General News of Wednesday, 4 March 2015
Professor Felix Asante, Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, has said the current energy crisis and the International Monetary Fund (IMF) bailout programme could lead to job losses.
“The current power crisis coupled with the falling commodity prices in the world market such as gold and crude oil would adversely affect the employment situation in the country since such problems could result in the folding-up of businesses and or retrenchment.
“Furthermore, the likely public sector reforms that usually characterise IMF programmes could also worsen [the] employment situation in 2015. The demand for goods and services, as well as savings, would be adversely affected if such retrenchments are not properly managed,” he said.
Government and the IMF last week reached an agreement for a budgetary support programme worth US$940million at a time the country is grappling with erratic power supply.
Speaking at the first Public Forum on the implications of Ghana’s monetary policy stance and the national budget on businesses in 2015 organized by the Chartered Institute of Bankers (Ghana), Professor Asante urged businesses to position themselves well in 2015 to be able to remain competitive.
The forum aims at creating a platform where the public would be able to assess the adequacy and effectiveness of government policies and strategies proffered to address the current economic challenges.
The ISSER Director added that the introduction of the VAT on fee-based financial services could adversely affect the savings habit of individuals thereby affecting the cash base of banks. “Businesses will have to find ways of keeping their operating cost within reasonable levels. The banks will also have to find ways of keeping their customers,” he added.
Despite the dim picture being painted, Professor Asante believes that the IMF support programme would among other things boost investor confidence in the economy and, as a result, would serve as an incentive to attract foreign investors.
“It is therefore important for local businesses to begin to strategically position themselves in order to compete favourably with such prospective foreign businesses. The boost in investor confidence could also encourage local businesses and investors to demand more credit for strategic positioning against the upcoming competition,” he said.
But he was quick to add that Ghanaians must note the upcoming IMF support programme would not solve all the economic challenges of the country.
“Without the necessary structural changes, political will, as well as human re-orientation the economy will eventually revert to such economic problems in the near future,” he added
Emmanuel Asiedu-Mante, former deputy governor of the Central Bank, said fiscal consolidation means government’s public sector borrowing requirements could be lower in 2015.
“If this occurs, money markets rates should begin to trend downwards and influence other interest rates including lending rates. This in turn could crowd in businesses in their search for cheaper credit to expand their businesses,” he said.
He, however, noted that the slowdown in the pace of economic activities anticipated by the budget in the face or coordinated tight fiscal and monetary policies implies sluggish aggregate demand which could affect business turnover, profitability and investments going forward.
“Businesses will also be impacted depending on how the real interest rates play out in 2015. We know that in an environment of fiscal consolidation accompanied by tight monetary policy stance, declines in nominal interest rates are known to lag behind the disinflation process, raising the possibility of rising real interest rate. Thus, cost of investment capital could rise in 2015, impeding investment,” he added.
But the former deputy governor urged businesses to expect a calmer macroeconomic environment in 2015, characterised by fiscal consolidation and tight monetary policies.
“Growth and inflation and other macroeconomic variables such as nominal interest rates and aggregate demand are expected to trend downwards. The stance of monetary policy notwithstanding, the business environment will be defined more by the immediate threats posed by [the] energy crisis on economic performance in 2015.”