Deputy Minister of Trade and Industry, Dr. Stephen Amoah, is warming the hearts of many Ghanaians, that despite the many hardships occasioned mainly by the dreaded COVID and the Russian-Ukraine war, greater part of the national focus should be on improving “now and the future.”
The Member of Parliament(MP) for Nhyiaeso constituency of the ruling New Patriotic Party (NPP),in the Ashanti region, yesterday, in part one of series of statements he would release, title “The Economy Of Ghana After The COVID” stated, after observing all the schools of thought about the country’s economy since 2020, that “I am not treating the argument of the causes by various stakeholders including myself with contempt, but I think strongly that greater part of our focus should be on now and the future.”
“In my candid opinion”, the Deputy Trade Minister recommended that, “…the financial economic policy makers: governments and central bank, the banking industry, private sector and the relevant global actors should redefine new paradigm shifts for their core functions and their interdependencies, within both national and global ecosystems.”
Read the full unedited statement from the Investment banker:
THE ECONOMY OF GHANA AFTER THE COVID
The underperformance of Ghana’s economy since 2020 has given rise to much ‘constructive controversy’ among relevant stakeholders with respect to the actual causes. Many schools of thought think it has been caused by the COVID and the Russian-Ukraine war.
Others also think it is completely leadership failure while a third party thinks it is a combination of the two. I used ‘constructive controversy’ as the diverse opinions, criticisms and shared ideas have played integral roles in the expedition of restoration. In fact, other international commentators were also divided along the same line of debate.
I am not treating the argument of the causes by various stakeholders including myself with contempt, but I think strongly that greater part of our focus should be on now and the future. We cannot also entirely disregard both the past and recent historical events and policy decisions as a country.
In my candid opinion, the financial economic policy makers: governments and central bank, the banking industry, private sector and the relevant global actors should redefine new paradigm shifts for their core functions and their interdependencies, within both national and global ecosystems.
Policy Makers (Governments)
It is expected of every government in the world today, both governing developed economies and developing economies, to within the shortest possible time; come out with a tactical fiscal space consolidation policy tool. Besides, both sustainable and resilient economic policies that will harmonize the fiscal space factors: debt financing, domestic revenue and budgeted projects.
The former will mitigate the impact of the prevailing crisis. The latter will provide contingencies for future uncertainties such as what we are experiencing at present. Generally, we run a negative effective tax rate economy as a country whether the government in place is practicing expansionary fiscal policy or contractionary fiscal policy. We basically preside over an import driven economy within the context of global economic and trade statutory policies. We do not have strong entrepreneurial ecosystem as a country.
The integrity of our national data for the past twenty years remains one of the leading thematic subjects for a national debate. The question about the global competitiveness of our domestic financial institutions still remains unanswered. Our research and development ecosystem still have some efficiency and effectiveness concerns.
Meritocracy is not just a virtue but a national value. Integrity and the mindset of Ghanaians with respect to fiscal and monetary policy compliance and cooperation are fundamentally critical. Configuration of our key resources and core competences should be reviewed. Macroeconomic policy decisions are partly influenced by specific socioeconomic priorities within the context of all the above-listed factors.
Both tactical and strategic economic policy decisions accordingly require a great deal of consideration of these critical underlying factors. What are the set of viable socioeconomic policy decisions needed to harmonize all these policy boundary factors to enable Ghana meet economic growth, sustainability and resilience goals? What and how much work must go into the research, design and execution phases? We need to redefine our corporate focus as a country as there are so many economic fundamental anomalies.
Central Bank
The regulatory and the monetary policy decisions of the Central Bank of Ghana, just as any other Central Bank in the world plays an important role in the long-term growth and sustainability of Ghana’s economy. Why the fundamental principle of risk and return in investment by Investment Portfolio Theory in Ghana is not applicable remains astonishing.
Governments often borrow on our domestic markets at higher rates than the private sector. Other stakeholders attempt to provide quite interesting reasons, basically, cannot challenge the credibility of this uncovered important fundamental financial economic anomaly. It is one of the basic causes of Ghana’s double-digit interest rate economy.
The banks have high appetite to invest generally in risk-free assets offering rather higher returns than private sector assets. The industry invests averagely over 61% in government assets annually. The private sector in Ghana accordingly suffers a tremendous challenge in securing funds for starting business or driving growth.
Besides, the rationed amount for the private sector is highly costly, always double-digit rates. This contributes greatly to the high NPLs in the Ghanaian banks. This has contributed to most of the underperforming primary and secondary macro indicators as a country. Underperforming local industries, unemployment, demand and supply issues, trade deficit, unstable economy, weak currencies and others.
Another area of concern is the management of our inflationary targeted monetary policy. One cannot fault the Bank of Ghana because it is extremely tedious a task to manage this policy tool in time such as we are experiencing. I salute the present Bank of Ghana Executive body. It has not been easy, especially with the lingering global and domestic economic challenges associated with our fiscal turbulence.
The calibration policy of our policy rate to control inflation in Ghana over the years has given rise to much controversy. Both previous and present regimes had to adjust the rate predominantly to curtail inflation, if am right. I quite remember, I had a very healthy discussions on media platforms with the previous regime and quite same at present.
When inflation is as a result of cost push, the policy rate, all things being equal, should be advisedly adjusted downwards or remain same for a period of time. The opposite should be the case, when inflation is caused by demand pull whereby there is high circulation of money on the market due to spending. Attempt to do otherwise in both cases may be a strategic drift, rather aggravate the challenge.
Sometimes, too, as alluded rightly by the present regime may be targeting exchange rate which in general is not the predominant goal and the nature of our market, with respect to its complex underlying independent variables. Inflationary rate was about 15.7% when policy rate was about 12.5% if my memory serves me right. We started increasing policy rate and both inflation and exchange rates did not respond as expected, rather deepened the difficulty. Aggregately, one will commend the central bank, but for its management decisions, things would have been worse during this global crisis. I only suggest that the tactical management of the policy tool should be reviewed.
I deem it appropriate to end part one here so that other stakeholders such as the banking industry, private sector and the unions can be given in the second part.
The Banking Industry
Banking industry is the lifeline of every country’s economic growth and sustainability including Ghana, especially in the democratic jurisdictions. In any well-defined economic jurisdiction banks deposit franchises can even be used to determine the future outlooks of the entire economy.
The prevailing risk factors in
Liquidity risk
Interest rates risk
Earning
Capital
Asset quality
Concentration
