The untold facts about the depreciation of the Ghana cedi-Prof. John Gatsi

The undulating feature of the cedi is a well-established fact about the Ghanaian economy.

That erratic depreciation is normally a response by the cedi to severe shocks mostly external. If there is no severe external shock you don’t expect sharp and sustain depreciation hence low rate of depreciation.


 

The rate of depreciation is not normally the cost of depreciation. Households and businesses are 99% of the time during the depreciation cycle, are interested in the cost of depreciation whether or not the rate of depreciation is relatively low or high.

 

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If GHS5:50 exchanged for $1 at the beginning of the year and today you need GHS6:30 to exchange for $1 then a serious business person will be concerned about the rate of change in his or her cost structure, how the new cost structure will affect prices and whether or not the entire development may deepen or reduce income erosion.

 

If an importer imported1000 bags of rice at a $ each then it will cost GHS5.500 to do the import excluding duties and taxes. At the time when the exchange rate moved to GHS6.30, the cost for 1000 bags would have increased by GHS800.00 to establish a cost of GHS6300. At the time politicians are arguing about the rate of depreciation of 1.7%, from the beginning of the year to September, the entrepreneurs will be complaining about 14.5% increase in the cost of importing the same 1000bags of rice.


 

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Given that depreciation affects external debt portfolio, interest payment obligations on the external debts, price developments and cost structure of businesses differently, reporting these effects together with the rate of depreciation will be a productive service to Ghanaians. The cumulative changes in the cost structure of businesses covering the period for the rate of depreciation can reveal a lot.

 

Perhaps the effects of depreciation on household incomes, capital base protection for businesses, debt servicing capacity of government and cost of living should be daily concern for the government.

 

We are not giving attention to the painful effects of depreciation on livelihood, Procurement, debt servicing and income erosion. Issues about depreciation are not mere macroeconomic articulation but critical livelihood concerns.


 

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Source Prof John Gatsi
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