Ghana's high interest rate cause of low GDP - Dr. Osei-Assibey

A Senior Lecturer at the Department of Economics, University of Ghana, Dr. Eric Osei-Assibey has advocated for a review into the Bank of Ghana (BoG) inflation targeting policy after a decade of its adoption.

According to the Economist, the monetary policy framework put in place by the Central Bank to regulate the country’s borrowing and expenditure rates has not strengthened the economic structure in any way but adversely taken a tow on its development.

Dr. Osei-Assibey argues that inflation targeting in the midst of persistent over-expenditures, exchange rate fluctuations and weak productive structures has resulted in high interest rates of the country.

In his view, inflation targeting under a weak macro-economy like Ghana will be impossible unless the reasons for the numerous target misses of the Central Bank is rectified and a re-direction is put in place.

“In an a economy where you have so much structural weakness and as I quoted an IMF’s own paper, where the fundamentals are severely lacking inflation target may not be …There are other alternatives, other countries, even in our West African countries let’s look at interest rates, our interest rate is one of the highest and interest rate is the macro variable that connects the real sector. If you want your real sector to do well it’s through your interest rates, he posited.

Speaking at a roundtable discussion on Ghana's inflation targeting and macroeconomic fundamentals, Dr. Osei-Assibey maintained that, “very soon utility bills and commodity prices are going to go up and the central bank will be forced to raise the monetary policy rate and that will mean that the interest rate that we are all yearning that it comes down will have to go up again.”

He further argued that inflation targeting framework has been found to be associated with high macroeconomic performance, therefore over-fixation on price stability without recourse to real economic outcomes such as growth and employment should be a matter of concern.

“Government is severely constrained. This economy has so many infrastructural weakness and it is this same structural weaknesses that is going to form the bedrock of our productive sectors. So every economy has a threshold, a spectrum, a tolerance level and our tolerance may not be the same as America or Canada or New Zealand.”

President Nana Akufo-Addo in his State of the Nation Address last week said his government’s efforts to stabilize the economy are beginning to yield results as the rate of debt growth of Ghana in 2017 slowed and the government exceeded targets for keeping spending under control.

The budget deficit he said narrowed to 5.6 percent of GDP last year from an earlier estimate of 6.3 percent but Dr. Osei-Assibey insists that Ghana can do better to reduce its GDP rate.

“We can definitely do more. If interest rates are down as it pertains in other countries obviously this country’s potential will not be limited or constrained to that 5.6 percent that we have.”