The Private Enterprise Federation (PEF) has cautioned the cedi is likely to suffer massive depreciation against the dollar this year if government fails to curb the high budget deficit.

The country’s deficit hit 12% of GDP last year against a target of almost 7 percent.

The high deficit has been attributed to the implementation of Single Spine Salary Structure, short falls in corporate taxes as well as utility and petroleum subsidies among others.

Government has announced its intention to reduce the deficit to 9 percent.

But PEF is warning the continuous high expenditure could have dire consequences on the cedi this year.

Nana Osei Bonsu, CEO of PEF speaking to Citi Business News said additional spending will put the cedi under severe pressure.

“The budget deficit; how are we going to finance it? Are we going foreign? Are we depending on domestic financing? They have a play in the way the rate is supposed to go. The projected expenditure for this year also has an impact.

Going on a spiral where we are going to finance the budget deficit where we add additional 9% projected for the year, then the cedi is going to come under severe pressure,” he said.

The cedi depreciated against the dollar by a little over 17 percent between January and June last year. It however remained stable during the second half of the year depreciating by only 0.3 percent according to the Bank of Ghana.

The cumulative depreciation for last year was almost 18 percent compared with five percent depreciation in 2011.