As part of austerity measures of the International Monetary Fund (IMF), President John Mahama says his administration will further tighten money supply in the country this year to stem excess liquidity.
According to him, it’s difficult for inflation to come down with the abundance of money in the system.
During his recent meeting with the media in Accra, President Mahama said government would pursue zero Central bank financing.
He said, “This year, there are some austerity measures that we are taking but these are to do with zero central bank financing. It means that if we have liquidity problems, we cannot go and take money from the Central Bank and borrow, because really when you go and take money from the central bank, it’s like printing money and putting it in the economy.
“And what it does is, it increases money supply and it makes it difficult for inflation to come down and it puts pressure on the cedi because once there is excess liquidity in the system, then what people do is they use the dollar to hedge against the cedi. And so if you have excess money instead of using it in the bank you go and buy dollars and you put it under your bed or in the dollar bank account in anticipation that when the cedi slides, your dollar will maintain its value. And so we had to do financial tightening.”
Commenting on the IMF bailout programme, he stated that government sent its home-grown programme to the IMF to just endorse and supervise.
“For policy credibility, I said let’s go to the IMF and let’s implement this financial programme. And so we sent the home-grown programme to the IMF and they said the same things that we had said we would do, they were the same things they said we should do. I don’t see any significant addition..that was made to the homegrown programme. There was virtually nothing. The only thing was to reduce central bank financing to zero by this year. Otherwise, the same conditions were what we did.”
On the new taxes, he said Ghana’s current level of taxes to revenue, which is at 18 percent and lower than that of countries in the sub-region, should be 22 percent as is the case of Kenya, which is raking in more revenue.
Looking at international dynamics, this year is going to be a difficult year for all countries, including Ghana, he added, urging all citizens to brace themselves for hard times.
By Samuel Boadi