Q3 GDP Estimates Consistent with Rebound – Dr. Addison

The Governor of the Bank of Ghana, Dr. Ernest Addison, has stated that the third-quarter GDP estimates released by the Ghana Statistical Service (GSS) are consistent with the recent indicators that point to a rebound of the Ghanaian economy.

Dr. Addison stated this in his Alumni Lecture delivered at the Great Hall of the University of Ghana on Thursday, December 17, 2020.

“…the Ghana Statistical Service put out an estimate of the third-quarter GDP growth suggesting that the economy contracted by 1.1 percent during the third quarter. It must be pointed out that this is consistent with the rebound view as the economy has recovered from a contraction of 3.1 percent to 1.1 percent during the quarter”.

 The Governor of the central bank indicated that a recent report from the International Growth Centre (IGC) corroborates the rebound view as employment rates and hours worked per adult which fell substantially in March and April have largely reverted to their pre-COVID levels in August and September. Headline inflation also eased to single digits at 9.8 percent in November.

The financial sector is one of the most sensitive sectors of every economy because of the significant role it plays with key emphasis on financial intermediation.  Dr. Addison has assured Ghanaians that the sector is resilience and intact moving into 2021.

He pointed out that the policy and regulatory relief measures introduced by the Bank of Ghana have enhanced liquidity in the banking system, preserved capital buffers, and provided relief to customers severely impacted by the pandemic.

These measures, according to him, have also helped banks and specialized deposit-taking institutions provide support to critical sectors of the economy to mitigate the adverse impact of the pandemic.

“To start, the downward adjustment of the monetary policy rate impacted positively, and average lending rate of banks has steadily declined to 20.9 percent in November 2020 from 24.0 percent last year. Banks have also signaled a net easing of credit stance on enterprises’ loans in the months ahead as new advances steadily rise”.

Dr. Addison further noted that, the policy interventions have also helped improve soundness of the banking sector and reduced the potential adverse spillback effects that the banking sector may have had on the macro-financial landscape.

“The sector remains robust as reflected by the strong Financial Soundness Indicators – Capital adequacy levels are above the regulatory limits, the NPL ratio has declined, and profitability remains strong”, he assured.

He further stated that the Bank of Ghana, in collaboration with the Fiscal authorities, responded decisively to ensure easing credit conditions and liquidity within the financial sector to stimulate economic activity.

The Governor also explained that Bank of Ghana’s action to trigger emergency financing support for the government was largely enabled by the policy space and gains achieved over three years of strong monetary policy reforms.

He opined that prior to this action, the central bank had observed a strict zero financing of the budget in line with a Memorandum of Understanding between it and the Ministry of Finance as part of the IMF program.

“This policy therefore represented a major policy shift reflecting the “whatever it takes” posture to preserve lives and livelihoods, which helped in closing the budget’s widened financing gap arising from increased COVID-related spending as revenues dwindled.

“These measures provided some fiscal space for government to help sustain the income of households, businesses and consequently supported a quicker turnaround in economic activity”, Dr. Addison said.

Dr. Addison also note that data available to the central bank shows that since 2018, non-resident holdings of domestic debt has declined from 32% to around 18% in 2020 even as government financing needs remained high.

This, he noted, has been possible due to the recapitalization of the banking sector which has given banks enough resources to allow them to substitute for the exit of non-resident investors in the government bond instruments.

“The recapitalization policy therefore accounts partly for the relatively stable economic conditions, it is anticipated that should the projected consolidation of fiscal policy materialize, we should begin to see these resources channeled back to private sector financing which was the major rationale for the recapitalization of the Bank”.