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investments in some social interventionist programs (protecting the vulnerable in society following
austerity). To this end, the program does little to accurately communicate the likely savings to be
realized from this action and the possible returns in output that such action is likely to generate. The
result we estimate will be the possible loss of value in this savings, if the action is at all pursued by
government. Otherwise, severe risks exist for the non-adherence to the strategies by government,
which could impact on the projections on inflation.
Having recorded and maintained a single digit inflation for 2010 to the first half of 2012, inflation picks
up a rising trend in the later part of 2012. This can be adduced to the rather expansionary fiscal policy
of government during electioneering periods, and the cost of sticking the general increment in prices
relatively low for three consecutive years.
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Exchange Rate
The local currency did not perform well against other major trading currencies. It is indeed one of the
major reasons besides the deteriorating fiscal space that warranted the call for multilateral assistance
from the FUND. Given the challenges regarding the monetary pressure discussed above, the plummet
of the value of the local currency is expected; reaching a record low in the third quarter or 2014. Using
the US dollar as a proxy for the exchange rate (without conceding its relationship with other trading
currencies), the Cedis value plummeted over the
period as shown in Figure 2 below;
Given this trend, it is possible that the value of the
4.0
dollar (US) could hit the GHS 4.5 mark before the
end of the 2015 fiscal year, if supply bottlenecks
3.5
are not effectively dealt with, together with other
3.0
structural economic issues that can earn the
country sufficient foreign exchange. Government
2.5
is expected through the support from the
2.0
International Monetary Fund to anchor the
expectations of market players and speculators
1.5
alike to avert the attacks on the local currency.
Deployed successfully the value of the cedi is
1.0
2010
2011
2012
2013
2014
2015
2016
2017
expected to stabilize in the immediate short term.
Exchange Rate (GHS/$)
production and in some cases restrict the import of some category of goods and services, further
pushing prices up and complicating the monetary policy objective for the government.
Take a look at the trends in the projections provided by the Fund together with government in the ECF
for the external trade balances;
18,000
17,000
16,000
15,000
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Import-FOB ($Usmln)
Export-FOB ($Usmln)
(i) The debt stock of Ghana is looming therefore government should limit inappropriate external
financing of infrastructure particularly in reference to the STX deal and the Chinese
Development Bank loan;
(ii) Passage of the fiscal responsibility law to ensure the sustainability of the proposed fiscal
consolidation. IMANI has repeatedly urged government to stabilize the macroeconomic
environment and the general price level to effect a reduction in cost of credit. Particularly,
concerted effort should be made to achieve fiscal consolidation by passing the Fiscal
Responsibility Law which will strengthen the disciplinary machinery of public finance;
(iii) Clean the payroll fraud and align productivity with pay;
(iv) Pause the excessive monetization of the fiscal deficit, re-anchor inflation expectation and
ensure the effectiveness of the monetary transmission mechanism;
(v) Create the right regulatory environment to encourage local production and reverse the declining
trend of the manufacturing sector. Incentivize non-traditional exporters to expand the export
base of Ghana. This will increase foreign exchange earnings and hedge the local currency
against exogenous shocks, consequently reducing the pass-through effect of exchange rate
depreciation;
(vi) The erratic power supply (dumsor) is a major binding constraint on businesses. Government
should exploit and invest in alternative sources of energy as the current source of energy is not
reliable because of the hydrological risk. The energy sector should be reformed and the
government should not only allow but incentivize the private sector to participate in energy
generation;
Having failed on heeding to the calls above, the government has accepted the terms in the ECF, and
promises to live by them, as it will improve upon the international investment image of the economy
(policy credibility) and not necessarily for the money. A comparative analysis of the general conditions
in the ECF agreed with government will show similarities if not the same issues mentioned above,
which exposes the possible lack of commitment from government to implement the conditions in the
ECF to the latter particularly going into an electioneering year; a condition to which the FUND cannot
claim oblivion. Some of the conditions include;
(i) The Fund proposes a reduction of the galloping fiscal deficit to ensure debt sustainability. The
Fund argues for the strengthening the fiscal position by mobilizing additional revenues,
restraining the wage bill and other primary spending, while making space for priority spending.
(ii) Eliminate fiscal dominance of monetary policy through tax policy and tax administration
reforms;
(iii) Restore the effectiveness of the inflation-targeting monetary policy, while safeguarding financial
sector stability.
Emmanuel Buadi Mensah works in the finance and economics department at IMANI.
For interviews, Please contact Mr. Emmanuel Buadi Mensah at ebmensah@imanighana.org