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Tag: Dr. John Kwakye

  • Deloitte, BoG hopeful Cedi rebound to stay for…but IEA doubts

    The local currency of Ghana

     

    Adnan Adams Mohammed

     

     

    International accounting firm, Deloitte, is confident that the current appreciation of the local currency, Cedi, is due to Bank of Ghana Monetary Policy Committee’s to stay the policy rate.

     

    The firm believes that, the unchanged policy rate will hold the rebound for a while and in the long run push inflation downwards after stabilizing prices on the market.

     

    The MPC cited a slightly elevated inflation despite a rebound in the stability of the Ghana cedi and a stable domestic economy as the rationale behind the unchanged policy rate of 27.0%. Deloitte is optimistic the policy rate will support economic growth and prevent inflation from rising.

     

    “The implication of the unchanged policy rate would also boost business and consumer confidence”, Deloitte indicated in its economic brief centered on the Monetary Policy Rate (MPR) in Ghana and Nigeria, released last week.

     

    As of Thursday, December 5, the Cedi was buying at 14. 91 to a Dollar and selling at 14.93, per the Bank of Ghana rate as against the rate a day before on Wednesday, December 4, when it was buying at 15.11 to a dollar and selling at 15.12.

     

    With the Pound, it buys at 18.95  and sells at 18.97.  With the Euro, it buys 15.69 and sells at 15.71.

     

    These rates represent some marginal gains made by the local currency against the major trading ones.

     

     

    Meanwhile, analysts have wondered whether or not the Cedi’s resurgence will be sustainable beyond the general elections.

     

    The Director of Research at the Institute of Economic Affairs (IEA), Dr John Kwakye, noted that the recent cedi appreciation is due to deliberate intervention by the Bank of Ghana (BoG) ahead of the election.

     

    “It’s got nothing to do with improved economic fundamentals,” he said.

     

    He expresses the view that “The real test will come after the election.”

     

    A month to the election, Dr Kwakye notes that it has sharply appreciated to below 15 due to BoG intervention.

     

    “But why now? And what is going to happen after the election? Or is it a matter of seek ‘ye’ first election victory and all other things will be yours?”

     

    In response to the doubts raised by Dr Kwakye and other analysts, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has said, the cedi’s rebound observed recently should continue with the dissipation of election-related uncertainties and the improved foreign exchange buffers accumulated by the central bank.

     

    “A combination of economic uncertainty brought about by the upcoming elections and the high demand for foreign exchange has led to an exchange rate path that is slightly deviated from the fundamentals”, the Committee said last week. “With strong macroeconomic policy implementation and improved foreign exchange availability, the economy should observe a realignment of the trajectory of the exchange rate with the fundamentals.”

     

    The MP further explained that, while global economic conditions remain favourable, the strength of the US economy coupled with a strong United States dollar and the possibility of a resurgence in global energy and food prices arising from trade protectionism, geopolitical conflicts, and extreme weather conditions will have to be monitored closely for policy responses to ensure stability in the economy.

     

    It noted that domestic macroeconomic conditions remain stable and the International Monetary Fund External Credit Facility (IMF-ECF) Programme implementation remains on track.

     

    Data observed through October 2024 indicated broad stability in the macroeconomic indicators. Growth outturn so far has been strong, and leading indicators of economic activity is projecting stronger growth in the second half of the year, business and consumer confidence is slowly turning around, core inflation remains broadly stable, the financial sector inflation expectati ons remain broadly anchored, reserve build-up has been sufficient to provide confidence, and the currency is recording some appreciation, it said.

     

    It added that the third review assessment of the IMF on the economy and on programme implementation also reflected a positive assessment and led to a Staff level Agreement.

     

    “Indications are that the IMF Board will meet in December to assess programme implementation thus far and assess forward-looking prospects of the economy. Sussessful completion of the assessment will likely trigger the release of additional US$360 million in December 2024. This should provide more impetus to stability,” the committee said.

     

    “Commercial banks have accumulated enough capital buffers to withstand the effects of the external debt restructuring. The latest macro-prudential risk assessment showed that the impact from the Eurobond restructuring would be minimal, given the preemptive provisioning made by banks to account for potential impairments. Banks are therefore expected to continue to remain stable and support economic growth going forward.

     

    “Inflation projections show a slightly elevated profile driven by high and unstable food prices, pass-through of previous exchange rate pressures, fuel prices and utility tariff adjustments. The price increases in food items have been steep in the course and together with a fast-paced depreciating currency earlier on in the year have altered the inflation trajectory and stalled the disinflation process. At the time of the last MPC meeting, average inflation forecast a year ahead which stood at 19.0 percent has increased slightly to 20.1 percent at this forecast round. The horizon for inflation to get back within the target band of 6 – 10 percent has slightly shifted forward to Q42025 from the original forecast period of Q32025.

     

     

    “In the near-term, strengthening of the currency will augur well for future price developments. Under the circumstances, the Monetary Policy Committee decided to keep the policy rate unchanged at 27 per cent,” the statement said.

