Prof. Lord Mensah Criticizes Policy Divergence in Ghana’s Economic Management
Financial Economist at the University of Ghana Business School, Professor Lord Mensah, has raised concerns over the divergence between fiscal and monetary policies in Ghana. Speaking during the NorvanReports and Economic Governance Platform (EGP) X Space Discussion on the topic, “Fiscal vs Monetary Tug-of-War: Economic Salvation or Damnation?”, Prof. Mensah highlighted the inconsistencies in policy objectives that may hinder economic growth.
He noted that Ghana, having adopted the British policy structure, operates with a clear separation between fiscal and monetary policies. In contrast, the U.S. Federal Reserve system aligns both policies towards shared economic objectives, including employment creation and economic expansion.
Monetary and Fiscal Policy Dynamics
Discussing Ghana’s monetary policy framework, Prof. Mensah explained that the Monetary Policy Committee (MPC) primarily relies on discount rates and reserve requirements to control money supply. On the fiscal side, government interventions include taxation and treasury instruments such as bonds and T-bills to regulate liquidity and investor participation.
However, he pointed out that the current state of economic management in Ghana reveals a mismatch between these policies. “There is always a divergence; the policy committee looks at one thing while the government focuses on another,” he stated.
Policy Rate Concerns Amidst Inflation Trends
Addressing recent monetary policy decisions, Prof. Mensah questioned the rationale behind the MPC’s decision to increase the policy rate to 28% despite a declining inflation rate of 22.4%. He argued that with inflation trending downward, the policy rate should reflect market expectations rather than suppress lending conditions.
“If the policy rate is around 27% and inflation is at 22.4%, it means real returns on lending are positive, benefiting lenders. The question then is, why should the MPC further increase the policy rate?” he asked.
He referenced a report by Dr. Asiyama, which justified the rate hike based on potential global shocks, including U.S. trade tariffs introduced by former President Donald Trump. However, Prof. Mensah countered this reasoning, stating that Ghana exports more to the U.S. than it imports, reducing the overall economic impact of such tariffs.
Market Response and the Role of Fiscal Policy
He further explained that market trends suggest a preference for lower interest rates. The declining demand for government instruments signals that investors expect interest rates to decrease. “If demand for government instruments has dropped, then interest rates should also be coming down,” he observed.
Given the market’s reaction, he expressed skepticism over the MPC’s decision to raise the policy rate, suggesting that it may not align with the broader economic objective of job creation and growth. “We need to ask whether monetary and fiscal policy tools are being employed effectively towards their ultimate goals,” he emphasized.
Call for Policy Harmonization
Prof. Mensah concluded by advocating for a more synchronized approach between fiscal and monetary policies. He stressed that both policies should prioritize job creation and economic expansion rather than operating at cross-purposes.
“If the ultimate goal is to create jobs and spur economic growth, then the market has responded appropriately. The monetary policy committee should reconsider its stance on interest rates,” he asserted.
His remarks add to the ongoing debate on the effectiveness of Ghana’s economic management and the need for better coordination between policy-making institutions to foster sustainable growth.
