Economist and Fellow at the IMANI Centre for Policy and Education, Dr. Theo Acheampong has raised concerns over the government’s ability to meet its ambitious end-of-year inflation target of 15 percent, citing exchange rate volatilities as a significant risk.
In his review of the revised macro-targets presented in the mid-year budget review, Dr. Acheampong expressed confidence in the country’s potential to achieve the upgraded Overall Real GDP Growth rate, now set at 3.1 percent.
However, the Economist cautioned that the inflation target might be challenging to meet given the country’s prevailing economic conditions.
Dr. Acheampong highlighted the impact of the cedi’s depreciation on import costs.
“Duties and taxes on goods imported into the country are typically indexed in dollars, which unnecessarily increases the prices of goods,” he explained.
He pointed out that charges on the Integrated Customs Management System (ICUMS) platform are often denominated in dollars, meaning importers face higher costs when the cedi depreciates.
“Importers will not bear that cost and will pass on the extra cost at the ports to consumers. This means consumers will pay more,” he noted.
According to the Political Risk Analyst, these increased costs could erode the progress made in reducing inflation, ultimately causing the government to miss its target, adding that the situation will always impact the prices of goods, leading to high inflation.
Dr Acheampong further emphasized that while the revised GDP growth target indicates a positive outlook, the challenge of managing inflation remains.
The impact of exchange rate fluctuations on import costs and, consequently, on consumer prices, he noted are the likely difficulties the government may face in achieving its inflation target.
Dr. Acheampong further admonished that unless measures are taken to stabilize the cedi and manage import costs, the government’s end-of-year inflation target may remain out of reach.
Revised Macroeconomic Targets
The government announced several key revisions to the country’s macroeconomic fiscal targets for 2024.
Presenting the mid-year budget in parliament on July 23, 2024, Finance Minister Dr Mohammed Amin Adams outlined the updated targets.
The Overall Real GDP Growth rate has been revised upwards from 2.8 percent to 3.1 percent, reflecting optimism about the country’s economic performance.
Despite the upward revision in GDP growth, the government has decided to maintain the end-of-year inflation target at 15 percent.
Dr. Amin Adam also stated that the Primary Balance on a Commitment basis would remain at a surplus of 0.5 percent, while Gross International Reserves (including oil funds and encumbered/pledged assets) are expected to cover not less than 3.0 months of imports.
Ghana’s inflation eased slightly to 22.8 percent in June 2024, down from 23.2 percent the previous month. This decline was driven primarily by decreases in fuel, utilities, and food prices.
Despite this improvement, the depreciation of the Ghanaian cedi poses a threat to further reducing inflation.
The cedi has depreciated by 21 percent against the US dollar in 2024, driven by several factors, including a lower current account surplus due to increased import demand, a sharp decline in cocoa exports, energy sector payments, and speculative activity.
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