Government lauded for restoring economic hope

Former Chairman of the University of Ghana Council Ishmael Yamson, has lauded Government for restoring discipline to the fiscal and monetary policy management of the economy.

Comparing the performance of the Ghanaian economy with that of the Asian Tigers, Dr Yamson reiterated that Ghana could leap to the levels of those countries with a transformational leadership, a clear long term vision, as well as defined and committed strategies, adding that "time is now ripe for Ghana to make the right choices for economic take off”

He noted however that major challenges remained, as the nation still remained among the poor with high levels of unemployment and a precariously donor dependent economy, adding that more than 80 per cent of the country's investment budget is financed by donors.

Other development challenges, according to Dr Yamson, are high rural urban drift, deteriorating standards of education and an uncompetitive economy.

He challenged the citizenry to insist on good quality leadership and develop an inspiring long-term vision to create a competitive economy that would be recognised by present and future generations.

“Let us be paranoid about the quality of our leadership...let us be paranoid about balancing our political, economic and social goals, and above all, let us be paranoid about accepting that only good behaviour and values will help build a sustainable, prosperous economy,”

Yamson said these at a development forum lecture organised by the Ghana Institute of Management and Public Administration and the British Council, on the theme: “Ghana Today: How ready are we for take off and the Agenda for Change”

He urged the leadership of the country to create a competitive economy, driven by public private partnership, and balance the political and socio-economic goals, focusing on poverty alleviation. “Our behaviours and values as Ghanaians require seismic change.

We should for instance frown upon, and not justify corruption. “We should be prepared to deal firmly with poor performance and not protect people because of party or tribal affiliations. It is going to be demanding on us all but we must stand firm. Good values protect best people,” Dr Yamson held.

However a Ghana News Agency report quotes a Senior Fellow of the Institute of Economic Affairs, John Asafo-Adjaye warning Government to be mindful of the negative consequences low inflation beyond a certain level but did not mention the minimum target.

According to Dr Asafo-Adjaye, inflation was not necessarily good for an economy like Ghana's, with several rigidities such as low productivity, low income levels, high unemployment levels and general poverty among other things.

Dr Asafo-Adjaye, who is also an Associate Professor of Economics at the University of Queensland, Australia, made the remark at a roundtable discussion organised by the IEA under the theme: “The Dynamic Analysis of Ghana's Inflationary Process.”

His presentation was based on his study of the dynamics of inflation in Ghana between 1964 and 2004, using money supply growth; the output gap (the gap between actual production and potential production) and exchange rates as the main determining variables of inflation.

“When a single digit inflation required for the WAMZ is achieved, caution should be exercised on further reductions because of possible output losses,” he stated.

Dr Asafo-Adjaye however noted that over the past few years the Ghanaian economy had made some strong gains, characterised by the 5.3 percent GDP growth since 2001; protracted favourable exchange rate due to the stability of the cedi against the dollar, decreasing interest rate levels and the reduction in inflation.

He said with those achievements there was every indication that the Bank of Ghana's single digit inflationary target of 8.8 percent by the close of 2008 was well within reach, but it was important for the Central Bank to consider targeting real sector variables such as employment and investment; which would not only enhance economic growth but also had the potential to reduce poverty.

Dr Asafo-Adjaye was of the view that low inflation had the danger of increasing the purchasing power of Ghanaians and, therefore, raising demand for goods over supply, given that the productivity levels in Ghana were generally low, saying that, that kind of situation could raise inflation in the long run.

He noted that the more developed nations had stronger real sectors and could, therefore, afford to reduce their inflation levels to zero, which was actually the target of some of the countries, but an economy like Ghana could afford to go as low as between five per cent to six per cent.

Inflation as at the end of December 2006 stood at 10.3 percent.

Dr Asafo-Adjaye attributed the decrease in inflation and the general good performance of the Ghanaian economy characterised by 6.2 percent GDP in 2006 to the 30 percent growth in earning from cocoa since 2004 and 6.6 percent increase in the construction sector to the several Highly Indebted Poor Countries Fund projects.

Touching on the recent re-denomination of the cedi and its possible impact on inflation, the researcher noted the danger in the exercise laid in the possibility of traders rounding up the prices of goods and, therefore, reducing the purchasing power of citizens.

“Traders are likely to avoid dealing with fractions like 50.5 Ghana cedis so they may mark it up to 60 Ghana cedis thinking it is insignificant but in terms of value those fractions are very significant and could impact on people's living standards,” he said.