Director of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey has said he does not expect Ghana to experience a single-digit inflation and also the Cedi-Dollar exchange rate this year.
He says he expects these to happen in 2024 that is if all the measures are put in place by the government to ensure the reality.
“The long-term solution will be to diversify our economy. we cannot continue to rely on primary commodity exports because that will not give us the needed forex as we move forward.
“If we don’t diversify and we rely on just one or two commodities, manufacturing doesn’t add much value, we export products in their raw form then we will not get enough forex and the exchange rate will continue to depreciate and we will be back to the IMF again.
“So yes, IMF is a temporary short-term measure to stabilize but we need to put in a system that will ensure long-term sustainability,” he told TV3 in an interview.
Asked whether Ghana will achieve single-digit exchange and inflation rates this year, he answered “Not this year. I don’t foresee us hitting a single digit this year. We are already in July and I don’t think inflation will drop drastically from the current 42 percent to single digits. Perhaps, if we do our things well, we are likely to see that in 2024.”
Meanwhile, the Finance Minister Ken Ofori-Atta has indicated that Ghana’s economy is seeing stability.
He indicated that Cedi is gaining strength against the Dollar while the inflation rate on the other hand has also tapered down, from 54.1 percent recorded in January to 42.2% in May this year.
Speaking to journalists on the sidelines of an event to mark the 247th Independence Day anniversary of the United States of America (USA) in Accra on Tuesday, July 4, Mr Ofori-Atta said “We recognize that it has been quite a dramatic change to where we are, during that period in which we did the double take to go to the Fund, we got the Staff Level Agreement (SLA) in record time, we got the Fund approval in record time, we got three times our quota which is unprecedented, we also were able to front load it so that we may get $1.2bn this year, which is good, within three days of the approval also it was disbursed to us. Inflation has tapered down from 54 % to where we are.
“I think the currency is a lot more stable, Treasury Bill rates have moved from 35 to 20 something percent. The domestic Debt exchange programme was very difficult for us as a country but I think [there was] the need to do it and improve it. So you can see some stability and we are grateful for that. There is a lot of work ahead and really we need to remain focused as Ghanaians and move ahead.”
Despite this, a Financial Analyst and Chief Operations Officer at Dalex Finance, Mr Joe Jackson has mounted pressure on the government to reduce costs by cutting down the size of appointees to avoid another round of debt restructuring.
He said that failing to cut down the size of appointees will amount to ‘robbing Peter to pay Paul’ in the management of the domestic debt situation.
Interest rates on Treasury bills (T-bills) have been going up after falling drastically to about 18 percent in March 2023 from 35 per cent, raising concerns about a probable restructuring of the short-term securities.
Speaking on the Business Focus with Paa Kwasi Asare on TV3 Monday, July 3, Mr Jacskon said “has the government actually cut costs? The IMF deal has been signed, we are all waiting for the day for the budget review whether we are still going to borrow but ultimately the government has to cut costs far more than it has done today.
“We have heard the Finance Minister say that over 20 percent of all our borrowings is a result of State-Owned Enteprises (SOEs) but can’t we cut down the size of SOEs, why can’t you cut the size of appointees otherwise we are just robbing Peter to Pay Paul.”
He added “If we don’t pull the brake we will soon have to restructure our debts again, we cannot sustain interest rates at this level for any less time. If we don’t fix it, somewhere we are going to come back and restructure some of the debts again.”
His comments come on the heels of the warning Fitch gave to Ghana against the rising interest cost on domestic debt despite securing the $3billion International Monetary Fund (IMF) deal.
According to Fitch, rising interest cost on domestic debt does not help with the overall debt sustainability in the medium term.
Speaking at a webinar on Africa Sovereigns Amid Financing Crunch, Senior Director for Emerging Markets, Toby Iles, cautioned Ghana and other African governments against the rising interest costs on domestic markets.
“As I mentioned right at the beginning, there has been more development in the domestic debt market and so it’s become more important. When we look at things in terms of interest cost of the government; break them down by domestic debt interest cost and compare them with external interest cost, the share of interest cost on domestic debt has been going up. So domestic debt becomes more of a question mark,” he said.
Toby Iles added that the terms of the debt restructuring might not help in the overall debt sustainability.
“Terms of the actual restructuring: it definitely helps in terms of liquidity but it doesn’t help in the overall debt sustainability over the medium-term. It presupposes there will also be other fundamental improvements in fiscal consolidation,” he added.