The International Monetary Fund will begin to assess Ghana's progress in meeting key commitments under the Extended Credit Facility arrangement, as part of the fourth review this month. Meanwhile, the Bank of Ghana raised its policy rate by 100 basis points to 28 per cent as the apex bank looks to re-anchor the disinflation process. Benjamin Boachie, Chief Economist at Secondstax, joins CNBC Africa to discuss these stories.
The International Monetary Fund will begin to assess Ghana's progress in meeting key commitments under the Extended Credit Facility arrangement, as part of the fourth review this month. Meanwhile, the Bank of Ghana raised its policy rate by 100 basis points to 28 per cent as the apex bank looks to re-anchor the disinflation process. We're seeing inflation rates for March coming in at 22.4 per cent. Benjamin Boachie, Chief Economist at Secondstax, joins me now to discuss these stories. Thank you so much for your time today, Benjamin. We're seeing that after that steep rate hike, we're seeing that inflation is more or less slowing down to a five-month low. I'd like you to speak on what we're seeing play out here and your take on the inflation reading for March, as we're seeing that ease for the third straight month. Sure. Thanks for having me. We're seeing a situation where the underlying economic data signals that growth is strong. The actual economy is maintaining a positive trajectory. So you're seeing the index of economic activity rising. You're seeing GDP growth come in, signaling strong underlying growth. You're seeing some strong activity in the banking sector, all signaling that the underlying economic activity in Ghana is quite strong. But that is also coupled with the fact that the public sector management, particularly in the fourth quarter of 2024, got a little less strict. And we've come to find that 2024 was not going to come in as the first election year in Ghana's history where the government did not overspend. So you have that strong underlying growth, a bit of slippage on the public management front. You see inflation continuing to come down. So altogether, this was a recipe for either maintaining a hawkish stance, so either maintaining the policy rate at 27 percent, but indicating a willingness to hike or hiking, which is the option that they went with. And I support it. I think that's precisely what was needed. In terms of management of both fiscal and monetary policy, we're seeing new sheriffs on the block here. And I'd like you to speak to that and what that means, the impetus this new drive that we're seeing play out here. Well, having a new government obviously means you've got a new economic management team. It's going to take a little time to see precisely how they decide to manage affairs. Like I said in the fourth quarter, under the previous administration, you really did see that the primary balance, for example, they started to run a deficit around 4 percent, which was obviously nowhere near. It's a bit unclear what exactly the spending regime is going to look like under this new government. But I think given that, one, like you said, they're about to go through the fourth review with the IMF. They are coming to the table with some pretty unfavorable metrics. They're going to have to recommit to some discipline on the fiscal side. Going forward, they're going to have to essentially maintain that and establish some of their own credibility. Because as bad as the fourth quarter was, you had seen several months of improved inflation, of strong underlying growth that the previous administration could take credit for. So this new administration is going to have to develop a track record of its own, of quality economic management. Yeah, it's good to mention that because I'm now keen to know, in terms of the IMF review, what are some of the key areas that Ghana needs to demonstrate progress on this IMF review? Well, as positive as this last reading, the 70 bps drop in inflation was, we completely missed the year-end inflation target that we had set, which was I think 15 percent or something like that. As you know, even after this recent drop, we're still in the 22 percent range. So that's the first kind of horrible sign that suggests, OK, we don't have things where we plan to have them. As I mentioned earlier, the primary balance. The government is spending more than it should be. And that is something that absolutely needs to get under check, get in check immediately. Because one, it takes you outside the bounds of the IMF deal. And two, it's just, it's going to be bad for inflation. It's going to be bad for the balance sheet of the nation. Generally speaking, they just have to get spending in check. So those are the two things that I think are going to be most closely watched this fall. All right. There's a waiver process that they can maybe tap if they can credibly demonstrate that they'll get things in order. But that remains to be seen. All right. Coming back to monetary policy here, and I'm curious to know what impact you expect of the new 273-day instrument the government is looking to introduce as well. And also the tight time monitoring of the bank's net open positions. How do you think this will impact the state of play? I think I've been most impressed with the new government on the monetary side. I think the folks at the Bank of Ghana are really switched on and kicking it because they're starting to use more of the tools at their disposal to mop up liquidity, kind of get excess liquidity out of the system, and really put that pressure that needs to be placed to tamp down inflation. That's positive. When you have inflation in the 22 percent range, that has to be the first and foremost battle that you're fighting. So I've been pleased to see them take advantage of these different tools. They're also talking a lot more about transparency. And what I've been trying to kind of nudge folks to understand is that it's not just about being transparent, although being transparent is an absolutely laudable goal for monetary policy. It's about using that communication muscle to influence behavior in economic activity. So being able to state very clearly that, look, if prices remain elevated, if folks are taking every opportunity they can to hike prices, well, then we're going to aggressively hike rates. That's not a rate hike, but it is a suggestion of a rate hike that can help to anchor inflation expectations and get folks to behave in a way that aligns with the monetary results that you're looking for. No doubt signaling is also quite important. Thank you so much for your time, Benjamin Boachie, the Chief Economist at Second Stacks.
Theme: Ghana's Economic Outlook and Policy Responses
Ghana's economic landscape is currently under scrutiny as the International Monetary Fund (IMF) gears up for the fourth review of the Extended Credit Facility (ECF) arrangement with the country. The recent decision by the Bank of Ghana to raise its policy rate by 100 basis points to 28 percent reflects efforts to stabilize the economy and re-anchor the disinflation process. In the midst of these developments, Benjamin Boachie, Chief Economist at Secondstax, provided insightful analysis on the country's economic situation. After a significant rate hike, Ghana witnessed a slowdown in inflation to a five-month low of 22.4 percent in March. Boachie highlighted that despite the positive growth signals in the economy, there were concerns regarding public sector management, particularly in the fourth quarter of 2024. It was noted that Ghana overspent in the preceding year, deviating from previous patterns of election-year overspending. The need for a rate hike was deemed necessary to combat inflation, a move that Boachie supported as essential for maintaining fiscal and monetary discipline. With a new government in place, there is heightened anticipation for the economic management approach they will adopt. Boachie emphasized the importance of establishing credibility through disciplined fiscal policies, especially as Ghana prepares for the IMF review. The government will need to address key areas such as inflation targets and primary balance to align with the requirements of the IMF agreement and improve the nation's economic outlook. In the realm of monetary policy, Ghana is poised to introduce a new 273-day instrument and implement tighter monitoring of banks' net open positions. Boachie commended the proactive stance taken by the Bank of Ghana in utilizing various tools to manage liquidity and curb inflation. The emphasis on transparency and communication in monetary policy decisions was underlined as essential for influencing economic behavior and aligning expectations with policy objectives. The IMF review will serve as a critical juncture for Ghana to showcase progress in key economic parameters. Despite recent improvements in inflation rates, the country still faces challenges in meeting targets and controlling public spending. The introduction of new monetary instruments and stringent monitoring mechanisms reflects a commitment to tackling inflation and maintaining financial stability. As Ghana navigates through economic reforms and policy adjustments, the collaboration between government initiatives and central bank strategies will be vital in shaping the country's economic trajectory. The adherence to fiscal discipline, effective communication of policy objectives, and robust monitoring of economic indicators will play pivotal roles in Ghana's quest for sustained growth and stability in the coming months.
"When you have inflation in the 22 percent range, that has to be the first and foremost battle that you're fighting. So I've been pleased to see them take advantage of these different tools."
['Ghana economy', 'IMF review', 'Monetary policy', 'Inflation management', 'Bank of Ghana', 'Economic growth']