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Impact of Elections on Ghanaian Currency

Published on 8 February 2017 in News - Pages by Raffick Marday

Impact of Elections on Ghanaian Currency

In Ghana, just like many other African countries, an electioneering period is often laced with a lot of emotions and sentiments. It is a period that shakes the country in all its socio-economic spheres. The campaigns coupled with uncertainty about the outcome of elections often presents an environment of economic instability since the outcome of such elections has a great impact on the country’s economy. There is bound to reduce the inflow of tourists since there is a general notion from the international communities that elections suggest fears, anxiety, and chaos. This often leads to a lot of activities being put on hold since investors are reluctant to travel or do business with such countries.

Ghanaian local currency, Cedi, has been on the receiving end every time the country carries out elections. In the year 2000, the Cedi was so much hit by the confusion and unrest that marred the country’s election exercise. At that time, the Cedi dropped significantly against the dollar causing strong shock waves in the country’s financial markets. However, the currency regained its stability after the elections skirmishes were over, a condition that was partly stirred with the nationwide confidence on the then president John Kufuor. In the subsequent years, the cycle has always been the same with each election cycle presenting not so much a unique economic situation in the country.
Prior to elections Ghanaian government usually undergoes strong mix up in its financial decisions since it is compelled to consider its general economy in the year preceding an election. Due to this, they are bound to go slow on their expenditures and go slow on taxes in order to appeal to the electorates. This circumstance occasionally leads to accumulation of investments which provide necessary support for economic growth as well as the strengthening of Cedi.

This year’s elections had high speculations on the impact the elections would have on the strength of the Cedi against other currencies especially the dollar. A few weeks before the just concluded Ghanaian elections, some financial analysts projected that the Cedi would depreciate despite strong assurance from the players in the country’s financial markets. The Bank of Ghana had also predicted that the Cedi would appreciate significantly against the dollar and other foreign currencies like British Euro and Pound by the end of this year.
All the predictions created mixed anxiety in Ghana’s financial Markets, until after the elections when the Cedi proved stable against the dollar. By September 2016 the cedi had a depreciation margin of 4.1 percent against the dollar. This was viewed to be a positive deviation when compared to a 14.8 percent depreciation reported exactly the same period last year.

Despite the argument that Ghanaian currency always has a tendency of depreciating, analysts the asserts that activities of speculators, investors and the ultimate result of the country’s elections are always key contributors to the major shift in Cedit's stability.
The trend in financial deficits and the fall in the value of the Ghana Cedi to the US Dollar shows just how the two, elections and the local currency are connected.

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