Ghana urged to safeguard financial stability amid debt crisis
The Institute of Economic Affairs (IEA) has called on the Government to take proactive measures to avert a potential banking crisis stemming from the ongoing debt challenges.
To this end, the IEA emphasizes the necessity for the Bank of Ghana to grant banks and financial institutions impacted by the Debt Service Suspension Initiative (DSSI) the flexibility to defer recognition of their full losses. This step aims to protect the solvency of banks and safeguard the financial sector from further turmoil.
The IEA’s recommendations extend beyond short-term remedies, urging the government to implement comprehensive structural reforms that fortify the economy against internal and external shocks. The proposed reforms are anchored in the development of a broad-based national plan, facilitating sectoral realignments and enhancing interconnectivity to boost productivity and bolster government revenue.
These actions would mitigate budget deficits, reduce borrowing, and curtail the haphazard implementation of industrialization programs in Ghana.
The think tank underscores the significance of an industrialization strategy that capitalizes on natural resources while prioritizing agricultural transformation. This approach necessitates revisiting Ghana’s existing fiscal regime for natural resources to ensure a fair distribution of revenues derived from such activities within the country.
Additionally, the IEA advocates for initiatives aimed at reducing import dependency and promoting the diversification of exports, enabling Ghana to generate more foreign exchange and increase economic complexity.
To foster macroeconomic stability, sustainable growth, and debt sustainability, the IEA emphasizes the need for adherence to fiscal and monetary rules as guiding principles for policy formulation. Key among these is the enforcement of the Fiscal Responsibility Act of 2018, which mandates that the fiscal deficit remains below 5% of GDP. The amendment to the Bank of Ghana Act 2002, limiting government loans to 5% of the previous fiscal year’s total revenue, is also highlighted as a crucial measure to ensure responsible monetary policy.
By implementing these measures and embracing comprehensive reforms, Ghana can proactively manage its current debt crisis while laying the foundation for a resilient and sustainable economy. The IEA’s recommendations serve as a timely call to action for the government to safeguard financial stability and promote long-term economic prosperity.
