The International Monetary Fund (IMF) has reiterated the need for central banks to prioritize restoring price stability to ensure sustainable economic growth, a call that carries significant implications for Ghana as it navigates ongoing economic challenges.
Speaking at the first G20 Finance Ministers and Central Bank Governors meeting in Cape Town, South Africa, IMF’s Managing Director Kristalina Georgieva pointed out that macroeconomic and financial stability must be preserved to provide a strong foundation for higher and more durable growth.
“For central banks, the focus remains fully restoring price stability, and to do so while supporting economic activity and employment,” Georgieva stated, underscoring the critical role of monetary authorities in stabilizing economies facing inflationary pressures.
The IMF’s call comes at a time when the Bank of Ghana (BoG) is grappling with high inflation and exchange rate volatility. Inflation in Ghana has remained elevated, albeit on a downward trajectory, with January 2024 data showing a decline to 23.5% from a peak of over 50% in 2022. The BoG has maintained a tight monetary policy stance, keeping its policy rate at 30% in a bid to curb inflation and stabilize the cedi.
However, the IMF’s remarks suggest that while inflation control remains paramount, balancing price stability with economic growth and employment creation is equally crucial. For Ghana, this means the central bank may need to adopt a more nuanced approach, ensuring that its inflation-fighting measures do not stifle economic recovery.
In addition to monetary policy, the IMF stressed the importance of fiscal discipline, urging governments to put public debt on a sustainable path, mobilize domestic revenue, and improve spending efficiency. Ghana, currently under an IMF-supported $3 billion bailout program, has been implementing key fiscal reforms, including debt restructuring and expenditure rationalization, to restore macroeconomic stability.
The IMF also touched on the need for ambitious reforms to enhance productivity and growth, calling for policies that cut red tape, increase competition, and strengthen education systems. For Ghana, embracing such reforms could boost investor confidence and support long-term economic transformation, particularly as the country seeks to attract foreign direct investment and stabilize its macroeconomic environment.
Commenting on the IMF’s recommendations, economist and senior lecturer in Public Administration at the Ghana Institute of Management and Public Administration (GIMPA), Dr Raziel Obeng-Okon noted that there was the need for Ghana’s central bank to go beyond merely ensuring price stability, which he described as part of the Bank’s restrictive monetary policy model. The Bank, he charged should also focus on the supply side of things, by way of incentivizing the productive capacity of the economy.
“The Bank of Ghana has been pushing restrictive monetary policy for all this while, but we are yet to see any sustainable impact on price stability, it tells us we need to do more than merely tightening its monetary stance,” he argued.
The Institute for Fiscal Studies (IFS) in its latest recommendations to government prayed the Bank of Ghana not to rely unduly on the use of the policy rate but “use all the options of monetary control to rein in monetary growth as a means of ensuring macroeconomic stability.”
Financial economist with the University of Ghana Business School (UGBS), Prof Lord Mensah welcomed the IMF recommendation but added that it was critical that the fiscal authorities work in tandem with the monetary arm to ensure coordination.
“It’s a very, very important call. Now the globe has been impacted by various crises and various geopolitical decisions here In the context of Ghana, we should position ourselves such that the work of the central bank is complemented by the executive or fiscal authorities,” Prof Mensah observed.
