Exporters hold back dollar proceeds due to BoG forex control measures

Some banks are complaining of inadequate inflows of foreign exchange as their exporter customers are holding back their proceeds from exports.

The bankers said the Bank of Ghana directives on foreign exchange had slowed deposits into foreign currency accounts, while inflows from foreign exchange earnings abroad into foreign exchange accounts had also dwindled due to the unwillingness of exporters to transfer their proceeds.

The Ecobank experience 

“We are not seeing the kinds of foreign exchange inflows that used to be there because those who have it don't want to let go of it. At the same time, exporters are unwilling to repatriate their dollars,” the Chief Finance Officer of Ecobank Ghana, Mr Edward Botchway, said in Accra on May 13.

He was presenting a paper on the fallouts from implementing the Bank of Ghana’s measures on foreign exchange to halt the cedi’s fast depreciation which happened in the first two months of the year.

This was at a business forum organised by the Ghanaian-German Economic Association (GGEA) on “Understanding the Bank of Ghana Directives on Forex and Impact of the Valued Added Tax on Banking Services.”

Mr Botchway suggested to the Bank of Ghana to timeously release dollars into the system to cushion banks, holding a different view to keeping dollars in reserves up to three months of imports cover when the economy needs it to resolve current challenges.

Bank of Africa 

The Executive Head in charge of Business Development at Bank of Africa, Mr William Boateng, confirmed the volatilities in forex supplies within the banking system and said although the rationale behind the measures were good, there were debilitating unintended impacts on businesses, the banking sector and the economy as a whole.

“The challenges include pricing because with the volatility, it was difficult to stick to one price for a long time,” Mr Boateng said, adding that banks too were losing revenue in net trading positions in forex.

He, however, conceded that banks needed to be innovative in such challenging times and come out with creative products to support their customers.

The Bank of Africa, for its part, has sought approval from the central bank to use various hedging instruments such as forward contracts, spot trading and swap contracts to help its customers to meet their dollar payment obligations to parties offshore.

Mr Boateng, however, urged support for the Bank of Ghana directives but said a review should help streamline the unintended negative impacts and not a relaxation as far as the measures were concerned, else the country would relapse into the chaos that existed in dollarising the economy.

BoG reacts

The Head of Fiscal Stability at the Bank of Ghana, Dr Ben Amoah, explained that the intension of the measures was to restrict access to foreign exchange for legitimate reasons, while holding out the Ghana cedi as the only legal tender in the country.

Since the introduction of the measures, the cedi had seen some stability on monthly basis, he adds.

The cedi cumulatively depreciated by 21.29 per cent between January and April 30. However, the monthly depreciation has been falling from 7.81 per cent in June 31 to 5.04 per cent at the end of February; 4.77 per cent at the end of March and 3.67 per cent at the end of April.

“This is what we expected. The volatility has also gone down. But we are not happy with the magnitude of reduction. Much of the factors are seasonal, especially, because we are expecting that inflows will improve getting to the third quarter of the year,” Dr Amoah explained.

He, however, assured the business community and the general public that the country needed to take the hard decision to plug some leakages in order to achieve stability in the local currency.

Although over-the-counter withdrawals of dollars have been restricted to US$10,000 for foreign travels, transactions done through the banking system had no limits, Dr Amoah said, and called on the business community to work with their banks to access forex for their transactions abroad.

Dr Amoah again called for coordination and augmentation of the monetary measures with tight fiscal discipline, as well as economic restructuring that favoured import substitution and export-driven industrialisation. 

“We've to change the structure of the economy and this is outside the purview of monetary policy. We also need strict adherence to budgetary targets to minimise fiscal deficits and widen the tax base,” he said.

Way forward

In the end, GGEA members held the view that the Bank of Ghana needed to consult more with the private sector to understand how the measures were impacting on their operations so that the outcome of the review would be in their favour. 

The President of the GGEA, who articulated the views of the members in an interview with the GRAPHIC BUSINESS, maintained that the measures were affecting the pricing policy of businesses, making transactions in forex cumbersome and, in some cases, leading to foreign partners cancelling contracts with local representations.

That, Mr Antwi said, if not handled properly could lead to a shrink in foreign direct investment into the country. 

Senchi Consensus on BoG directives

In a related development, at the just ended National Economic Forum held at Senchi in the Eastern Region, the issue about the BoG directives came up strongly and as Charles Benoni Okine reports, that partcipants urged the central bank to immediately consider its directives of forex.

As part of the 22 point communique dubbed the Senchi Consensus, the Bog was tasked to “expedite work on the assesemnent of the recently announced foreign exchange measures and take speedy and approrpriate action to restore confidence and relieve the unintended consequences of the measures”.

Although the BoG had ealrier hinted its intention to review the directives, it is not clear when it intends to do so.

Since the begining of the year, the ceid is reported to have depreciated by more than 22 per cent to date, a situation which gives credence to what some experts say that the BoG directives were knee jerk reactions intedned to acheive nothing but create panic.