There is a growing advocacy for Ghana to take a stand on the optimal level of inflation and exchange rate required to propel the country’s economic growth and development.
Some industry players are getting tired of what can be described as the “obsession” over single-digit inflation and appreciation of the cedi without any clear plan about how it will inure to the benefit of the economy.
Leading this crusade is the Chief Executive Officer of the Ghana Association of Banks, John Awuah, who believes that policymakers and the public must rethink these two issues that sit at the heart of Ghana’s economic debates.
In a thought-provoking post that is stirring fresh conversation, John Awuah questioned Ghana’s long-standing obsession with single-digit inflation. He cannot fathom why, after many years of obsession, the country has still not been able to ascertain what level of inflation actually works for a developing economy like Ghana.
He recounts that for years, single-digit inflation has been celebrated as a major policy success. Yet John Awuah argues that little effort has been made to explain to ordinary Ghanaians how such low inflation translates into jobs, higher incomes, better infrastructure, or improved living standards.
He asked whether inflation as low as 2% would truly serve Ghana’s needs, or whether some level of economic “heat” is necessary to stimulate growth.
While he acknowledged that high inflation is harmful, he cautioned against assuming that the lower the number, the better the outcome. The real issue, he argued, is finding the level of inflation that encourages investment, production, and job creation without eroding purchasing power.
“As a country, we have been over-fixated on achieving single-digit inflation but nobody is telling the ordinary Ghanaian what level of inflation will propel our economic progress! So are we saying that, for argument’s sake, a 2% inflation level will be considered a great achievement for Ghana? Shouldn’t a country such as ours have some level of ‘overheating’ to propel growth? Really, what have we done with the many single-digit inflation rates we have recorded in the past several years in terms of growth, job creation, standard of living, infrastructural development and to the overall health and size of the Economy?”
The same line of thinking, he said, should apply to the exchange rate. Ghana, in his view, has become overly fixated on having a strong and appreciating cedi, often without fully considering the consequences.
The executive banker says a very strong currency may look good on paper, but it can hurt exports, make local goods less competitive, and encourage dependence on cheap imports. That, in turn, weakens local industries and limits job creation.
He went back to memory lane to recall the period after the cedi redenomination, when the local currency briefly became stronger than the US dollar. Looking back, he asked what the country achieved with that advantage, and whether it helped build a stronger export base or reduce import dependence.
The CEO of GAB was clear that his argument is not for a weak or unstable currency, but for a stable one. A cedi that does not swing wildly, and whose value is largely guided by market forces, would allow businesses and households to plan better, invest with confidence, and grow sustainably.
He says there is a need for a delicate balancing as excessively high inflation damages the economy, so does an overly strong currency. Ghana, he argues, must deliberately define what “optimal” looks like for both inflation and the exchange rate, then work to keep them within reasonable and predictable bounds.
“Let’s all re-psyche our thinking to a currency that is stable, avoids significant oscillation and enables businesses and households to plan with some good degree of accuracy,” he rallied, adding that “High inflation is bad; a Cedi which is too strong is bad – let’s put our heads together and find that optimum level and once we discover that, stabilise around tolerable confines for them in our common interest.”
John Awuah is convinced that until Ghana finds the ideal balance for inflation and exchange rate, friendly to economic growth and development, the country risks celebrating the wrong numbers while missing the bigger picture.
