Despite the rare 300 basis points cut in Ghana’s policy rate raising concerns that inflation might spiral out of control, economist, Dr. Paul Appiah Konadu says there is still a clear path to keeping inflation under control.
A section of analysts are concerned that the significant cut in the policy rate, which is used to tame inflation, might result in halting the disinflation process the country is currently experiencing.
But the economist at Pentecost University, Dr. Paul Appiah-Konadu, is calming nerves that the country can still stay on course irrespective of the MPC’s decision to cut the policy rate.
According to him, the government should stay on course with prudent spending and aggressively pursue value addition to exports.
In an interview with The High Street Journal, Dr. Appiah Konadu warned that while recent macroeconomic gains are commendable, they remain vulnerable if the country relaxes on critical fiscal and economic reforms.
“We know why we have been able to achieve the results we have achieved, and so if you want to see the results sustained, then we have to keep doing what we are doing, and even do more expenditure cuts. Just make sure we only spend on projects that will add value to the economy. We cut unproductive expenditures, and that will reduce borrowing. If we keep doing that, inflation will keep going down,” he indicated.
He noted that by trimming unproductive government spending and reducing borrowing, Ghana has created the fiscal space needed to lower inflation.
But he cautioned that global market shocks could threaten this progress if the country doesn’t diversify its exports and process more of its raw materials locally.
Ghana spends about $400 million monthly on refined petroleum imports. Cutting this bill by refining domestically not only preserves forex but also creates jobs and strengthens the economy’s backbone. Similarly, processing cocoa locally will allow the country to earn more even when international prices fall.
“We need to try and diversify our export commodities because we have had a windfall with good prices hitting in excess of 3,500 tonnes per ounce, and cocoa prices hit in excess of $7,000 per tonne, and that has accounted for the significant inflows we have had in the first six months of the year,” he recounted.
He added that, “The question is, what if good prices begin to drop on international markets? What if cocoa prices begin to drop on international markets? In that situation, where are we going to get the forex to shore up the value of the cedi? To make sure that we are sustaining the current results that we are seeing, I think it is important that we add value to our raw material exports, add value to goods, and add value to cocoa. Refine your own petroleum here. So we reduce or cut back on the $400 million a month that we used to import refined petroleum products.”
Dr. Appiah Konadu believes that the real power in the policy rate cut lies in how Ghana uses it to unlock investments into agriculture and industry.
For him, if the government is able to stick to these fundamentals, inflation rate will not only drop further, but Ghana will build resilience that no rate cut alone can guarantee.
