Economic indicators show a steady turnaround – BoG Boss

Governor of the Bank of Ghana, Dr Ernest Addison,

Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said that recent economic indicators show a steady turnaround.

First, he said, the impact of the pandemic pushed inflation outside the medium-term target band to 11.4 percent in July 2020.

Since then, inflation has fallen steadily and stayed around the central path of the target band of 8 percent. More recently, impacted mainly by rising domestic and global food prices, inflation has moved steadily outside the target bank, now reading 10.6 percent as at September 2021, he added.

The Bank’s September 2021 forecast however indicates that inflation will remain within the medium-term target band, but closer to the upper limit in the near-term, in the absence of further unexpected shocks.

The above notwithstanding, the Bank’s measure of short-term economic dynamics show that economic activity continues to pick up and maintaining the steady momentum since the last quarter of 2020, Dr Addison said at the Ghana Economic Forum 2021 held on the theme: strengthening home grown policies to underpin the national digitisation drive and shared financial prosperity.

He added that the second quarter data from the Ghana Statistical Service pointed to an annual GDP growth to 3.9 percent in the second quarter of 2021, from the 3.1 percent recorded in the first quarter.

“The second quarter growth was somewhat dragged down by the mining and quarrying sectors, which are yet to recover to pre-pandemic production levels. Beyond the second quarter, the latest high frequency indicators, monitored by the Bank, shows some optimism towards a more robust recovery from the pandemic.

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“The Composite Index of Economic Activity (CIEA) grew by 20.0 percent (year-on-year) in July 2021, compared with 3.9 percent growth in the same month of last year. And the growth in the indicators were somewhat broad-based with port activity, imports, domestic VAT, and air-passenger arrivals ranking high.

“The external payments position has remained strong despite the decline in the trade surplus due to a stronger import growth, as the economy continues to reopen.

“The trade surplus narrowed while the current account deficit widened marginally but adequately financed by external inflows from portfolio and foreign direct investments, resulting in balance of payments surpluses.

“This has allowed a build-up in the country’s gross international reserves, which increased to about 5.2 months of imports cover in August 2021 and provided some buffer to the local currency to withstand pressures. Cumulatively, the Ghana Cedi has performed
strongly with a year-to-date depreciation of 1.9 percent as at 12 October 2021, relative to 3.0 percent in the same period last year,” he said.

“Emerging market policy makers are keeping an eye on global financial markets and the US policy direction regarding tapering of asset purchases which may pose some currency risks to emerging markets and frontier economies, such as Ghana. However, the strong reserve build-up and foreign exchange inflows from the recent SDR allocation and the expected syndicated cocoa loan proceeds should help to cushion currency pressures in the near-term.

“The comprehensive reforms and recapitalization positioned banks with strong capital buffers before the onset of the COVID-19 shock. In addition, the financial sector received further boost with macroprudential regulatory reliefs to ease liquidity constraints and allowed them to provide financial support to critical sectors of the economy as part of the COVID-19 policy responses. Following these interventions, the banking sector has remained stable, liquid, and profitable.

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“The latest stress tests and macro-prudential risk assessments on the industry show that banks are strong enough to withstand mild to moderate liquidity and credit risk shocks.

“A lingering problem has been private sector credit growth which has not fully recovered to pre-pandemic levels due to uncertainties surrounding the pandemic’s trajectory. As the momentum in economic activity picks up, coupled with continued COVID vaccination efforts, and demand for bankable projects increase, we expect private sector credit to rebound.

“The relatively strong performance of the economy in spite of COVID-19 was due to home grown policy credibility that had been earned over four years of economic reform.

“The Fiscal and Monetary Policy Framework that was implemented provided a solid anchor to disinflation. Policy credibility engendered investor confidence which underpinned the significant inflow of capital both portfolio and direct during this period. These measures placed the Ghanaian economy in a good place prior to the pandemic and the necessary policy space to undertake the countercyclical policies that allowed the economy to stay on course.

“The 2022 budget should be used to reset fiscal policy to create a more credible path towards medium term fiscal sustainability. This would be an important building block to establish and entrench credibility, a key component to stability.”

By Laud Nartey||Ghana