First Deputy Governor of the Central Bank, Dr Maxwell Opoku-Afari, has stated that stabilization policies – fiscal and monetary policies – implemented last year to moderate the adverse effects of the Covid pandemic on the economy, needs to be carefully withdrawn or the country risks jeopardising the economic recovery gains made so far.
According to the First Deputy Governor, the timing coupled with the careful balancing act of unwinding policy support provided by government is essential to ensuring economic stability in a post-pandemic environment.
”A key issue going forward relates to the timing of withdrawal of policy support. This would need to be carefully done so as not to jeorpardise the recovery process. A careful balancing act between unwinding the policy support would be needed by policy makers to ensure that stability in a post-pandemic environment is guaranteed,” stated Dr Opoku-Afari.
Dr Opoku-Afari made the above assertions delivering a keynote address at the Journalist for Business Advocacy Financial Literacy Training Workshop themed; Understanding monetary policy in post pandemic era.
During the heat of the pandemic last year, government implemented a mix of policies that helped moderate the impact of the pandemic on the economy and contributed significantly to a faster pace of economic recovery than anticipated.
Ghana, at the end of 2020 last year managed to record a measured positive growth of 0.4 percent unlike many others that slipped into negative growth rates.
The central government through fiscal policy actions spent some Ghs 21 billion in Covid-19-related expenditure last year.
To complement the fiscal policy actions, the Bank of Ghana deployed various tools, namely: the interest rate tool, macroprudential policies, market liquidity support, and the triggered its emergency financing clause to purchase a Government COVID-19 Bond worth $1.7 billion.
Specifically, the Bank of Ghana introduced the following policy and regulatory support:
- The Monetary Policy Rate was reduced by 150 basis points in March 2020 and another 100 basis points in May 2021 to 13.5 percent to complement fiscal policy and provide support to economic growth;
- The cash reserve requirement (CRR) ratio for banks was lowered from 10 to 8 percent to provide additional liquidity to Banks. This policy measure was expected to free up additional resources of about GHS2 billion for banks and Specialised Deposit-Taking Institutions (SDIs) to lend to critical sectors of the economy;
- The CRR for Rural and Community Banks (RCBs), Savings and Loans Companies (S&Ls), Finance Houses was reduced from 8 to 6 percent; and from 10 to 8 percent for microfinance companies;
- The Capital Conservation Buffer was reduced by 1.5 percentage points to 11.5 percent and providing capital relief of about GHS1.1 billion for banks;
- The provisioning requirements for loans categories was reduced from 10 to 5 percent and which translates to about GHS115.3 million in capital relief to Banks;
- Restrictions were imposed on dividend and other capital distributions for the financial years 2019 and 2020 to preserve liquidity and capital buffers;
- The deadline for new capital requirement for SDIs (MFIs and RCBs) was extended to December to provide temporary relief to SDIs, given current economic conditions;
- The Bank of Ghana requested Banks to grant 3-12 months moratorium on principal payments on loans granted to customers in the worst pandemic-hit sectors;
- A reduction in mobile money charges and waiver of transaction fees on minimum transactions (GHS100) and increased wallet limits was agreed with the TELCOS to promote electronic transactions as part of COVID protocols;
Touching on the outlook of Ghana’s economy amid the pandemic, the First Deputy Governor opined that, despite the encouraging signs of economic recovery, the country’s recovery process would require careful monitoring and, where necessary, continuous comprehensive macroeconomic policies including defining a feasible fiscal adjustment path in the medium term to ensure fiscal and debt sustainability to anchor macroeconomic stability.
Speaking further at the training workshop, Dr Opoku-Afari stated that the pandemic has quickened the country’s drive towards a cash-lite economy and that lessons learnt from the pandemic is likely to shape monetary policies going forward.
