Governor of the Bank of Ghana, Dr Ernest Addison, has said rising government expenditure and weakened revenue levels are the major threats to the swift stabilisation of the economy.
He added that some of these concerns forced the Monetary Policy committee to keep the rate unchanged at 16 per cent. This is the fourth time this year that the committee has held the rate since January 2019.
He said this during his interaction with the media after the Monetary Policy Committee meeting to review the health of the economy this week.
The Governor noted that the Monetary Policy Committee was also worried about continued revenue weakness which requires expenditure adjustments to contain the larger than the projected budget deficit.
He was however optimistic that despite this challenge the situation would improve “full implementation of the new tax measures will likely impact revenue performance in the last quarter”.
This, he also believed that could help achieve the fiscal deficit target set for the year. “If the fiscal situation was better and stable we would have gone down on the policy rate” he added.
He said we should not forget about the fact that Budget is particularly dependent on non-resident financing and we don’t want to take steps that would jeopardize the situation.
EIU’s forecast and the Ghana cedis
The London-based Economists Intelligence Unit (EIU) in their September report warned of some volatility for the cedis in 2019 and even going forward 2023.
The Unit argued that the cedi will remain prone to periods of volatility, given the country’s exposure to movements in commodity prices, “currency will weaken to GH¢6.47 to $1 in 2023”.
But responding to these concerns the Governor said things are rather going get better for the cedi as the central bank reserves are in strong position than previously.
“With very strong reserves and we have what it takes to support and firmly stabilize the cedi in the coming months,” Dr Addison said.
He added once the fundamentals are right and the interest rate well positioned, then things should be firmly stabilised going forward.
According to him, the country’s total foreign reserves should hit about $9 billion from the last quarter of this year.
Dollarisation of the economy
Dr Addison said the Bank is satisfied with the level of compliance by some businesses in pricing only in cedis rather than foreign currencies.
He said they took these steps to enforce regulations on foreign exchange because of its impact on the local currency and the exchange rate.
“A careful look at the various adverts in the newspapers have even shown that more companies are now quoting in cedis,” he said.