Weakening public finances and investor confidence drive an uncertain cedi outlook

MNCs should track progress in negotiations and consider FX hedging

MNCs should monitor progress in talks between the government, its creditors, and the IMF to track the likelihood of an IMF deal. Firms should also consider mitigating FX risk using a currency hedge. MNCs should increase the frequency of pricing cycles to address pricing challenges tied to currency and inflation pressures. Companies should also assess local partners’ financial soundness to determine where to extend help and where to transition to more resilient partners. Lastly, MNCs should review their expectations for the market as they finalize their 2023 plans—even if a downside case does not emerge, demand will be moderated by curtailed public sector spending and a tepid recovery in private sector sentiment.


The cedi fell 54% YTD at the interbank rate by the end of October 2022, following a series of sovereign credit rating downgrades from all three major ratings agencies, beginning in February. The cedi’s slide places it among the worst global performers against the dollar this year, undermining demand for MNCs’ products and making it difficult to price products and conduct business planning.

The government’s rising debt burden and unsustainable fiscal deficits drove the rating downgrades and led authorities to begrudgingly request the country’s 17th IMF deal, which they aim to negotiate before 2023.

The Bank of Ghana (BOG) has raised its policy rate several times in 2022—by a collective 10 percentage points, to 24.5%, but this has failed to stabilize the currency.

Moreover, FX reserves fell to US$ 6.6 billion in September, from US$ 10.7 billion a year earlier, amid the BOG’s efforts to stem the cedi’s decline and capital outflows from portfolio investors. The dwindling reserves have clipped the BoG’s ability to smooth FX volatility.

The sharp depreciation pushed up inflation to 37.2% YOY in September, from 13.9% YOY in January, led by imported inflation (40.7% YOY).

Our View

The cedi’s outlook has become more uncertain and will depend on the government’s ability to regain the confidence of foreign portfolio investors, with the help of an IMF deal. As a prerequisite for such a deal, the government would likely have to renegotiate the terms of its existing debts, show plans to increase its tax revenues, and agree to curtail spending on public sector personnel and subsidies. To address the currency rout and the resulting inflation surge, the BOG will likely hike interest rates further—potentially to 26%, as seen in 2015–2016. This would exacerbate already-high borrowing costs for MNCs’ customers and local partners. As a base case, the main driver for a further collapse of the cedi—a sovereign debt default—is not expected.

Base-case scenario (65% likelihood): The cedi faces a moderate appreciation through 2023 after the government agrees a preliminary deal with the IMF in the second half of Q1 2023.

  • Negotiations between Ghana, its creditors, and the IMF do not progress quickly enough for a deal to be agreed to before the end of 2022. 
  • The cedi continues to depreciate through mid-Q1 2023, with extra currency pressures in December 2022 as the winter festive season approaches. 
  • A preliminary IMF deal is agreed upon in Q1—new support and fiscal plans boost confidence that Ghana will not default. However, investors’ heavy losses, due to debt restructuring, mean sentiment remains muted.

Downside scenario (20% likelihood): The cedi plummets further throughout 2023, because the government fails to agree to a deal with the IMF and defaults on its debt.

  • Negotiations between Ghana, creditors, and the IMF fail to yield a deal—the government disapproves of the IMF’s conditions, the IMF thinks the government’s intended reforms are not comprehensive, and creditors hold out against restructuring plans. 
  • Without financial and technical support, the country is unable to finance its debt obligations and misses repayments. 
  • Foreign portfolio investors resume the selloff of Ghanaian assets.

Upside scenario (15% likelihood): The cedi rallies notably but remains considerably weaker than before the series of credit downgrades following a fast-tracked IMF deal before the end of 2022.

  • All parties are satisfied with the conditions, and the IMF board approves a deal during Q4 2022.
  • Despite some plans for debt restructuring, a rise in bond prices reflects confidence that a sovereign debt default will be avoided and the haircut on creditors’ investment returns will be more modest.

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