Cedi Stability May Be a Pyrrhic Victory: Economist Warns of Long-Term Damage to Local Industry

There is growing applause in policy and public circles over the recent stability of Ghana’s currency, the cedi. But beneath this veneer of macroeconomic calm, economists are warning of an unfolding risk that may erode the very foundations of the country’s production economy.

 The Hidden Cost of a Stronger Cedi: Ghana’s Anti-Inflation Play Risks Undermining Its Own Economy | By Accra Street Journal Editorial Board

At the heart of the issue is the Bank of Ghana’s (BoG) aggressive pursuit of inflation control by anchoring the cedi—an approach that some experts now believe is beginning to backfire.

Professor Godfred Alufar Bokpin, a senior lecturer and seasoned economist at the University of Ghana Business School, has emerged as one of the most outspoken critics of this currency-centered policy. According to him, the central bank’s strategy—rooted in strengthening the cedi to dampen inflation—is offering short-term gains at the cost of long-term economic resilience.

“It’s like fixing a leak in the roof by turning off the rain,” Bokpin quipped, pointing out that the focus on exchange rate stability is inadvertently favoring imports and penalizing local production.

While a strong cedi does reduce the cost of imports—thus easing imported inflation—the flip side, Bokpin argues, is that local manufacturers are left to compete with cheaper foreign goods, exacerbating the already constrained supply side of the economy. Since November 2023, inflation on locally produced items has outpaced that of imported goods, a trend that undermines Ghana’s industrialization drive and suffocates job creation.

“You are far better off in this country if you are importing than if you are producing,” Bokpin warned. “We are effectively outsourcing our productive capacity.”

The issue here is structural. Inflation is not simply a demand-side problem. It is a mismatch between demand and supply, and any sustainable solution, Bokpin insists, must also address the constraints on the supply side. However, Ghana’s policy toolkit has been lopsided—leveraging monetary tightening and currency appreciation while neglecting the deep-rooted supply deficiencies plaguing sectors like agriculture, manufacturing, and local industry.

Exchange Rate and Inflation Relationship

This policy asymmetry has created a paradox: the stronger the cedi, the more Ghana imports; and the more it imports, the weaker its local productive base becomes. Over time, this dynamic becomes self-defeating, as the country’s dependence on foreign goods erodes the very structure that could make it inflation-resilient in the long run.

Other economists, including Dr. John Kwakye of the Institute for Economic Affairs (IEA), share Bokpin’s concerns, advocating for a more comprehensive, dual-pronged inflation strategy that combines fiscal discipline, monetary control, and strategic supply-side interventions.

What remains worrying is the policy inertia. Ghana has historically struggled to convert macroeconomic stability into real-sector growth. The current approach, if left uncorrected, risks repeating that cycle—offering currency calm at the expense of domestic jobs, competitiveness, and industrial transformation.

In an economy where inflation is as much about weak logistics, poor energy reliability, and agricultural underperformance as it is about currency fluctuations, monetary medicine alone won’t cure the disease. Ghana must think beyond the currency.

The Accra Street Journal believes it is time for a recalibration. The BoG and economic managers must resist the allure of short-term optics and instead, align monetary policy with a national agenda for industrial development, infrastructure investment, and economic inclusion.

Stability should not come at the cost of sovereignty. And Ghana’s sovereignty begins with the ability to produce what it consumes.

Last Updated on May 20, 2025 by samboad