The Effects of Dollar-Cedi Exchange Rate on Ghana’s Poverty Reduction Efforts

In recent years, Ghana has struggled to manage the exchange rate between the US dollar and the Ghanaian cedi. This mismanagement has had far-reaching consequences for the country’s economy, directly hurting individuals’ livelihoods and hampering efforts to meet the United Nations’ Sustainable Development Goals (SDGs), particularly the goal of poverty alleviation.

Regarding Exchange Rate Dynamics and Economic Implications
The dollar-to-cedi exchange rate is a key measure of Ghana’s economic stability. A stable and favourable exchange rate can boost international trade, attract foreign investment, and increase the purchasing power of the local currency. In contrast, a variable and declining exchange rate can cause inflation, raise the cost of imports, and reduce the value of savings and income.
From January 2020 to May 2024, the Ghanaian cedi depreciated dramatically against the US dollar, falling from 5.5 GHS/USD to around 14.54 GHS/USD. This depreciation has raised import prices, notably for critical products like fuel, food, and medication. Ghana’s inflation rate rose to 54.1% in December 2022, the highest level in more than two decades, owing primarily to increased import costs and a weakening cedi.

On Livelihoods Under Stress
The average Ghanaian is acutely aware of the negative consequences of mismanaged dollar-cedi exchange rates. The rising cost of living has made it more difficult for families to meet basic needs. For example, the price of imported food items has risen by more than 30% in the last year alone, placing pressure on household finances. Furthermore, rising fuel prices have resulted in increasing transportation costs, aggravating citizens’ financial stress.
Small and medium-sized firms (SMEs), which form the backbone of Ghana’s economy, are also feeling the pinch. Many SMEs rely on imported raw materials and goods, and the higher expenses associated with a lower cedi are reducing profit margins. This has led to lower corporate activity, job losses, and a drop in total economic production. According to the Ghana Statistical Service, unemployment increased to 13.4% in 2023 from 11.5% in 2020, demonstrating the economic impact on both firms and labour.

0n hindering poverty alleviation efforts
The United Nations’ Sustainable Development Goal for Poverty Reduction aims to eliminate extreme poverty for all people worldwide by 2030. However, Ghana’s current economic status presents a huge challenge to reaching this goal. The depreciation of the cedi has resulted in rising poverty, since more individuals are unable to meet their basic requirements. As of 2023, around 23.4% of Ghanaians live below the national poverty line, up from 21.4% in 2020, illustrating the increasing difficulty of poverty reduction.
Furthermore, the government’s ability to engage in social programmes and infrastructure development is impeded by economic issues resulting from exchange rate manipulation. With inadequate economic resources, the government struggles to offer appropriate assistance for education, healthcare, and social protection programmes that are critical to raising people out of poverty. Due to economic constraints, the government’s spending on social protection programmes will be reduced by 15% in 2023, significantly restricting help for disadvantaged populations.
Comparing Previous and Present Livelihoods
A comparison of Ghanaians’ livelihoods over the last decade reveals a disturbing trend. While there have been times of economic progress and stability, the recent years of cedi depreciation have resulted in a reverse of these gains. The rising cost of living, along with stagnating earnings, has contributed to a drop in the standard of living for many Ghanaians. According to the International Labour Organisation, real earnings in Ghana fell by 5.7% between 2020 and 2023, indicating a decline in purchasing power and economic well-being.
Conclusion
Mismanagement of the dollar-cedi exchange rate is a significant contributing reason to Ghana’s current economic woes. It has increased the cost of living, stretched household budgets, and hampered efforts to relieve poverty. To solve these difficulties, governments must take efforts to stabilise the exchange rate, limit inflation, and encourage economic growth. Only through such concentrated efforts can Ghana hope to meet the Sustainable Development Goals and enhance the livelihoods of its population.

References
Exchange Rate Depreciation: “Ghana cedi depreciates by 45% in three years,” MyJoyOnline, 2024.
Inflation Rate: “Ghana’s inflation hits 54.1% in December 2022,” Ghana Statistical Service. 2022.
Cost of Living: “Surge in food prices hits Ghanaian households,” Ghana Web, 2023.
Unemployment Rate: “Rising unemployment in Ghana: A 2023 Overview,” Ghana Statistical Service. 2023.
Poverty Levels: “Poverty rate increases to 23.4% in Ghana,” World Bank, 2023.
Government spending: “Cuts in social protection programmes amid economic challenges,” Ministry of Finance, Ghana, 2023.
Real Wages: “Decline of real wages in Ghana, 2020-2023,” International Labour Organisation, 2023.

By Roger TD Wills, an Economist and Financial Analyst