The government must immediately release foreign exchange reserves into the local market to tackle cedi depreciation and fuel prices at the pumps, energy analyst Ben Nsiah has urged.
Speaking to Sweet FM Online during a media training session organized by the Chamber of Oil Marketing Companies Institute of Petroleum Studies, the Executive Director of the Centre for Environmental Management and Sustainable Energy (CEMSE) warned that unchecked forex volatility will derail Ghana's broader macroeconomic stability if left unaddressed.
The Boomerang Effect of Rising Pump Costs
Nsiah explained that fuel price increases do not simply end at transport fares or individual driver budgets. Instead, they trigger a dangerous chain reaction across the entire national economy.
When pump prices shoot up, transport and production costs push inflation higher. High inflation then forces lending rates up, ultimately choking off commercial credit to local businesses, crowding out the private sector, and stalling industrial growth.
"When you look at the boomerang effect of fuel price increase on international market, then it's incumbent looking at the cost benefit analysis of government," Nsiah stated.
"It's incumbent on government to redirect whatever reserve he has into the petroleum downstream, into the dollar market or the exchange rate market to ensure that the cedi appreciates against the dollar to keep price of petroleum products down." - Ben Nsiah
He stressed that using dollar reserves to defend the currency now is far cheaper than dealing with the economic fallout of sustained inflation later.
Global Pressures Heavy on the Local Currency
Unpacking why the cedi keeps taking a hit, the energy analyst cautioned against placing all the blame on local fiscal and monetary managers.
While public frustration usually targets the Central Bank or the Ministry of Finance, Nsiah noted that external market forces are playing a major role in the currency's slide.
"It may not be entirely the fault of Bank of Ghana through monetary policy or entirely the fault of finance ministers through fiscal policy making. "
It just could be geopolitical factors or commodity pricing factors on international market that is making the cedi depreciate." - Ben Nsiah
Recent policy rate hikes by the US Federal Reserve have strengthened the American dollar globally, weakening currencies across emerging markets. At the same time, slumping international gold prices have hurt Ghana's reserve accumulation.
On the home front, revenue shortfalls at the Ghana Revenue Authority have raised fears of a widening fiscal deficit, creating extra panic in the forex market.
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