The recent resurgence of the Ghanaian cedi against major international currencies, most notably the US dollar, has sparked considerable debate regarding its underlying causes. Professor Godfred Bokpin of the University of Ghana Business School attributes this positive trend primarily to significant expenditure cuts implemented by the current National Democratic Congress (NDC) government. He contrasts this fiscal prudence with the previous administration’s approach, arguing that the NDC, within a mere five months, has managed to reduce spending by a substantial GHC10 billion compared to the 2024 budget. This decisive action, according to Prof. Bokpin, addresses the long-standing call for fiscal consolidation, a measure advocated since the onset of the COVID-19 pandemic to mitigate the negative economic consequences of excessive liquidity injection through unrestrained spending.
Prof. Bokpin’s assertion challenges the narrative presented by some members of the opposition New Patriotic Party (NPP), who credit the cedi’s appreciation to initiatives implemented during their tenure. They argue that the NDC’s short time in office is insufficient to justify claims of positive impact. However, Prof. Bokpin contends that the cedi’s recovery directly reflects the positive results of decisive leadership and effective policy coordination between key economic actors, particularly the Finance Minister, Dr. Cassiel Ato Forson, and the Bank of Ghana Governor, Dr. Johnson Asiama. He emphasizes the “painful choices” made by the government as evidence of their commitment to fiscal discipline, a stark contrast to the previous administration’s approach, which he believes exacerbated economic challenges.
A critical point of contention revolves around the economic management under the 2024 International Monetary Fund (IMF) program. Prof. Bokpin highlights that the previous administration missed almost all targets set under the program, with the exception of GDP growth and international reserves. The most significant misstep, he argues, was the failure to achieve the targeted primary surplus of 0.5% of GDP, instead recording a negative surplus exceeding 3%. This failure necessitated corrective measures in the 2025 budget, aimed at restoring the IMF program to its intended trajectory. The government’s efforts to shift from a negative surplus to a positive primary balance of 1.5% of GDP demonstrate a renewed commitment to fiscal responsibility, a crucial element in stabilizing the economy and restoring confidence in the cedi.
The corrective actions undertaken by the current government, while effective in stabilizing the cedi, have not been without consequences. Prof. Bokpin acknowledges the trade-offs involved, particularly the lower-than-projected growth in 2024. This outcome, he explains, is a direct result of the government’s deliberate efforts to cool down an overheating economy by significantly reducing expenditure. The GHC10 billion reduction in spending compared to 2024 represents a substantial contractionary fiscal policy, a necessary measure to address the imbalances created by previous policies and to restore macroeconomic stability. The resulting slowdown in growth, although an unavoidable consequence, is viewed as a short-term pain necessary for long-term economic health.
The contrasting fiscal strategies of the two administrations highlight the ongoing debate about the best approach to economic management. While the previous administration prioritized growth through increased spending, the current government has adopted a more cautious approach, emphasizing fiscal consolidation and stability. Prof. Bokpin’s analysis suggests that the previous administration’s expansionary fiscal policy, coupled with the Bank of Ghana’s injection of excess liquidity, fueled inflationary pressures and ultimately contributed to increased poverty. The current administration’s focus on fiscal discipline, even at the expense of short-term growth, aims to address these underlying issues and create a more sustainable economic foundation.
In conclusion, Prof. Bokpin’s analysis underscores the importance of prudent fiscal management in achieving macroeconomic stability. He credits the cedi’s recent appreciation to the current government’s commitment to fiscal consolidation, contrasting it with the previous administration’s approach, which he believes contributed to economic instability. The government’s adherence to the revised IMF program targets, despite the associated trade-offs, signals a long-term vision focused on sustainable economic growth and stability, rather than short-term gains. This shift in policy, while potentially impacting short-term growth, is seen as a necessary corrective measure to address past imbalances and pave the way for a healthier and more resilient Ghanaian economy.
