The Central Bank has asked government to work hard at ensuring that this years' budget set the economy firmly on a course of disinflation, sustainable fiscal consolidation and economic growth.
Presenting the first report of the Monetary Policy Committee (MPC) this year, the Governor of the Bank of Ghana (BoG), Dr Paul Acquah said the petroleum price adjustment is a major first step towards achieving that objective. According to him, the recent increase in domestic petroleum prices along with a restructuring of the petroleum sector to open it up to private sector participation has removed a major source of quasi-fiscal problems and reduced the risks in the banking system. He said "While the price increases can be expected to result in increased price levels, this should not result in increased inflationary expectations for the rest of the year if a wage spiral is avoided".
He however warned that there are traces of downside inflationary risks given the developments in the Middle East and its impact on international price hikes and the uncertainty regarding wage settlements and developments in the liquidity and price pressures in the fourth quarter of last year. Dr Acquah therefore urged government to adopt a strong fiscal policy stance, which would no doubt lead to the avowed goal of single digit inflation this year. He said given the balance of risks in the outlook for this year, the MPC has decided to increase the Prime Rate at which commercial banks borrow from the BoG and a major determinant of interest rate that are charged by the various commercial banks to 25.5 per cent this year instead at 24.5 per cent charged last year.
He said the yearly average inflation has fallen from 33.0 per cent in December 2001 to 14.8 per cent by December 2002. Inflation for the year 2002, however ended at 15.2 per cent, down from 21.3 per cent in December 2001, and up from 12.9 per cent in September 2002. he said "The latest numbers show that after reaching a low of 12.9 per cent in September, inflation has gone up for the third consecutive month notwithstanding the bumper harvest reported in 2002."
He said over the period under review, the Cedi depreciated by 15.4 per cent in dollar terms against an annual inflation of some 15.2 per cent. Preliminary estimates indicate that the government budget (excluding project grant financed expenditures) for 2002 ended with revenues of 10.7 trillion cedis above the budget target of 10.2 trillion cedis. Total government expenditure however exceeded the end of year target of 11.1 trillion cedis, reaching 11.9 trillion cedis on account of increase wages and salaries for doctors, nurses and teachers.
He said "The higher than programmed expenditure, combined with a shortfall in donor and divestiture receipts and an accelerated clearance of government arrears resulted in increase borrowing of some 4.9 per cent of GDP by the end of December 2002, compared with 2.3 per cent of GDP in 2001." Dr Acquah said reserve money (excluding foreign currency deposits) as at December 2002 grew by 38.8 per cent, representing an increase of about 19 percent since September 2002.
