cedi to fall in 19th straight year

Measures planned by the Bank of Ghana to control lenders’ foreign-exchange trading may not halt a slide in the cedi as it heads for a 19th straight annual depreciation against the dollar, Standard Bank Group Ltd. said.

Budget and current-account deficits in the West African nation, which has the region’s second-largest economy, will determine the cedi’s rate more than the central bank’s plan to introduce new trading rules and direct lenders to report prices on a common platform, Samir Gadio, an emerging-markets strategist at Standard Bank’s London unit, said.

“The root cause remains the sizable fiscal deficit, which adds to aggregate demand and external imbalances,” he said. “There’s a need for further fiscal consolidation and measures to slow economic growth if one wants to reduce the pace of depreciation of the cedi.”

The currency of the world’s second-biggest cocoa producer plummeted 15 percent this year against the dollar, driving up inflation as Ghana missed a target to reduce the budget deficit to 9 percent of gross domestic product (GDP). The cedi’s decline is the worst among 22 African currencies tracked by Bloomberg after the South African rand, the Malawian kwacha and Sudan’s pound.

The cedi has depreciated every year since at least 1995, according to Bloomberg, which began compiling the data in May 1994.

Ghana’s fiscal deficit is now forecast to be 10.2 percent of GDP this year before narrowing to 8.5 percent in 2014, Finance Minister Seth Terkper said on November 19. The International Monetary Fund projects a deficit in the current account, the broadest measure of trade in goods and services, of 11.9 percent of GDP this year and 9.1 percent in 2014.

“The pace of fiscal consolidation over the next two years will be slower than the government projects, “Fitch said on November 25.

The agency lowered Ghana’s creditworthiness one step to B, five levels below investment grade, on Oct. 17. Standard and poor’s changed Ghana’s outlook to negative from stable on December 6.

The cedi may drop to 2.78 per dollar by the end of 2014, Angus Downie, the London-based head of economic research at Ecobank Transnational Inc., said on Dec. 17. That’s even as Ghana’s oil output is projected to reach 120,000 barrels a day next year at the Jubilee field, its main crude-exporting site, from the January to September daily average of 102,503 barrels, according to the Finance Ministry.