     

    On the outlook, Deloitte in its report said, the Ghanaian economy will pick up, driven by rising business confidence and economic activities.

     

    It furthered that the strengthening of the local currency will help stabilise prices further.

     

    In Nigeria, the MPC raised the MPR to 27.50% for the 6th time since January 2024, amidst rising inflation.

     

    The concerns were higher fuel prices impacting the cost of production and distribution costs, persistent exchange rate pressure, reflecting high forex demand and elevated core inflation.

     

    Deloitte warned that there will be an implication of further squeeze in disposable income, reduced money supply but tighter credit access and increased cost of borrowing and loan defaults.

     

    Apparently, the accounting firm is upbeat about the resilience of the banking system despite exogenous and endogenous macroeconomic headwinds

     

     

     

     

     

  • BoG’s can’t be blamed for participating ‘haircut’ – IEA 

     

     

    By Ibrahim Awall

     

    The he Institute of Economic Affairs (IEA) has defended the Bank of Ghana (BoG) against undue blame for its participation in the government’s Domestic Debt Exchange Programme (DDEP), which contributed to the central bank’s financial loss in 2022.

     

    The Director of Research of IEA, Dr John KWAK YEARS, acknowledged the BoG’s responsibility for extending excessive loans to the government, yet he maintained that the central bank cannot be criticised for accepting a “haircut” as part of the DDEP.

     

    In the 2022 fiscal year, the Bank of Ghana reported a substantial loss of GH¢60.8 billion.

     

    Amidst repeated calls from the Minority in Parliament for the resignation of the Governor of the Bank of Ghana, Dr Ernest Addison, and his deputies over perceived recklessness in central bank management, Dr Kwakye elaborated, “As central bankers, financing the government’s deficit is the most inflationary thing to do. That is why the central banks set lending limits to their governments.

     

    “What has happened in our case [BoG] is that it looks like BoG went far beyond the sealing Act of last year’s revenue of 5%.

     

    “We are told that they lent almost GH¢44 billion, and that is the magnitude. Once you do that, you are already getting yourself into serious trouble.”

     

    He said the BoG’s involvement in the DDEP, which qualified Ghana for an IMF programme, the declared GH¢60.8 billion loss, a significant GH¢53.1 billion directly resulted from the DDEP. He emphasized that while fault could be attributed to over-lending to the government, it was essential to acknowledge the compulsion the BoG faced to engage in the DDEP.

     

    “BoG over-lent to government and then you bring in this DDEP which qualifies us for IMF programme. And IMF compels BoG to be part of it. Out of the GH¢60.8 billion loss they have declared, GHC53.1 billion is coming direct from DDEP.

     

    “So the question is will you fault them for that? We can fault them for over-lending to the government that is the problem, but why they were being forced to be part of the DDEP, is also another. That one, you can’t fault them for that”.

     

    Kwakye directed scrutiny towards the IMF, questioning their imposition of the DDEP on the Bank of Ghana in pursuit of a $3 billion bailout.

     

    Furthermore, Kwakye attributed a portion of the responsibility to the government for BoG’s losses, emphasizing their role in creating deficits that necessitate financing.

     

     

     

     

  • ‘Currency Board’ will effectively address monetary management infractions – IEA

    ‘Currency Board’ will effectively address monetary management infractions – IEA

    Adnan Adams Mohaammed

     

    As Ghana visage for a way out of its cyclical economic management mess, the government is advised to establish a ‘Currency Board (CB)’ to help in the monetary management process of the Bank of Ghana.

     

    The ‘Currency Board’, the Institute of Economic Affairs (IEA) believes will help stabilise the cedi and prevent instability in the economy in times of shocks. The Institute also think it will help to limit the Central Bank lending to the government

     

    These monetary control and management factors deficiencies have been the bane of Ghana’s economic management. According economists, the CB system has limited inflation, checks currency volatility and better position balance of payments.

     

    “You see, a Currency Board (CB) is a rigid monetary management system that is hedged in strict rules, with little room for discretion. The CB does not lend to government and it covers its currency fully by foreign exchange”, Lead Researcher at the Intitute, Dr. John Kwakye, in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway” noted.

     

    “The CB system has limited inflation, the currency does not depreciate and balance of payments crises are rare. This is close to the system in our Francophone neighbours, who restrict their Central Bank lending to governments and provide adequate cover for their currency, the CFA.”

     

    IEA buttressed its points that, the Francophone countries system guarantees them low inflation and a stable currency, but “you have Ghana that has chosen an independent Central Bank to conduct discretionary monetary policy’.

     

    It also blamed the Central Bank of Ghana for some of the economic woes, saying, “The Central Bank provides significant lending to government and covers the cedi with limited foreign exchange (40% in the Act). No doubt we face perennial price and currency instability!”

