The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has urged the government to use the 2022 budget statement to reset fiscal policy to create a more trustworthy path towards medium-term fiscal sustainability. According to him, this would be a vital ingredient to ensure the stability of the Ghanaian economy.

“The 2022 budget should be used to reset fiscal policy to create a more credible path towards medium term fiscal sustainability. This would be an important building block to establish and entrench credibility, a key component to stability”.
Dr. Ernest Addison

In his address at the ongoing Ghana Economic Forum, Dr. Addison disclosed that the relatively strong performance of the economy in spite of the COVID-19 is due to home grown policy credibility over four years of economic reform. He stressed that the Fiscal and Monetary Policy Framework that was implemented provided a solid anchor to disinflation.

Policy credibility

The Governor of the Central Bank of Ghana hailed the credibility of the government’s policy over the past four years. According to him, policy credibility engendered investor confidence which underpinned the significant inflow of capital, both portfolio and direct, during the period.

“These measures placed the Ghanaian economy in a good place prior to the pandemic and the necessary policy space to undertake the countercyclical policies that allowed the economy to stay on course”.
Dr. Ernest Addison

The Governor highlighted in his address that it is necessary to take stock of “where we are, regarding macroeconomic conditions and try to place the discussions within the context of the emerging policy priorities”. He therefore, provided an update on the macroeconomic landscape, discussed how the pandemic has aided the acceleration of digitization, and outlined policies to strengthen National Digitisation and Regulation.

Dr. Addison noted that the unprecedented adverse global consequences are ongoing. However, the good news is that, “the Ghanaian economy absorbed the shock well, and the economy has begun to turn around very strongly—building back better”.

Supporting the recovery process

The Governor averred that the prudent and timely policy support, removal of restrictions, reopening of business activities, and increased vaccinations, “have worked together to systematically support the recovery process”.

“Recent economic indicators show a steady turnaround”, Dr. Addison said. He recounted that the impact of the pandemic pushed inflation outside the medium-term target band to 11.4 percent in July 2020. Since then, he stated that inflation had fallen steadily and stayed around the central path of the target band of 8 percent. More recently, impacted mainly by rising domestic and global food prices, inflation has moved steadily outside the target band, now reading 10.6 percent as at September 2021, he added.

Despite the heightened inflationary scares, the Governor expressed optimism of inflation remaining within the target band in the medium-term.

“The Bank’s September 2021 forecast however, indicates that inflation will remain within the medium-term target band, but closer to the upper limit in the near-term, in the absence of further unexpected shocks”.
Dr. Ernest Addison

Economy on a steady rebound

Dr. Addison further stated that the Bank of Ghana’s measure of short-term economic dynamics show that economic activity continues to pick up and maintaining the steady momentum since the last quarter of 2020. He cited the 3.1% and 3.9% growth rates in the first and second quarters of 2021 as evidence to the strong rebound.

Touching on the external payments position, Dr. Ernest Addison, described it as “strong”, despite the decline in the trade surplus which he attributed to “a stronger import growth, as the economy continues to reopen”.

Dr. Addison indicated that developments in the external sector, helped to cushion the country’s gross international reserves, which increased to about 5.2 months of imports cover in August 2021. This, he said, provided some buffer to the local currency to withstand pressures.