The Trades Union Congress (TUC) has called for a financial transaction tax (FTT) on foreign exchange transactions to curb speculation around the cedi, while it criticised the Bank of Ghana’s “fruitless attempts” to shore-up the currency.
The cedi has lost more than 9% to the US dollar since the start of the year, and has continued to shrug off efforts -- including two 100-basis-points hikes in the policy rate -- by the Central Bank to stem the slide.
The TUC said it fears workers’ purchasing power will be eroded as the weak cedi causes the domestic prices of imported goods to rise. Headline consumer inflation picked up by 0.2 percentage points in March to 8.8%, driven by increases in the prices of clothing and footwear -- which the Ghana Statistical Service said may be linked to cedi weakness.
“The FTT will not only help to stem speculative attacks on the cedi, but equally importantly generate revenues for national development,” TUC Secretary-General Kofi Asamoah said in a statement.
The Central Bank said this month that the activities of speculators who are trying to profit from the cedi’s wobbliness, including hedging against its depreciation, are exacerbating the situation with the currency.
Mr. Asamoah said the liberalised trade in foreign exchange -- “like [it was] any other commodity” -- fuels speculative activities, and asked for external payments to be tightly regulated.
High import demand and the cash-based nature of trade between local importers and Chinese producers have increased the demand for foreign exchange, putting pressure on the local unit. Meanwhile, weaknesses in advanced economies -- particularly the crisis in the euro zone -- have reduced capital flows into the economy, according to the Central Bank.
The bank has sold more than US$1billion this year to importers and banks to plug the foreign exchange supply-gap. But the TUC censured the bank’s actions, saying they do not address the fundamental causes of the problem.
“In the view of the TUC, depleting national reserves merely to shore-up the cedi amounts to treating symptoms rather than focusing on the illness.
The weakness of the national currency is structural and symptomatic of the failed economic policies that have been pursued over the last three decades under the auspices of the International Monetary Fund (IMF) and the World Bank.
“The policy of unbridled trade liberalisation -- or more appropriately, import liberalisation -- has compelled us as a nation to live virtually on imports.
We practically import everything, including tilapia and toothpicks.
“We expect the government and its agencies to review our trade policies to ensure that in the medium- to long-term, Ghana weans itself off imports.
We expect them to address the many constraints that hinder domestic production and value-addition, and which permanently necessitate over-dependence on imports.”
The TUC alleged that the legal limits on foreign exchange transfers out of the country are rarely enforced.
“There is evidence of people and companies transferring millions of dollars in sacks through our porous borders,” Mr. Asamoah said.
He called on the government to “break the tradition of fiscal recklessness” as elections approach this year, warning that a discerning voting public is becoming averse to fiscal mismanagement.
“Halting the free-fall of the cedi will require a fundamental shift in policy and attitudes, particularly among the monetary authorities.
In the longer-term, we do not believe that the cedi can be saved by endlessly resorting to the injection of foreign currency by the Bank of Ghana -- after all, we have only so much reserve.”