Dr Johnson Asiama, a former Second Deputy Governor of the Central Bank, has advised government to put in place a national risk management framework that will help contain the types of exogenous shocks that often rob the economy of gains recorded.
Speaking on Tuesday in Accra as part of a panel that spoke on the topic, ‘Ghana’s growing public debt: implications for the economy’ at a roundtable discussion organised by the Institute of Fiscal Studies (IFS), an economic think-tank, Dr Asiama noted: “We should have a risk management framework. We expect the growth acceleration this year on the back of oil and what have you. It’s good news. The macro-economy numbers from last year were very good and the finance minister has made that clear.
“However, down the road, just let the rains be late up to August and you will see the story will change. Just have commodity prices take another turn and you will see the story changing. So what am I saying? The story is good but for the sake of longer term debt sustainability, if we can have a risk matrix, a matrix of all the things that affect us as a country. So that continuously, we are building the necessary mitigating measures putting these things in place.”
Dr Asiama also noted: “Exchange rate depreciation impacts on debt accumulation tremendously. And now exchange rate depreciation is in turn impacted by a number of exogenous shocks. You notice that any time those shocks come in, the cedi wobbles. And so going forward, one of the strategies you want to, as part of the strategy is how you can keep excessive exchange rate depreciation.”
Interest rate hedging
Commenting on this, he said given the significant proportion of external debt to the stock, we should be having some kind of interest rate hedging in place. I know there is some hedging going on. We should be having some of that.”
“It is true that our reserves have gone up but you see if you take our entire liabilities as a country and you benchmark that with the level of reserves then you will see that the story is not exactly as buoyant as you would want it to be. To put it into context, if you cast your mind back to the Asian financial crisis time, most of those crises had in excess of six months of import cover and yet when crisis came, it was not enough. So when you are at four months or so, it is good enough but it should actually be a lot better.
“Let’s have a list of all these factors that are able to suddenly change the game. You know, prospect for another energy shock, and you will agree with me that this is not far-fetched. What can go wrong? Let it rain continuously for one week, it happens in Sierra Leone and so can happen here, and you will see what I am talking about. It starts as an exogenous shock, and works its way into a macro-economic shock, then the fiscal is always where it ends up. Each day, let us be convinced that we have each of these well covered and that’s the only way we can assure our longer term sustainability prospect.”
According to him, if such measures are not adhered to, any gains registered would be reduced to nothing should any shock rear its head.