External vulnerabilities to Ghana’s economy remain elevated, says Governor Addison
Governor of the Central Bank, Dr Ernest Addison, has said external vulnerabilities to the Ghanaian economy remain elevated.
According to the Governor, recent developments in the global economy (impacts of the Covid pandemic and Russia-Ukraine war) coupled with Ghana’s inaccessibility to the international capital markets have accounted for the elevated external vulnerabilities.
Further asserting, these external vulnerabilities have resulted in pressures on the country’s balance of payments (BoP) posing risks to the country’s external outlook.
“Developments in the global economy have impacted Ghana strongly as it is occurring at the same time that the country is not able to access capital markets to raise money due to the ratings downgrade, as it has done for the past few years. This has elevated Ghana’s external vulnerabilities and translated into balance of payments pressures, although, the trade surplus improved somewhat, due to higher crude oil export earnings.
“However, the significant net portfolio reversals and weak inflows into the capital and financial account resulted in a widened balance of payments outturn and loss of reserves in the first quarter of 2022. The prevailing tight global financing conditions, and further policy rate hikes in advanced economies continue to make the external financing conditions unfavourable, posing real risks to the external outlook,” he remarked delivering a speech at the 6th CEO Summit themed “Digital Leadership for a Digital Economy” on Monday, May 30, 2022.
Trade surplus within the first four months of 2022 has surged to GHS 1.3bn.
Compared to the $778m trade surplus recorded same period last year, this marks an increase of $522m.
According to the Bank of Ghana, favourable commodities price trends in the last few months positively impacted the trade account as export inflows outweighed imports leasing to the $1.3bn trade surplus.
The improvement in export earnings was attributed to crude oil and non-traditional exports. Crude oil export receipts recorded significant growth of 61.0 percent to US$1.9 billion, due to price effects, while gold exports improved by 3.6 percent, also supported by price effects.
Speaking on inflation, the Governor averred the country’s current inflation rate of 23.6% which is about three times the Bank’s target has significantly complicated the conduct of monetary policy.
“Recent price developments indicate elevated pressures from both domestic and external sources. These include the global energy and food price shock, and its consequential upward adjustments on domestic ex-pump petroleum prices and transportation costs, domestic food prices, as well as the passthrough effects of the recent exchange rate depreciation.
“The Bank of Ghana’s inflation target is 8+/-2%. The current inflation of 23.6 per cent is about three times the central target of the Central Bank, and has significantly complicated the conduct of monetary policy, making those of us in charge very uncomfortable,” he noted.
He however, asserted that the Bank will work assiduously to ensure inflation stability and restore confidence in the economy.
“The Bank remains confident that ongoing policy efforts should help re-anchor inflation expectations, restore confidence in the economy and ensure that businesses operate in an environment of stability. In this regard we will work assiduously to ensure inflation stability,” he stated.
Touching on rebuilding confidence in the Ghanaian economy and facilitating complete recovery from the Covid pandemic and Russia-Ukraine war, Dr Addison averred stabilization policies rolled out since 2020 will help restore confidence in the economy.
According to the Governor, measures taken so far to restore investor confidence in the economy include policy rate hikes, reversal of covid-reliefs, extended Forex auctions and fiscal measures such as the 30% cut in government expenditure and enhancement in revenue mobilisation.
