Economy clouded by uncertainties – IEA



Business News of Thursday, 10 December 2015

Source: Daily Guide

Dr Kwakye IEA EconsDr John Kwakye

Dr John Kwakye, a senior fellow at the Institute of Economic Affairs (IEA), has called for strong fiscal consolidation on the part of government to ensure the much-needed macro-economic stabilization that the country needs.

Such a measure was critical because the outlook for Ghana’s economy in the second half of this year was clouded by uncertainties associated with the new IMF-sponsored programme and commodity price prospects, according to him.

“The political cycle syndrome will have to be overcome if progress is to be made in this regard. In the long-term, transforming the economy to diversify and add value to exports and through industrialization to be able to produce a significant part of current imports at home would be necessary to address the structural financial and economic imbalances for sustained growth.”

Dr Kwakye, who was making a presentation during an economic discussion on Ghana’s economy yesterday in Accra, said as at end-June, gross international reserves was $4,539.7 billion or 2.9 months of import cover compared to $5,461.0 billion or 3.8 months of imports at the beginning of the year.

“The decline in reserves was the result of low foreign inflows. The reserve position is likely to improve in the second half of the year due to expected foreign inflows. It is important, however, to build a comfortable cushion of reserves of at least four months of imports as a buffer against future shocks. It will particularly be imprudent to run down reserves just to try and reverse the cedi depreciation. It will be enough to keep the cedi stable rather than causing it to appreciate as that will hurt competitiveness.”

Dr Kwakye further mentioned that Ghana had recorded high external deficits in the past years, which reflects underlying low export receipts from primary commodities and high import demand.

“Unless these underlying weaknesses are addressed, large external imbalances will prevail with constant pressure on the foreign exchange.”

In the second half of this year, he stated that the cedi’s depreciation against major currencies is expected to moderate due to anticipated foreign inflows.

“The inflows will however bring only temporary relief to the foreign exchange market,” he indicated.

However, he noted that ensuring durable exchange stability called for strengthening of the fundamentals of the economy, including the thorough entrenchment of fiscal discipline and economic transformation to diversify and add value to exports and also produce import substitutes locally.”

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