Reprioritize spending programmes within available financing envelopes

Governor of the Bank of Ghana (BoG) Dr Ernest Addison has said that the outlook for the Ghanaian economy is for continued tightened borrowing conditions.

This, according to him, underscores the need to reprioritize spending programmes within the available financing envelopes.

Dr Addison said these at the Monetary Policy Committee (MPC) Press conference in Accra on Monday, July 25.

He said the execution of the government’s budget has been challenging against the backdrop of macroeconomic developments.

For the first five months of the year, he stated, available provisional data shows a higher deficit relative to programmed, driven mainly by significant shortfalls in revenues relative to projections.

“The revenue underperformance reflected delayed implementation of several new revenue measures announced in the budget. On the expenditure side, higher interest payments led to some pressures despite restraint on primary expenditures, especially on capital expenditures which have declined markedly.

“Financing of the budget was entirely met from domestic sources during the first half of the year as planned borrowing from international sources did not materialize. The outlook is for continued tightened borrowing conditions and this underscores the need to reprioritize spending programmes within the available financing envelopes,” Dr Addison said.

On July 1, 2022, the Government announced its intention to seek support from the International Monetary Fund.

Initial talks have begun, and the BoG Governor said it is envisaged that a Fund-supported programme will help re-anchor expectations through the implementation of reforms to restore creditworthiness, and eventually lead to a regain of access to the international capital markets. “The markets have already started internalizing the positive effects of the engagement with the IMF,” he underscored.

“The Committee noted that inflation has persisted on an elevated path. A detailed review of the consumer basket shows that although initially driven by supply side shocks, the initial relative price changes have broadened to almost all the items in the consumer basket. Over 80percent of the items in the basket recorded inflation above 20 percent.

“Inflation perceptions and expectations, as revealed in the Bank’s surveys of consumers and businesses, have increased, and influenced agitations for Cost-of-Living Allowances in workplaces.

“The Bank of Ghana has responded decisively with its policy tools over the last few months increasing the policy rate by a cumulative 550

basis points since November 2021 and tightened liquidity conditions. The Committee also noted the deceleration in the rate of increase in inflation in the last reading.

“The Committee expects that the macroeconomic framework that will underpin an agreed IMF supported programme will present a stronger coordinated monetary and fiscal policy framework that will anchor stability and prevent a wage-price spiral, which will lead to inflation becoming more entrenched.

“Based on the above assessments, the Committee was of the view that it will be appropriate to pause and observe the impact of the

recent monetary policy measures already taken. The Committee, therefore, decided to maintain the monetary policy rate at 19.0 percent.”

Regarding the performance of banks, Dr Addison said the sector continues to exhibit strong performance, in the face of challenging headwinds from the macroeconomic environment.

“The financial sector indicators remain healthy, with some improvement in asset quality reflected in the lower NPL ratios compared with April 2022. However, the recent developments in the macroeconomy may pose some upside risks to the sector’s outlook and will require strong risk management by the industry and effective supervision,” he said.