Dr Ernest Addison, Governor, BoG
The Bank of Ghana (BoG) has urged the government to be disciplined in implementing the 2023 Budget to help foster confidence in the economy and improve the country’s debt situation.
The central bank said a steadfast prosecution of the budget would also help to complement the monetary policy stance, which was aimed at tackling the current inflationary pressures.
The Governor of the Bank of Ghana, Dr Ernest Addison, made the call yesterday when he addressed the press after the regular meetings of the BoG’s monetary policy committee (MPC).
Policy rate up
The nine-member MPC concluded its penultimate meeting last Friday during which it agreed to raise its benchmark rate, the policy rate, by 2.5 per cent.
The rate was raised to 27 per cent from 24.5 per cent to help suck out the pressure driving up prices of goods and services, discourage large supply of money, which is fuelling the price increments, and mute inflationary pressures.
Inflation ended October at 40.4 per cent, the highest in more than 20 years. The cedi has also lost more than 54 per cent of its value in the first quarter of the year.
Steadfast
Dr Addison said while those developments were the result of the COVID-19 pandemic and the Russia-Ukraine war, their persistence had weakened confidence.
He said the implementation of the 2022 Budget had come under severe stress, with both revenue and expenditures deviating.
He said the execution of this year’s budget was characterised by revenue shortfalls, expenditure rigidities, lack of access to the international capital market to fund the budget, uncovered auctions and non-resident portfolio reversals.
These, he said have “all acted to create a huge financing gap.”
“With access to external capital market closed and domestic market under performing, there has been severe pressure on BoG’s overdraft facility available to the government for short-term cashflow management, without which the government would have had difficulty in meeting its obligation,” Dr Addison said.
He said it was, therefore, heartwarming that the 2023 Budget Statement had committed to reset fiscal policy and firmly place it on the course of fiscal consolidation.
“New revenue measures and expenditure rationalisation measures have been announced.”
“To guarantee debt sustainability over the medium term, a debt exchange operation is proposed to be undertaken to support the consolidation agenda.”
“The broad expectation is for steadfast implementation of these measures to foster confidence, improve the debt-metrics and complement the current monetary policy stance at tackling current inflationary pressures,” the Governor said.
Fuel imports
Dr Addison also noted that the import of petroleum products was having a toll on the economy as witnessed in the deterioration of the current account.
He said notwithstanding the significant improvement in the trade surplus, largely driven by higher export receipts from increased gold production and higher crude oil prices, relative to imports, the current account deficit widened.
He said the deterioration reflected increased cost of imported petroleum products arising from higher crude oil prices.
“This underscores the fact that on average, higher crude oil prices have relatively modest gains on the trade account,” he said.
He also disclosed that the balance of payments swung into a deficit in the first nine months, from a surplus last year due to continuing large current account deficit and, outflows in the capital and financial account.
“These developments culminated in significant loss of reserves, resulting in further currency pressures,” Dr Addison said.