IMF Exit Conditions Caused Exchange Rate Spikes in March- Bawumia


Vice President, Dr. Mahammadu Bawumia has blamed the depreciation of the cedi the country experienced in March 2019 to some of the exit conditions by the International Monetary Fund (IMF) programme.

According to him, the Bank of Ghana had to implement reforms to ensure an increase in the country’s international reserves in a bid to end the IMF’s extended credit facility arrangement by April.

In March this year, there was widespread concern amongst the general public and the business community, about the depreciation of the Cedi and its impact on their livelihoods.

At the time, critics lashed out at Mahamudu Bawumia, for not being able to save the cedi from free fall especially when he said a New Patriotic Party government will turn such a situation around.

At a town hall meeting on Wednesday however, Dr. Bawumia revealed that Ghana’s quest to exit the IMF programme is partly attributed to the depreciation of the currency in the past month.

“At the end of March 2019, the cedi had depreciated by about 5.18 percent so far this year. We have to understand how come we saw this sort of movement in the exchange rate a few weeks ago. Why did it jump so far? Many reasons have been given but let me tell you what happened. The most important and proximate cause of the recent depreciation is the time inconsistency of an IMF prior action on the reserves target.”

Explaining further, Dr. Bawumia insisted that it was practically impossible for the Central Bank to take any action

“At the end of January; as part of the seven prior actions for the completion of the IMP programme, the IMF gave Ghana seven actions to complete before March 15 and one of the conditions that the Bank of Ghana had to meet was to increase its net international reserves to the level of December 2018. Increasing the net international reserves however meant that the Bank of Ghana could not sell any foreign exchange in the Market. They had to essentially to hold their hands to the back and they could not intervene on the market during this particular period. So demand for foreign currency was not met by supply as it normally happens on a day to day basis. The demand was greater than the supply and the Bank of Ghana had to increase its reserves by about $800 million and this explained what was happening.”

He also dispelled rumours that the Bank of Ghana had injected some reserves into the company which is causing the appreciation of the cedi.

Describing such a move as unwise, he said investor confidence has increased because of what he said are the strong fundamentals and the normalization of market forces.

“When the reserve target was met, we then had an IMF Board meeting on March 20, which passed Ghana. So this partly explains why the cedi was under such pressure. It was the primary reason contrary to some speculations. The Bank of Ghana did not spend any reserve to revive the cedi following the initial depreciation. That would not have been wise. The reason for the sudden reversal of the sharp depreciation that we observed is because the market corrected itself. Investment sentiment, expectations and uncertainties acknowledged that the fundamentals are much stronger than suspected.”

During the period, Director of Treasury at the Bank of Ghana, Steven Opata the current free fall of the cedi against major trading currencies especially the dollar has nothing to do with Ghana’s economic fundamentals,
He said the current economic fundamentals are good and the central bank expects the cedi to bounce back sooner than later.

Mr. Opata was however hopeful that with measures put in place by the central bank and government, the cedi will surely recover.