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When
Ghana
discovered
oil
in
2007,
some
observers
predicted
the
“Dutch
Disease”
as
the
variant
of
the
resource
curse
awaiting
the
country.
In
new
research
by
Colin
Constantine
of
Cambridge
and
Tarron
Khemraj
of
NCF,
it
is
shown
that
the
classical
Dutch
Disease
has
not
manifested
in
Ghana
after
nearly
15
years
of
oil
production.
(Simplifying
massively
hereon.)
The
classical
Dutch
Disease
proceeds
as
follows
-
Country
discovers
oil
(or
other
major
tradable
natural
resource); -
A
sudden
surge
of
exports
generates
massive
forex
inflows; -
The
country’s
currency
strengthens; -
Imports
become
cheaper,
undermining
some
local
industries; -
There
is
a
shift
of
resources
and
emphasis
to
the
new
oil
sector;
and -
Legacy
industries
suffer
and
the
economy
comes
under
pressure.
Constantine
and
Khemraj
provide
evidence
in
their
new
preprint
(link
to
full
paper
in
first
comment)
that
this
sequence
doesn’t
apply
in
the
case
of
Ghana.
It
does
fit
the
case
of
Angola
though.
As
well
as
Trinidad
and
Tobago’s.
At
any
rate,
in
a
liberal
economic
setting
where
imports
can
flow
without
too
much
friction,
a
surge
in
forex
inflows
from
resource
exports
should
ordinarily
not
trigger
the
first
step
in
the
sequence:
over-valuation
of
the
currency.
In
Ghana’s
case
(as
also
in
Algeria
and
Mexico),
new
oil
finds
have
coincided
with
exchange
rate
depreciation.
Ghana’s
situation
in
particular
is
pretty
alarming.
Since
it
became
an
oil
producer
in
2007,
Ghana’s
currency
has
fallen
by
over
93%
in
value.
The
Constantine
&
Khemraj
paper
spotlights
one
important
cause
of
the
Cedi’s
precipitous
decline:
the
role
of
the
Central
Bank
in
the
“monetisation”
of
the
fiscal
deficit.
Fiscal
deficit
monetisation
came
up
in
the
discussions
during
2022
when
the
Ghanaian
currency
lost
more
than
50%
of
its
value
in
less
than
a
year.
However,
this
paper
is
one
of
the
few
empirical
investigations
into
the
interconnected
variables
at
the
root
of
the
phenomenon,
even
if
its
focus
was
not
on
the
acute
factors
that
precipitated
Ghana’s
debt
default
and
is
instead
on
the
long-term
currency
movements
linked
to
the
fiscal
and
current
accounts.
Whilst
the
paper
does
require
a
careful
analysis
of
the
relations
among
such
important
macroeconomic
indicators
as
bank
credit,
government
deposits,
and
resource
rents,
the
emphasis
on
central
bank
behavior
will
find
perfect
resonance
with
the
mood
of
analysts
and
activists
in
Ghana
who
have
been
sceptical
of
the
policy
conduct
of
the
Bank
of
Ghana.
My
personal
view
is
that
the
scale
and
maturity
of
the
oil
industry
in
case
study
countries
could
also
have
an
interesting
role
to
play
in
whether
monetary
outcomes
result
in
distortive
appreciation
or
depreciation
of
the
currency
in
the
wake
of
oil
finds.
Still,
any
rigorous
work
that
shines
much
needed
light
on
the
central
bank’s
role
in
these
turbulent
fiscal
times
is
a
vital
contribution
to
the
conversation.
By – Bright
Simons, Vice-President,
IMANI