Address weak structure of economy, there is a bigger problem – IEA

IEA John Kwakye Dr. John Kwakye, Director of Research-IEA

Thu, 26 May 2022 Source: www.ghanaweb.com

Inflation hits 23.6%

BoG revised to 19% from 17%

High unemployment rate part of Ghana's problems, IEA

The Institute of Economic Affairs has called on the managers of the economy to address the bigger problems instead of focusing on only inflation.

According to the Institute, there are other macroeconomic problems that are persistent and need to be managed.

In a statement, it said, “the IEA wishes to make it clear that, while we are talking here about inflation as an immediate problem, the other persistent macroeconomic problems—such as high fiscal deficits, high public debt, exchange rate instability, high rate of employment, large external imbalances, etc.—are all manifestations of a bigger problem.”

The Institute also noted that the country’s overreliance on imports results in the weakening of the economy’s structure.

“And that problem is the underlying weak structure of the economy, characterized by reliance on low-value-added primary export products and high import dependency. The only way to find a durable solution to these recurrent problems is to address the economy's weak structural fundamentals.

This should be done through the transformation of the colonial-type economy into a vibrant industrialized economy. This cannot, however, be achieved by relying on our narrow tax base and borrowing but rather by leveraging our vast natural resource wealth by taking ownership of it.”

The IEA before the BoG’s 106th Monetary Policy Committee suggested that the policy rate be revised to 19% from 17%.

“As to by how much the PR was to be raised, the IEA posited that consideration should be given to: i) The wide gap between the PR (17.0%) and inflation (23.6%); ii) The policy tightening by major central banks, which increases the risk of foreign currency outflows from developing and emerging market economies and which could put renewed pressure on the cedi; and iii).

The increase in the PR by as much as 250 basis points at the last MPC meeting, was an increase that might not have exerted its full impact. Taking all of these factors into consideration, the IEA suggested that the MPC should increase the PR by another 200 bases.”

Source: www.ghanaweb.com
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