The Institute of Economic Affairs (IEA) has entreated the government to find lasting solution to the many challenges facing the country’s economy.
According to the economic think tank, inflation is not the only economic problem having an exacerbating the plight of Ghanaians and the various businesses.
The high fiscal deficits, high public debt, exchange rate instability, high rate of employment, large external imbalances, are among the challenges, the Institute added.
The IEA pointed to the fact that the weak fundamental structure of the economy has resulted in the current state of the economy.
It further bemoaned the high dependency on imported products and the exportation of low-value added goods.
“The only way to find a durable solution to these recurrent problems is to address the economy’s weak structural fundamentals. This should be done through transformation of the colonial-type economy to a vibrant industrialised economy.
This cannot, however, be achieved by relying on our narrow tax base and borrowing but rather by leveraging our vast natural resource wealth by taking ownership of it.”
Currently, the country is battling a hike in fuel prices, fertilizers and inflation. These issues are effects of the Covid-19 pandemic as well as the ongoing Russia-Ukraine war, per reports.
To address the high inflation rate (23.6%), the Bank of Ghana has raised the monetary policy rate, which controls the money supply and interest rates, from 17% to 19%.
The Institute of Economic Affairs is satisfied with the steps the central bank has taken to reduce the inflation rate.
Earlier, the Institute encouraged the Bank to increase the monetary policy rate.
“Taking all of these factors together, it may be surmised that the PR should be raised by another 200 basis points to 19 percent.”
“This will help narrow the gap with inflation and also ease to some extent the risk of foreign currency outflows. The adjustment will also provide some assurance to the markets that the BoG is committed to addressing the resurging inflation. Anything less than this may be interpreted as a weak response, which may be concerning to the markets.”
On the other hand, Dalex Finance‘s Director of Strategy and Business Operations, Joe Jackson says the rise in the policy rate will have a number of consequences for the economy.
He said Ghanaians will be unable to acquire loans from banks to expand their businesses due to the high interest rates established by banks following the policy rate’s upward review.
“Increasing the rate does two critical things for us, first it means that people won’t borrow and the economy will slow down. This slowdown in the economy will hit all of us.
“The Bank of Ghana governor said the banks don’t lend to the private sector anyway so it is not a big deal but the government still borrows from banks so as the rate has gone up, the government will pay more to the banks in debt servicing. We are between the rock and a very hard place.”
Meanwhile, Governor of the Bank of Ghana, Dr Ernest Addison, is confident the steps the bank has taken to address inflation will be effective, therefore has told Ghanaians to expect a decline in the inflation rate.
Source: The Independent Ghana