During the week, the country was hit with the news of the sudden resignation of Dr Abdul-Nashiru Issahaku as Governor of the Bank of Ghana. In order to avoid a vacuum, the President, Nana Addo Dankwa Akufo-Addo, appointed Dr Ernest Kwamina Yedu Addison as the new Governor of the central bank, subject to consultation with the Council of State.
Delightful as the appointment may be, Dr Addison comes in at a time when there are still some major challenges be devilling the effective management of the country’s monetary policy.
For instance, for many decades, the country has not been able to hold the local currency in check to prevent its free fall against the major foreign currencies, especially the United States dollar.
Much as the Ghana cedi is beginning to show some strength soon after the announcement of the heavy drop in the policy rate from 25.5 per cent to 23.5 per cent, analysts still maintain that the fundamentals for holding the Ghana cedi in check are still volatile.
Ghana’s interest rate regime is also considered to be among the highest not just in the sub-region or for that matter Africa, but in the whole world.
Presently, interest rates hover around an average of 30 per cent, a phenomenon which hampers the progress of the private sector, the engine of growth of the economy.
Again, much as the reduction in the policy rate has sent some positive signals to the market, there is no hope that the commercial banks will respond, at least, not now, as the business players expect.
As with most developing countries that have pursued economic and structural reforms, Ghana has also been undergoing a process of financial sector restructuring and transformation as an integral part of a comprehensive strategy for economic turnaround. Unfortunately, this process has never come to an end because of policy inconsistencies and the mismatch between the country’s fiscal and monetary policies.
As earlier mentioned, high inflation, the wind of large exchange rate swings, and negative real interest rates over extended periods which result in an unsustainable portfolio of nonperforming loans (NPLs) on the books of many commercial banks, still linger on.
Through Ghana’s programme with the International Monetary Fund (IMF), there is a heavy reduction in the amount that the government will be able to borrow from the central bank.
However, from the manner in which the new administration is bent on renegotiating aspects of the IMF programme, it is likely that heavy domestic borrowing by the government to finance deficits and a growing domestic debt burden that will crowd out the private sector will still be a challenge.
The task ahead will be daunting, but the Daily Graphic believes that with the background of Dr Addison, having worked with the bank for many years under different regimes, coupled with his experience at the African Development Bank, he will be able to withstand the pressures to transform monetary policy formulation and implementation to ensure a stronger cedi, lower interest rates and single digit inflation, while ensuring a massive reform of the financial services sector.
We wish Dr Addison well in his new endeavour. As we are all in a hurry to see a change for the better, the Governor cannot fail the country.