Fix Supply Side Problems – Prof Kusi Tells Mahama

Prof Newman Kwadwo Kusi

Professor Newman Kwadwo Kusi, Executive Director of the Institute for Fiscal Studies (IFS), says government must address supply side challenges of the country’s economy so as to attain single digit inflation next year.

Prof Kusi said the current inflation in the country was driven largely by supply-side and cost-push factors relating to fuel and utility price adjustments, food prices and currency depreciation.

“Currently, it looks like the emphasis is being placed on the use of the policy rate to influence the cost and availability of credit, and thus aggregate demand which will not be able to deal with the supply-side drivers of the inflation. Of course, a lot is being done to address the power issues which could have a positive impact on supply and thus on inflation. It may not happen if the supply side challenges are not addressed.”

Commenting on President Mahama’s recent assurance that Ghana will come out of the International Monitory (IMF) Programme, Prof. kusi said, “Currently, inflation is high at 16.7 percent; we have the highest policy rate at 26 percent, resulting in high lending rate, and if you look at the exchange rate, even though it has stabilized for the first half of the year, it is still high, because by December 2012 the rate was GH¢1.89 to the dollar and now its GH¢4 to the dollar.

“If you look at the country’s debt level, it has increased from GH¢35.1 billion at the end of December 2012 to GH¢105 billion as at end of May, this year. So if you talk about the fiscal consolidation of the IMF programme gaining ground, I don’t know.”

Cephas Larbi

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