Prof Gatsi Disagrees with Gov’t’s Interpretation of S&P Verdict on Ghana’s Economy

Prof John Gatsi, Economist

Accra, Ghana, September 17, 2018//-A renowned Ghanaian economist and Professor at the University of Cape Coast (UCC), John Gatsi, has disagreed with the government’s interpretation of the recent Standard & Poor’s (S&P) verdict on Ghana’s economy.

According to the rating agency, “Ghana’s improving banking sector stability and lower inflation supports our view that the effectiveness and transmission mechanism of its monetary policy have improved. We are therefore raising our long-term ratings on Ghana to ‘B’ from ‘B-‘.

We are affirming the short-term foreign and local currency sovereign credit ratings at ‘B’. The outlook is stable,” S&P said in its recent report released on September 14, 2018.

S&P said its upgrade of Ghana’s rating reflects their assessment that “Ghana’s monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period.”

Commenting, the Vice President, Dr Mahamudu Bawumia, who is also the head of government’s economic management team said the economy had performed well.

Ghana has not really improved

However, Prof Gatsi maintained: “Ghana’s credit rating has been at B from B- since late 2016 by Moody and again in May 2017 by Fitch all with stable outlook. The September rating by S&P at B with stable outlook after a year on account of Fitch means Ghana has not really improved”.

He added: “The current rating is not based on improved revenue and expenditure performance but on potential stability of the banking sector when recapitalization is completed in December 2018.

Effectiveness of monetary policy cannot be seen only in the reduction of policy rate as other rates crucial to sectors of the economy are not a true reflection of effective monetary policy engagement. The risk of high public debt stock, weak revenue performance and contraction of expenditure from public investment are eminent”.

Weak monetary policy

Weak monetary policy and fiscal policy transmission benefits are the same as a year ago when Fitch rated Ghana B with stable outlook, according to Prof Gatsi who is also the head of Finance Department at the UCC Business School.

Stability within the banking sector is a process and is difficult to pronounce that the banking is now stable. The implication therefore is that government expenditure programmes should be improved and debt stock should moderate, he advised.

Prof Gatsi continued: “Government should find a way to ensure that narrow deficit with improved balance of payment (BoP) influence the performance of the currency.

Affirmation of the B stable outlook within a year clearly defines where to focus monetary and fiscal policy management efforts as B rating since late 2016 did not provide the answers citizens are expecting”.

He therefore advised the government to work harder to improve the the living conditions of the people who are struggling to eke out a living in the country.

Currently, Ghana is experiencing a severe currency depreciation against its major trading currencies including the US Dollar, Pound Sterling, and the Euro.

African Eye Report

 

 

 

 

 

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