Economist Dr. Theo Acheampong has raised concerns that ongoing exchange rate fluctuations might hinder the government's ability to meet its year-end inflation target of 15 per cent.

In his analysis of the recent Mid-Year Budget Review, Dr. Acheampong expressed confidence that the country could achieve its revised Overall Real GDP Growth rate target, which has been adjusted from 2.8 per cent to 3.1 per cent.

However, he is less optimistic about the inflation target due to the impact of exchange rate volatility.

Dr. Acheampong pointed out that many duties and taxes on imported goods are indexed in U.S. dollars. This practice exacerbates price increases when the local currency, the cedi, depreciates.

“Most of the charges on the ICUMS platform are charged in dollars. This means that when the cedi depreciates, importers will pay more at the ports,” he explained.

The economist noted that these additional costs are typically passed on to consumers, leading to higher prices for goods and contributing to inflation.

“The importers will not bear that cost and will pass on the extra cost at the ports to consumers. This means consumers will pay more,” Dr. Acheampong said.

He warned that such dynamics could undermine progress in controlling inflation and potentially cause the government to miss its target.

Revised Macroeconomic Targets

In light of the ongoing economic challenges, the government has announced revisions to its macroeconomic targets for 2024. During the Mid-Year Budget presentation in Parliament on July 23, Finance Minister Mohamed Amin Adam disclosed an upward revision of the Overall Real GDP Growth rate from 2.8 percent to 3.1 percent.

The inflation target for the end of the year remains unchanged at 15 percent. Additionally, the Non-Oil Real GDP Growth rate has been adjusted from 2.1 percent to 2.8 percent. The government has also revised nominal overall GDP from ₵1,050 billion to ₵1,020 billion and Non-Oil GDP from ₵979 billion to ₵977.093 billion.

Dr. Amin Adam highlighted that the Primary Balance on a Commitment basis will remain at a surplus of 0.5 percent, and Gross International Reserves (including oil funds and encumbered/pledged assets) are expected to cover at least 3.0 months of imports.

Further adjustments to the fiscal framework include an increase in Total Revenue and Grants to ¢177,220 million (17.4% of GDP) from the previous budget target of ¢176,414 million (16.8% of GDP). This increase is largely attributed to higher Non-Oil Non-Tax Revenue, which has been revised from ¢14,837 million (1.4% of GDP) to ¢15,638 million (1.5% of GDP), reflecting dividends from interest accrued in the ESLA accounts.

Dr. Acheampong’s warnings and the government's revised targets underscore the ongoing economic challenges and the need for careful management to ensure financial stability and meet fiscal goals.