The Appreciation of the Ghana Cedi Against the United States Dollar

Background

The Ghanaian cedi has experienced a significant appreciation against the US dollar in recent months. According to Bloomberg, the cedi has appreciated nearly 16% against the US dollar since the start of April 2025. This marks a remarkable turnaround from its previous status as one of the worst-performing currencies in Sub-Saharan Africa in 2024.

Factors Contributing to the Appreciation

1.  Increased Gold and Cocoa Exports

•  Ghana has benefited significantly from the surge in gold prices on the international market. The price of gold rose from around US$2,000 to approximately US$3,400 per ounce by May 2025. This increase in gold prices has led to higher export revenues, with an estimated US$11.6 billion in gold export revenues in 2024, up from US$7.6 billion in 2023. Additionally, cocoa prices have remained elevated, contributing to the overall increase in foreign exchange earnings.
•  The formalisation of the small-scale gold mining sector has also led to a notable rise in export volumes, further boosting foreign exchange earnings and supporting currency stability.

2.  Policy Interventions by the Bank of Ghana

•  The Bank of Ghana has played a crucial role in supporting the cedi through targeted interventions. In April 2025, the central bank injected US$490 million into the foreign exchange market, helping ease demand pressures and meet forex needs. This move led to a 5.3% month-on-month appreciation of the cedi against the US dollar, bringing its year-to-date gain to 7.44%.

3. 3.  Temporary Suspension of External Debt Servicing

•  Ghana’s ongoing Debt Restructuring Programme has temporarily suspended external debt servicing. Since the last payment in January 2025, the government has paused foreign currency-denominated debt repayments, with the next scheduled payment due in July 2025. This break has reduced the demand for forex typically required to meet debt obligations, thereby alleviating downward pressure on the cedi in the interim.

4.  Weakening US Dollar

•  The recent depreciation of the US dollar, driven by investor uncertainty over newly imposed reciprocal tariffs and fears of a potential recession, has eased global demand for the currency. For Ghana, this shift has reduced external exchange rate pressures, contributing to the cedi’s relative stability and recent appreciation.

5.  Renewed Confidence in the Ghanaian Economy

•  The appreciation of the cedi is also attributed to renewed confidence in the Ghanaian economy, driven by prudent and credible fiscal and monetary policies implemented by the government and the Bank of Ghana. These policies have received international validation through S&P Global Ratings’ recent upgrade of Ghana’s foreign-currency sovereign credit rating from Selective Default (SD) to CCC+.

Implications of the Cedi’s Appreciation

1. 1.  Reduced Imported Inflation

•  The appreciation of the cedi has helped ease imported inflation in Ghana’s highly import-dependent economy by lowering the cost of foreign goods and reducing pressure on foreign exchange demand. This has contributed to price stability and supported the Bank of Ghana’s disinflation efforts, as reflected in the decline in inflation from 23.8% in December 2024 to 21.2% in April 2025.

2. 2.  Improved External Debt Management

•  The recent appreciation of the cedi has helped ease the cost of servicing external debt by making repayments cheaper in local currency terms. This development supports improved debt sustainability and reduces fiscal pressure on the economy.

3.  Strengthening Foreign Reserves and Investor Confidence

•  The appreciation of the cedi reduces the need for the Bank of Ghana to intervene frequently in the foreign exchange market by selling large volumes of foreign reserves to stabilise the currency. This easing of intervention pressure supports the accumulation and preservation of foreign reserves. Moreover, a stable and strengthening currency enhances investor confidence, encouraging capital inflows that can stimulate economic growth and reinforce macroeconomic stability.

4. 4.  Increased Lending to the Real Sector

•  A stronger cedi reduces speculative demand for foreign currency, easing pressure on the forex market and improving liquidity within the financial sector. With reduced “panic-buying” and currency volatility, financial institutions are better positioned to extend credit. Additionally, the ongoing decline in government treasury bill (T-bill) rates is reducing the attractiveness of lending to the public sector. This shift is likely to incentivise banks to channel more funds toward the productive, real sectors of the economy – supporting investment, job creation, and overall economic growth.

Challenges and Recommendations

1.  Reduced Competitiveness of Ghanaian Exports

•  While a stronger cedi offers macroeconomic benefits, it may also reduce the competitiveness of Ghanaian goods both domestically and internationally. The recent imposition of a 10% U.S. tariff on Ghanaian exports, combined with the cedi’s appreciation, makes Ghanaian products relatively more expensive abroad, posing a risk to export revenues.

2.  Policy Recommendations

•  To ensure that the recent appreciation of the cedi is sustained and not short-lived, the government should maintain prudent fiscal management and reduce the fiscal deficit through disciplined spending and enhanced domestic revenue mobilisation. A credible commitment to macroeconomic stability builds investor confidence and supports a stronger currency.
•  The government should also encourage the retention and reinvestment of foreign profits to further support the cedi’s performance.

In conclusion, the appreciation of the Ghanaian cedi against the US dollar is a result of a combination of factors including increased gold and cocoa exports, policy interventions by the Bank of Ghana, temporary suspension of external debt servicing, and a weakening US dollar. While this appreciation brings several benefits such as reduced imported inflation and improved external debt management, it also presents challenges such as reduced competitiveness of Ghanaian exports. Careful policy actions will be necessary to ensure the sustainability of this positive trend and to maximise its benefits for the Ghanaian economy.

By Baron Dr. Kwame Nyampong