The Bank of Ghana (BoG) has disclosed that its forecast indicates that inflation would peak later this year and begin trending back towards the medium-term horizon.
Dr. Maxwell Opoku-Afari, First Deputy Governor of the Bank of Ghana, indicated that headline inflation has shifted well above the upper band of the medium-term target, driven mainly by food prices, transport costs, upward adjustments in ex-pump petroleum prices, and pass-through of exchange rate depreciation.
The latest data shows that headline inflation rose sharply to 31.7 percent in July 2022 from 29.8 percent in June 2022 on the back of significant increase in both food inflation and non-food inflation. Inflation was 9 percent just a year ago in July 2021.
“There are however significant upside risks to the inflation outlook, including increased commodity prices, particularly crude oil, heightened supply chain disruptions, and the over 20 percent increase in utility tariffs set to kick in from 1st September 2022. These are all sources of noise to the economy and the conduct of Monetary Policy”.
Dr. Maxwell Opoku-Afari
Growth Prospects
Dr. Maxwell Opoku-Afari, speaking on the country’s outlook, underscored that despite strong rebound from the pandemic in 2021 as evidenced by the 5.4 percent overall real GDP growth and 6.3 percent non-oil GDP growth, recent data point to some softening in the growth momentum.
National accounts data released by Ghana Statistical Service (GSS) showed that the economy grew, in year-on-year terms, by 3.6 percent in the first quarter of 2022, well below the then 5.6 percent expected growth for 2022. High frequency data such as the Composite Index of Economic Activity (CIEA), Business and Consumer Confidence Indices seem to confirm softening of economic activity.
This prompted downward revision of the growth target to 3.7 percent from the initial 5.6 percent target. Dr. Opoku-Afari cautioned that significant downside risks remain in the outlook, including further headwinds from the Russia-Ukraine war and potential outbreak of new variants of the COVID-19 pandemic.
“As we are all aware, Significant challenges remain with the execution of the 2022 budget as revenue mobilization has not kept pace with projections thereby creating financing difficulties. In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review”.
Dr. Maxwell Opoku-Afari
The fiscal challenges have also accentuated debt sustainability concerns. However, Dr. Opoku-Afari said the expectation are that the ongoing policy discussions with the IMF will help address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and re-anchor sustainable balance of payments.
Sustaining the recovery
Dr. Opoku-Afari underscored that following the COVID pandemic and its aftermath, there was optimism that the world economy was going to return to its trend growth. However, events after 2020, when the world was beginning to recover showed that the world economy has been beset with further set-backs.
While the Pandemic led to a slowdown of the economic activities globally with an impact on the Ghanaian Economy’s growth prospects, the Russia-Ukraine war triggered a downgrade of global growth forecasts by the IMF.
“The crises, for us in Ghana has led to heightened inflationary pressures due to rising energy and food prices. This has necessitated the rollback of Covid-19 era policies and monetary policy tightening across various countries. These developments have far-reaching implications for the domestic economy and there is the need for confidence building to calm financial markets and prevent disorderly reactions during these periods of heightened uncertainty”.
Dr. Maxwell Opoku-Afari
According to Dr. Opoku-Afari, these conditions and the impact on the Ghanaian economy, especially on inflation, the exchange rate, impact on our balance of payments has resulted in Ghana approaching the IMF for some form of cooperation to address the current imbalances and challenges facing the economy.
The First Deputy Governor of the Bank of Ghana emphasized that “At this stage, we need to put in all our efforts to begin to restore confidence”.
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