Cedi Stability Affects Job Creation

The relative stability of the local currency, the cedi, appears to have dire consequences on the nation, as it has affected employment creation and growth rate of the Ghanaian economy, a report reveals.

Since the beginning of the year, the Cedi has maintained stability against the major foreign currencies, especially the Dollar, with the outlook remaining positive.

The Monetary Police Committee (MPC) report released on April 16 mentioned that the Cedi appreciated against the Dollar by 0.7 percent compared with a depreciation of 11.9 percent between January and March 2009, while it also appreciated by 0.71 percent and 7.28 percent against both Euro and the Pound respectively.

But the Center for Policy Analysis (CEPA) on economic think-tank, says, “The steady and creeping appreciation of the Cedi, expected to continue till the end of the year, would impede growth, and employment potentials of non-oil sectors, particularly agriculture and manufacturing.”

If therefore warned that the experiences of other African oil producers in which windfalls oil produces in which windfalls, in foreign exchange earnings have had a number of negative economic repercussions should be fully learnt. In its analysis, themed: ‘From a Cocoa Economy To an Oil Economy’, CEPA mentioned that current macroeconomic policy framework which is a three-year stabilization programme, agreed with the international Monetary Fund (IMF) for the period 2009-2012, comes at a cost, since there would be no job creation while the economy cannot expand too.

The report pointed out that the four percentage-point reduction in the rate of inflation from 20 percent to 16 percent per annum achieved in 2009 cost the nation an economic slack equivalent of four percentage points of GDP. This also means the loss of jobs that would otherwise have been created to produce this amount of loss output.

It projected that its forecast of a cumulative 5.7 percentage point reduction in the rate of inflation in 2010 from 16 percent in December 2009 to 10.3 percent in December 2010 would require a corresponding loss in output equivalent to 5.7 percentage points of GDP.

The economic think-tank further argued that government’s current fiscal stabilization programme would become a mirage with expected Single Spine Salary Structure in July, subsidies on utility and prices of petroleum products and the rising stock of government payment arrears among others affective it.

It expressed worry about the stock of government debts which is reportedly raising fears of the Government of Ghana (GOF) default on its securities resulting in high insurance premiums on these securities. It chastised government, at least partially, for the rising stock of non-performing loans (NPLs) in the banking industry.

“Dealing with these risks call for better balance between the objectives of growth and macroeconomic stability, and therefore in CEPA’s view, stabilization programme of three years of austerity, implying high cumulatively losses in growth and jobs in a country with deep and pervasive poverty, is politically unsustainable.”

Ghana will start to produce oil from late 2010 or early next year and Dr. Abbey warned that government should not raise the expectations of Ghanaians since the country’s oil cannot reach the levels of Nigeria and Angola. “We have to do hard competition out there to make gains.”

He added that cocoa had generated enough revenue for the nation and that the government should not neglect it because of the oil find, citing the “Dutch Disease” as an example. The Dutch Disease is a resource curse which purportedly explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector.

The theory is that an increase in revenue from natural resources will de-industrialize a nation’s economy by raising the exchange rate, which makes the manufacturing sector less competitive and public services entangled with business interests.

Dr Joe Abbey, Executive Director of the center, blamed economists and intellectuals for letting the nation down, saying, “Footballers are doing well; boxers and artisans are all performing and so what is the problem?

Source: Business Guide/Ghana