of Ghana. Imports include most consumer goods sold in Ghana, as well as food products.

Ghana’s “slowly built” foreign reserves “have been continuously outstripped by import demand,” Nalini Cundapen, a London-based emerging markets strategist at Societe Generale SA, said in an e-mailed reply to questions Jan. 11. Gross international reserves represent 3.8 months of import cover, “leaving the country vulnerable to further crises,” she said.

The Bank of Ghana needs to reduce the amount of cedis in circulation, as “loose liquidity conditions have made it easier for investors to sell the currency,” Cundapen said.

Given the demand for dollars, which has led traders to rely on the central bank to provide the currency, “the Bank of Ghana will eventually have to formalize their foreign-exchange management policy with the market evolving to a similar set-up to Nigeria,” she said.

The Central Bank of Nigeria holds twice-weekly dollar auctions to sell the currency to lenders.

--Editors: Emily Bowers, Dulue Mbachu, Hilton Shone.

To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net

To contact the editor responsible for this story: Emily Bowers at ebowers1@bloomberg.net


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