Economist gives thumbs up to government for restoring macroeconomic stability

By Kwabena Owusu-Ampratwum

Government has performed creditably well with regards to restoring macroeconomic stability, in particular, inflation and the fiscal deficit.

The is the assessment of Senior Lecturer at the Department of Economist at the University of Ghana, Dr Eric Osei Assibey as the Finance Minister prepares to present the budget on Wednesday.

Speaking in an interview, he said for instance inflation dropping from 15.4 percent in the beginning of the year to 11.9 as at now is an indication that government is on course to achieving its target for the year.

On the Fiscal deficit, even in the face of underperforming revenue, quarterly reviews suggest that Ghana is on the path to achieving the target of 6.1%.

Dr Osei Assibey, however, observed interest rates have not responded as they should have in light of the drop in inflation and the stability of other macroeconomic indicators. Chief among the factor contributing to the high-interest rates is the number of non-performing loans in the banking sector.

He said the banks have been slow to respond in the face of a downward trend in the monetary policy because the non-performing loans pose a high risk to their operations.

"That for me we've not done so well, both on the part of the private sector response to macroeconomic indicators and also on the part of government, because it owes a lot of these commercial banks, the arrears are accumulating, and so the banks still do not feel comfortable in reducing their interest rates" Dr Osei-Assibey said.

Though inflation, which is an indicator of the rate at which prices of commodities are rising, has seen a downward trend, many Ghanaians say they do not see that translating to savings in their pockets, an all too familiar response to political rhetoric that the figures point to a good economy.

The Economist explained that lower inflation does not mean the prices of goods are falling, it actually means the rate of increase has slowed considerably and so depending on salary and how people expend their resources, they may or may not feel the impact.

He noted that people who depend on a great deal on imported materials may see prices still rising fast due to the depreciation of the cedi, while those that depend on the local market could see an appreciable increase in their purchasing power.

Dr Osei-Assibey cautioned that though the macroeconomic indicators are doing well, there are still other external risks, such as the fall in cocoa prices on the world market, "if that continues, that can have an effect on the stability of our currency".

He also observed there will be pressure on the cedi as the year ends due to high imports for the Christmas festivities and this will test the stability of the economy. The Bank of Ghana and other economic agencies should therefore be ready to effectively manage some of these shocks.