Ghana is now close to having the right to join the common currency for West Africa that the sub-region’s various member states have been working towards for several decades.
Having met all but one of the many economic and financial criteria for becoming part of the single currency zone, all that is left is for the country to meet one last convergence criterion before replacing the cedi for the impending ECOWAS single currency.
At the end of 2018, the country had met three out of the four Primary Convergence Criteria and both Secondary Criteria.
At the 41st meeting of the Convergence Council of Ministers and Governors of Central Banks of the West African Monetary Zone (WAMZ), the Finance Minister, Ken Ofori-Atta, indicated that the last criterion outstanding for Ghana is to meet the regional fiscal deficit target of 3.0 percent of Gross Domestic Product.
However, this is unlikely to be achieved this year. Ghana’s fiscal deficit was 3.9 percent of its rebased GDP at the end of 2018, compared to a target of 3.7 percent in the rebased series and for 2019, the target has been raised to 4.2 percent, which would take the country further away from the regional criterion, rather than closer.
Besides, even if Ghana does fulfill the final criterion, it is highly uncertain whether the country will opt to join a common currency that as yet comprises only francophone countries in a currency zone that effectively surrenders its monetary sovereignty to France, which underwrites the francophone West African single currency in its current form.
The Convergence Criteria
The Primary Convergence Criteria for membership of the West African common currency zone are: a budget deficit to GDP ratio of not more than three percent; an average annual inflation rate of less than 10 percent; Central Bank financing of the Budget Deficit of not more than 10 percent of the previous year’s tax revenue; as well as gross external reserves of greater or equal to three months of imports.
The secondary criteria requires a nominal exchange rate that neither appreciates nor depreciates by more than 10 percent over the previous year and total public debt to GDP ratio of not more than 70 percent.
Measures to meet WAMZ fiscal deficit target
As part of measures by Ghana to ensure fiscal sustainability and promote budget credibility, the Fiscal Responsibility Act was passed in December 2018 to cap the fiscal deficit at not more than five percent of GDP and ensure annual positive primary balance at all times, although this is looser than the common currency eligibility criterion.