     

    “It is for this reason that some of us have argued that if we continue to abuse policy discretion and pay a high price for it in terms of macroeconomic instability, then we better hedge our policies by rules; tie our economic managers hands, so that we can enjoy rules-driven macroeconomic stability!”, it added.

     

    Finally, the IEA said despite Ghana having rules such as the Public Financial Management Act, the Bank of Ghana Act and the Fiscal Responsibility Act, the rules have not work because of lack of political way.

     

    “Let me say that it is not that we have had no rules at all in fiscal and monetary management. In fact, I can mention a couple of them, such as the Public Financial Management Act, the Bank of Ghana Act, the Fiscal Responsibility Act and the relevant provisions in the 1992 Constitution, which represent attempts to introduce rules in our fiscal and monetary management system”.

     

    “However, there are serious questions regarding not only their enforcement but their effectiveness as well. And that is the reason we feel strongly about the need to give constitutional backing to some of these rules”, it concluded.

     

  • Fitch, IEA discount gov’t use of COVID-19 and Russia/Ukraine war as excuse for economy woes

    Ken Ofori Atta

    Adnan Adams Mohammed

     

    Ghana’s economic collapse cannot solely be blamed on COVID-19 pandemic and the Russian/Ukraine war, Fitch Solutions has discounted government’s overused excuse.

     

    It explains that, even before these external shocks hit the global economy, Ghana’s debt was above the sustainable level as measured against the International Monetary Funds threshold of debt to Gross Domestic Product ratio of 70 percent and below.

     

    The international investors’ research firm argue that, Ghana went back to the international capital market in early 2021 in desperation for cash. This attracted investors to take advantage of the sweet rates Ghana was selling its Eurobonds, this led to investor investors oversubscribing Ghana’s bonds which later resulted in currency sell off, and afterwards the country started witnessing symptoms of hiding chronic economic disease of escalating exchange rate and inflation since early 2022

     

    “I think the answer is, it’s been aggravated by the Covid-19 pandemic and the war in Ukraine. Those two are not the only cost to Ghana’s woes”, Senior Country Risk Analyst, Mike Kruiniger, responding to a question at a recent Sub Saharan Africa Macroeconomic Update event said. “Both external and internal shocks caused the macroeconomic imbalances in the country.”

     

    “Ghana’s debt servicing costs were already rising pretty rapidly prior to the pandemic with the government having to work on pretty large scale of spending projects including restructuring of the banking sector and providing free secondary education to everyone in Ghana”, he explained.

     

    Mr. Kruiniger also blamed the high borrowing on the international capital market as one of the country’s problems.

     

    “Ghana went back to the international capital market in early 2021, with this seamless desperation for cash. Investors started to flood the country which led the currency to sell off and after that, we’ve seen all the problems that Ghana has been facing since early 2022”.

     

    He concluded that though the Covid-19 and the Russian Ukraine war have contributed to Ghana’s crisis, they are not only the reasons behind Ghana’s economic challenges.

     

    Meanwhile, the Institute of Economic Affairs pointed that indiscipline in managing the country’s finances has caused the high fiscal deficits and consequently high inflation and currency instability, forcing innocent Ghanaians and businesses to pay for the mismanagement.

     

    The think-tank expressed it worry in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway.”

     

    Lead Researcher at the Intitute, Dr. John Kwakye, noted that Ghana has a long history of fiscal indiscipline and this is evident in its fiscal deficits being almost consistently higher than those of its peers in Africa.

     

    “Our deficits tend to escalate in election years when we elevate election-related spending. Then we borrow to finance the deficits and cause our public debt to escalate to unsustainable levels. We have been in that situation numerous times. Our debt reached the first crisis situation around 2004, when it ballooned to over 100% of GDP”.

     

    “We had to seek relief under the HIPC Initiative, which caused the debt-to-GDP ratio to drop to a sustainable level of 26% in 2006. Thereafter, we returned to our culture of fiscal indiscipline, which caused the debt to rise yet again. And today, the debt-to-GDP ratio is back to an unsustainable level of over 100%”, he explained.

     

    He added that the country must do everything possible to safeguard or institutionalise fiscal discipline under the constitution, else it will always record macroeconomic instability.

     

    Also, associated with the high fiscal deficits has been high inflation and currency instability, which the IEA called for immediate action.

     

    According to Dr. Kwakye, Ghana has had much higher inflation rates than its peers, adding, the cedi has experienced much higher depreciation over the years.

     

    Again, he said “government domestic borrowing to finance the deficits has elevated interest rates to levels that have crowded out the private sector, inhibiting investments and stifled economic growth. High fiscal deficits and the associated demand pressures have also spilled over to the external sector, leading to high current account deficits”.

     

    The economist opined that, prevalent fiscal indiscipline and its associated macroeconomic instability, and over-borrowing to spend on goods and services are what have taken the country to the IMF about 17 times.

     

    “We have been caught up in an unending cycle of high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation, and unstable growth. It is our prevalent fiscal indiscipline and associated macroeconomic instability and debt crises that have taken us to the IMF seventeen times”.