Let’s sustain economic growth path
Ghana’s economy is bound to grow twice higher than the 1.5 per cent projected by the International Monetary Fund (IMF) at the end of the year, the Bank of Ghana (BoG) has projected.
The central bank based its projection on the strong economic growth, measured by the Gross Domestic Product (GDP) growth for the first and second quarters and positive outlook indications given by the bank’s Composite Index of Economic Activities.
The central bank therefore maintained its key benchmark interest rate policy at 30 per cent.
Under the country’s $3 billion programme with the IMF, economic growth for 2023 is projected to be 1.5 per cent.
Trends in the BoG’s high frequency real sector indicators also point to a sustained turnaround in economic activity.
The stronger growth performance is important in boosting investor confidence in the economy.
For us at the Daily Graphic, the ongoing economic crunch was set off by worries during the second half of 2021 that the country’s public debt had risen too high for it to be comfortably serviced, thus creating concerns of payment defaults.
Reportage of the country’s debt problems and subsequent rising yields on its Eurobond issuances due to falling Ghana bond prices exacerbated those worries, beginning a withdrawal of foreign investors from the country’s bonds.
This was followed by the downgrade of the country’s sovereign credit ratings in January 2022, by both Fitch, Moody’s and Standards & Poors, three of the international ratings agencies that rate Ghana.
Consequently, the regular inflow of foreign exchange (forex) to the country, through subscription to the government’s cedi denominated bond issuances was completely reversed as foreign investors exited in droves and demanded their funds as they left.
Ghana had been reliant on such inflows for a significant part of its forex needs for over one-and-half decades and the reversal into net outflows has created an acute forex shortfall on the official market.
This was accompanied by demand for higher coupon rates on new government treasury bill and bond issuances by domestic investors in response initially to higher perceived risk and subsequently to rising inflation.
In spite of the challenges, the government had been optimistic that the economy would bounce back after the pandemic.
However, Russia’s war in Ukraine also derailed Ghana’s economic recovery.
The cedi, the country’s currency, lost more than 50 per cent of its value between January and October 2022, causing Ghana’s debt burden to rise by $6bn.
The economy had made some gains since the country reached the agreement with the IMF.
The cedi is recovering against the US dollar, after suffering a year-to-date depreciation of 54.2 per cent at the end of November last year.
There is good reason for optimism that the most violent macroeconomic spasms are behind the country.
The cedi/dollar exchange rate is now GH¢11.5 to the US$1 medium-term projection that many currency market analysts have forecast and inflation is on a downward trajectory, albeit partly because of the base drift effect from price change computations rather than a rapid slowdown in the rate at which prices are rising.
The Daily Graphic wishes to suggest that in order to sustain the growth trajectory, the Bank of Ghana can begin to consider lowering its Monetary Policy rate (MPR) in order to spur economic growth much faster.
This is a real concern.
Government’s fiscal challenges that have led to public debt restructuring are moving banks away from lending to government and towards lending to private businesses.
However, the combination of elevated credit risk accompanying that shift and the gradual withdrawal of the liquidity injections made to keep economic activity up during the COVID 19 era – as monetary tightening has replaced monetary easing – are curtailing growth to the private sector.
We hold the view that the absolute value of the MPR is no longer as important as it used to be; it is the direction in which it is headed that remains crucial.
The Daily Graphic therefore recommends that the MPR be reduced by a notch to send a message to the financial markets that interest rates should begin to come down to avert the real concerns that another economic recession is on the horizon, even as core inflationary pressures are now receding.
While we commend the BoG for executing its monetary policy role appreciably well, we believe the long-term solution is for the government to live within its means.