BoG to compel govt to spend within budget

Business News of Monday, 23 February 2015

Source: Graphic Online

Seth Terkper Dr Kofi Wampah

The Bank of Ghana has instituted stringent financial disciplinary measures to ensure that the government spends within its means in order not to throw the economy out of gear, the Governor of the Bank of Ghana, Dr Henry Wampah, has said.

Details of the measures, which are expected to be captured in the IMF conditionalities to Ghana for the bailout, are under wraps but the governor said financing the government would not exceed five per cent of last year’s revenue.

In a speech read on his behalf at the end of the Second International Economics Conference, he noted that a possible programme would be concluded with the IMF shortly to support fiscal consolidation and provide further balance of payment buffer.

The two-day conference was organised by the economics department of the Kwame Nkrumah University of Science and Technology (KNUST).

Speaking on the topic, ‘Exchange rate policy in Ghana: Effectiveness and implication for sustainable development’, Dr Wampah said this would help to shore up investor confidence and contain the pressures in the forex market while helping to build up additional international reserves.

Tracing the history of the exchange rate, he highlighted the current trends and said the exchange regime reforms in 2006 led to a surge in private capital inflows in the form of foreign direct investment and portfolio investment from 2007/2008, mainly benefitting the financial services sector and also the extractive industries sector.

‘It is important to note that there was no evidence of appreciation in the real exchange rate since 2007/2008 when the surges in capital inflows became apparent,’ he said in a speech read for him by Dr Francis Kumah of the bank’s research department.

‘Although, there appeared to be some real depreciation from 2010, things stabilised since 2012,’ he said.

The two-day convocation which was under the broad theme: ‘Economic growth and sustainable development’ brought together some of the country’s economists and financial experts who touched on several topics of economic growth.

Among them was Dr Asare Akuffo, Managing Director of HFC Bank, who spoke on: ‘Why commercial banks’ lending rates are high.’

He likened the country’s economy to a car engine that was not functioning properly. He said the government was partly to blame for the high interest rate.

‘If government is borrowing from the banks at 25 per cent, what happens to the ordinary person. It means he is likely to pay more,’ he said.

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