The Bank of Ghana (BoG) has cautioned policy makers not to withdraw their policy support hastily as it could jeorpardise the country’s economy recovery process if it is not carefully done.
The First Deputy Governor of Bank of Ghana (BoG), Dr Maxwell Opoku-Afari gave the caution when he opened a two-day workshop on financial literacy for Journalists for Business Advocacy (JBA) at Prampram in the Greater Accra Region.
The workshop which was on the theme- ‘Understanding Monetary Policy in a Post Pandemic Era’ was organised by the JBA and sponsored by the BoG.
He therefore assured that the Bank would continue to monitor development and take appropriate decision stressing: “A careful balancing act between unwinding the policy support and would be needed by policy makers to ensure that stability in a post-pandemic environment is guaranteed”.
In the heat of the Covid-19 pandemic, several bold and innovative policy measures were enacted and implemented, some of which will need to be reversed and unwound in a post-Covid-19 environment.
There also could be the possibility that some of these measures would need to be kept in place for a while and the policy implications of all these decisions will have to be weighed, according to him.
Signs of the impact of the Covid-19
“Tentative signs of the impact of the Covid-19 pandemic started to emerge at the end of the first quarter of 2020. By the end of the first quarter of 2020, high frequency indicators reflected the effect of the pandemic on the economy”, Dr Opoku-Afari said.
“An incipient decline in the real Composite Index of Economic Activity (CIEA) recorded in March 2020 intensified at the height of the pandemic in the second quarter.
The decline was broad-based, reflected in tourist arrivals, construction activity (cement sales), private sector contributions to the national pensions fund, domestic VAT collections, imports and exports.
At the same time, headline inflation jumped from 7.8 percent in the first quarter to 10.6 percent in April and further to 11.4 percent in July 2020, outside the Bank’s inflation medium-term target band of 8±2 percent — the first time in over two years”
The sharp rise in inflation was partly the result of panic-buying prior to the partial lockdown in the largest cities, which pushed up food prices significantly from 8 to around 15 percent while non-food inflation remained largely contained.
The pandemic therefore presented a combined demand and supply shock to the Ghanaian economy, which required close coordination and implementation of monetary, fiscal, and macroprudential policies to limit its impact on the broader economy, he stated.
Before Covid-19
He said before Covid-19 economic conditions were relatively strong and pointed in the right direction. Inflation significantly declined and inflation expectations were firmly anchored.
Real GDP growth averaged 7.0 percent in the three years before the pandemic (2017-2019) with pre-pandemic projections for 2020 pegged at 6.8 percent.
At the same time, external sector performance was strong with a robust gross international reserve build up, sufficient to cover 4.7 months of imports. Moreover, the banking sector performance improved after the clean-up exercise and recapitalisation, Dr Opoku-Afari noted.
“Indicators of financial soundness pointed to a solvent, liquid and profitable banking sector. The industry’s measure of solvency, the Capital Adequacy Ratio (CAR) under the Basel II/III framework remained well above the regulatory 13 percent prudential limit.
Asset quality similarly improved as reflected in declines in the non-performing loans ratio on the back of recoveries, write-offs, and increased credit growth”.
“In the outlook, the signs of recovery are encouraging and 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”, Dr Opoku-Afari added.
By Masahudu Ankiilu Kunateh, African Eye Report
