Measures to bring inflation under control yielding results – Governor Addison

Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has recounted that the economic and policy environment globally changed considerably with the Russia – Ukraine crisis and the higher oil and food prices in 2022.

This, he said, was followed by policy tightening across the globe to contain the rapid increase in inflation as well as weak external demand related to monetary policy tightening and economic slowdown in major economies.

“As we are all aware, these shocks amplified pre-existing fiscal and debt vulnerabilities, resulting in rapid increase in inflation, sharp depreciation of the exchange rate which led to a balance of payment crisis,” he said.

The government of Ghana therefore sought the support of the International Monetary Fund (IMF) to restore macroeconomic stability and implement wide-ranging structural reforms to build resilience and lay the foundation for stronger and more inclusive growth.

The government, therefore, committed to an IMF programme, and started implementing an
ambitious fiscal consolidation and debt sustainability programme.

“So far, the domestic debt exchange programme has ended, while the external debt structuring programme is almost concluded. Only recently, the government announced the signing of MoU with the official Creditor Committee,” Dr Addison said during the SME Growth and Opportunity Summit on Tuesday July16.

Apart from addressing the challenging macroeconomic environment, he added, the government is also committed, under the IMF programme, to addressing gaps in governance and anti-corruption frameworks to enhance accountability and integrity, while promoting inclusive growth through: i. improving the business environment; ii. enhancing export ompetitiveness and integration; iii. strengthening Ghana’s FDI attractiveness;
iv. streamlining sectoral and industrial policies; v. improving access to finance;
vi. promoting entrepreneurship while upskilling the labour force to help address skills
mismatches; and vii. advancing the digitalization agenda for financial inclusion.

On its part, he said, the Bank of Ghana has stepped up efforts to bring inflation under control, eliminate monetary financing of budget, and rebuild foreign currency buffers. The bank is also taking steps to implement comprehensive strategy to ensure rebuilding of capital buffers of financial institutions’ post-DDEP and establishing the Ghana Financial Stability Fund to provide additional support to the financial sector.

“These measures are beginning to yield positive results. Signs of stabilization and recovery in the Ghanaian economy are emerging. The latest releases show that: • Real GDP Growth ended 2023 at 2.9 percent, up from the revised target of 2.3 percent, driven by the services and agriculture sectors. Growth in 2024Q1 came in stronger than expected at 4.7%, with the industrial sector posting a growth rate of 6.8%. • Inflation which peaked at 54.1 % in December 2022, and has decelerated faster-than-expected and reached 22.8 percent in June 2024, underpinned by strong policies, and effective liquidity sterilization efforts. • Fiscal policy implementation has been broadly aligned with requirements under the IMF-supported programme. • Banking sector’s performance has improved as adverse spillovers from DDEP and macroeconomic challenges receded.”

Regarding the banking sector, Dr Addison indicated that the sector remains stable, liquid, and profitable.

“Significant profits were recorded in 2023, helping to correct losses from 2022. Meanwhile,
banks impacted by domestic debt restructuring have submitted capital restoration plans which are being implemented. At the same time, Ghana Financial Sector Fund established —with an initial allocation of US$750 million, comprising US$250 million from the World Bank and US$500 million from GoG—to provide recapitalisation support to the financial sector (banks and non-banks) is in progress.

“Gross international reserves position has improved. At the end of April 2024, the stock of
Gross International Reserves increased to US$6.59 billion representing 3.0 months of import cover, compared with US$5.91 billion (2.7 months of import cover) at end-December 2023.

“The exchange rate which recently come under some pressure, has begun to stabilise as
uncertainties surrounding the progress of debt restructuring negotiations with external creditors has been eliminated and the Bank of Ghana’s Gold Purchase programme over over-performed.”