Ghana’s central bank pushes for fiscal consolidation as economy rebounds in 2012 third quarter

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has noted that the country’s economy has recorded some positive improvements during the third quarter of 2012, coming from a contrasting situation in the first half of the year.

The central bank is therefore pushing for fiscal consolidation, which it says “is crucial at this stage to preserve the resilience of the economy against risks.”

The MPC has noted that the arrears related to wages have been largely cleared and therefore unlikely to pose additional risks to the country’s economic outlook.

The Committee is of the view that risks to inflation and growth have been balanced and moving forward, it will continue to “monitor the economic and financial developments and respond appropriately to preserve macroeconomic stability.”

Price developments suggest diminished inflationary expectations as reflected in the central bank’s latest surveys.

According to an MPC press statement November 14, 2012 after examining the country’s economy, the BoG’s inflation forecast indicated that “inflation has been well anchored within the projected band of 8.5 ± 2% and is likely to end the year in single digit.”

Exchange rate pressures, which threatened macroeconomic stability and heightened inflationary pressures during the first half of the year, have eased largely as a result of the policy measures implemented, the Committee observed.

“In the past two months, we have observed some marginal appreciation of the cedi relative to the US dollar. The reduced volatility in the foreign exchange market has helped to lower inflation expectations in the near term,” it said in a press release.

It further stated that the BoG’s latest credit conditions survey has also pointed to “easing of credit stance to households and large enterprises”.

The Bank’s Composite Index of Economic Activity (CIEA) also recorded some increased economic activity although it was at a moderate pace relative to last year.

The business and consumer confidence indices suggest improved sentiments on exchange rate and inflation expectations. Credit to the private sector continued to expand providing additional impetus to economic growth, the central bank says.

Inflation outcomes, the MPC says have been in line with expectations though some upside risks emanating from the external sector and fiscal operations were noted.

In particular, its release added “risks to the outlook were identified as the high wage bill, arrears and fuel and utility subsidies.”

The Committee further observed a deterioration in the balance of payments on account of weak export growth, rising imports and short-term capital outflows.

On the growth outlook, positive developments in the CIEA, private sector credit expansion, and improved credit conditions are upside risks which could be moderated by the on-going energy sector challenges and global uncertainties, the Committee indicated.

By Ekow Quandzie

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