Ghana urged to gradually increase forex reserves to tackle inflation, stabilize exchange rate
In a recent media interaction on Ghana’s 17th IMF bailout program, Dr. John Kwakye, the esteemed Director of Research at the Institute of Economic Affairs (IEA), passionately advocated for a strategic approach to managing the nation’s economic challenges. Highlighting the critical need to address the persistently high inflation and stabilize exchange rates, Dr. Kwakye put forth a compelling proposal: matching forex reserves with cedis issued.
Dr. Kwakye cogently argued that the government must take bold measures to bolster foreign exchange reserves, ensuring they sufficiently cover the circulation of cedis within the economy. By incrementally raising forex reserves from the existing 40% benchmark (as mandated by the Bank of Ghana Act), the nation could witness a gradual but significant transformation. The proposed path, he asserted, would see forex reserves elevated to 70% over the course of the next three years, and eventually, surging to an ambitious 100%.
The venerable economist attributed Ghana’s chronic inflation woes to an overreliance on a monetary policy framework that predominantly centers around taming demand-driven pressures. However, in an ever-evolving economic landscape, he astutely observed that inflation dynamics have increasingly been dictated by supply and cost factors, necessitating a more holistic approach.
To effectively address the complex challenge of inflation, Dr. Kwakye emphatically underscored the indispensable partnership between the government and the Bank of Ghana. Harmonizing fiscal policy with monetary measures is the crux of his proposal, as it would pave the way for a comprehensive, multi-pronged strategy to confront and mitigate inflationary spikes.
As the discussion on Ghana’s economic future intensifies, Dr. John Kwakye’s insightful recommendations have sparked a vibrant dialogue among policymakers and stakeholders. With inflationary pressures demanding a dynamic response, the nation finds itself at a critical juncture, where judicious decision-making will undoubtedly chart the course towards economic stability and prosperity.
