Professor Alexander Bilson Darku, an associate professor of economics, says efforts at improving the country’s production capacity and its distributive system for goods and services is the catalyst for achieving inflation targets in the country.
He said investment in agriculture, oil and industry would go a long way to reduce import dependence, manage exchange rate rigidities, reduce production cost and price of commodities and mitigate the effect fiscal policy has on inflation due to excessive borrowing for consumption related expenditure.
“If government can spend more on investment to increase the production capacity and also if production in the economy is increased, then government will be able to raise more revenue and we will not be running deficits,” he said.
Prof Darku made the remarks as a discussant at an IEA Ghana roundtable discussion, which was on the topic, “Rethinking Inflation Management in Ghana in the Wake of COVID-19 and Russia-Ukraine War.”
He said the sole adoption of Inflation Targeting (IT) in the country, which was seen in the increase of monetary policy rate and relatively effective in advanced countries where consumption patterns had direct relations with interest rate, would not be appropriate as it failed to capture the cost and supply drivers of inflation.
Dr John Kwakye, Director of Research at the IEA, said managers of both monetary and fiscal policies needed to work in tandem to focus on a holistic approach which targeted both the demand and supply drivers of inflation.
He noted that Ghana’s inflation had a strong supply and cost undercurrents, which were not amenable to policy rate, which essentially was a demand-management tool for controlling inflation.
“Also, in Ghana where wages, incomes, and aggregate demand are low and most people live from hand to mouth, to attempt to squeeze demand further through the IT framework can exacerbate economic hardship,” he said.
Dr Joseph Obeng, President of the Ghana Union of Traders Association (GUTA), advised government to pay attention to the dominance of expatriates in the juiciest part of the country’s economy, which led to high capital reversal and repatriation of exchange earnings to investor countries.
That situation he said could be corrected through the concerted effort of promoting local investment in the high foreign exchange earning sectors of the economy.
Inflation figures for June stood at 29.8 per cent as of June 2022, while the Bank of Ghana (BOG) has responded by increasing the policy rate cumulatively by 550 basis point in the past year to 19.0 per cent in May.
BY Issah Mohammed, GNA