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20.05.2008 Feature Article

Monetary Policy Committee Briefing - Matters Arising

Monetary Policy Committee Briefing - Matters Arising
20.05.2008 LISTEN

Our Elders say that if one wants to appreciate what death is like one should compare sleep to it. The Monetary Policy Committee (MPC) chaired by the Governor of the Bank of Ghana (BoG), Dr Paul Acquah held one of its press briefings on Monday but Tuesday's editions of the two national newspapers did not carry the story on their front pages as they usually do.
The Ghanaian Times did not carry the story, probably due to technical challenges. The Daily Graphic carried it on page 34.
Lloyd Evans of the Daily Graphic tried to make the best out of a very dire situation when he wrote: "The Governor of the Bank of Ghana, Dr Paul Acquah has stated that despite the high crude oil prices and the food crisis, the economy has been resilient and robust in terms of output with economic activity proceeding at a pace above trend.
"Dr Acquah, who is also, Chairman of the Monetary Policy Committee, said this was coupled with relative stability in the foreign exchange market." One cannot fault Mr Evans. He decided to concentrate on the silver linings of the dark cloud and that is his prerogative, being the Economic Editor of the paper and the fact that the 1992 Constitution of the Republic of Ghana guarantees him that right.
However, the Ghana News Agency decided to talk more about the dark part of the cloud. It also has the right to do that. It reported:
"The country recorded a deficit of nearly one billion dollars in its merchandise trade in the first quarter of 2008 compared with a deficit of US$617.8 million for the same period in 2007.
"While total merchandise exports for the period amounted to US$1.3 billion, imports on the other hand went up to US$2.3 billion.
"Dr Paul Acquah, Governor of the Bank of Ghana, told a press conference in Accra on Monday that all categories of imports registered a strong growth during the first quarter of the year.
"Oil imports amounted to US$526.8 million and accounted for some 23 per cent of total imports compared with US$346.1 million (21 per cent of total imports) recorded for the same period in 2007.
"Dr Acquah said the increased oil bill for the first quarter was the result of the increasing prices on the world market.
"The average realized price rose by 53.3 per cent during the period, although the volume of crude imports declined by 50,930 barrels to 3.48 million barrels.
"Imports of refined petroleum products amounted to US$183.9 million, indicating a growth of 15.8 per cent on year on year basis.
"Non-oil imports amounted to US$1,747.1 million and accounted for about 77 per cent of total imports in the first quarter of 2008, compared with US$1,313.3 million (79 percent) for the same period in 2007.
"Exports of Cocoa beans and products amounted to US$401.5 million, higher than US$382.27 million recorded for the same period in 2007.
"However, cumulative cocoa purchases through the end of the first quarter totalled some 552,312 tonnes, against a target of 634,000 tonnes for the crop season, and 510,609 tonnes for the corresponding period of the 2006/2007 crop season.
"Gold exports totalled US$608.9 million as against US$395.0 million recorded for the same period in 2007.
"Non-traditional exports rose by 27.1 per cent to US$258.8 million, compared with US$203.6 million for the corresponding period in 2007.
"Dr Acquah said the preliminary estimates indicated that the current account recorded a deficit of US$725.8 million, compared with a deficit of US$422.9 million for the same period in 2007.
"The increased current account deficit was on account of imports of capital equipments for oil exploration and mining financed by foreign direct investment (FDI) inflow of US$367.5 million in the first quarter of 2008.
"The overall balance of payments deficit is estimated at US$528.4 million for the first quarter of 2008, compared with a deficit of US$335.1 million for the same period of 2007.
"Gross International Reserves (GIR) at the end of April 2008 was US$2.19 billion, and translates on average into goods and services import cover of 2.7 months."
Still emphasising on the dark part of the cloud, the GNA said:
"Single-digit inflation will be difficult to attain by the close of this year, Dr Paul Acquah, Governor of the Bank of Ghana, said on Monday.
"Answering questions at a press conference in Accra, Dr Acquah said current developments in the economy, especially the rising oil and food prices, did not provide enough hope for the attainment of the goal of single-digit inflation by end of year.
"Inflation went up from a low of 10.2 per cent in September last year to 15.3 per cent in April 2008, driven by rising crude oil and food prices.
"In the 2008 Budget, Government had targeted an inflation rate of eight per cent at the end of the year.
"Dr Acquah, however, did not rule out the prospects of achieving the goal in the near future, saying the prospects for growth in the economy make the attainment of the goal possible.
"On whether the Government needed to revise downwards its economic growth projections, Dr Acquah said the general assessment of economic prospects remained strongly positive although the uncertainty about inflation had weighed down business and consumer confidence.
"He said the economy continued to show good and robust economic performance and both business and consumer expectations about the economic prospects for the rest of the year remained generally positive.
"He was optimistic that the Gross Domestic Product (GDP) projection of 6.3 per cent set in the budget would be attained by the end of the year.
"Record high and rising crude oil prices and a surge in food price inflation as well as the credit crunch and turmoil in the financial markets had led most developed economies to revise downwards growth projections for 2008."
Continuing the GNA again reported: "The Monetary Policy Committee (MPC) has increased the Bank of Ghana prime rate from 14.25 per cent to 16 per cent, citing the threat posed to the economy by increasing oil prices and high inflation.
"Announcing this at a press conference on Monday after a quarterly review of the economy, Dr Paul Acquah, Chairman of the MPC, said the decision to raise the rate was taken with the view to strengthening the anchor for macro-stability.
"Businesses have expressed fears that a raise in the prime rate would translate into high cost of borrowing from banks and add to their cost of production.
"But Dr Acquah said the increase in the rate was necessary to ensure a stable macro-economic environment, which was essential for the long-term growth of the economy.
"He said while the general assessment of economic prospects remained strongly positive, the uncertainty about inflation had weighed down business and consumer confidence.
" 'Inflation has risen sharply over the past three months. Both headline and core inflation are now significantly above the target set over the medium term,' Dr Acquah said.
"Inflation went up from a low of 10.2 per cent in September last year to 15.3 per cent in April 2008, driven by rising crude oil and food prices.
"Despite the uncertainty, Dr Acquah said the economy continued to show good and robust performance and both business and consumer expectations about the economic prospects for the rest of the year remained generally positive.
"He was optimistic that the Gross Domestic Product (GDP) rate of 6.3 per cent set in the budget would be attained by the end of the year.
"Credit to the private and public institutions continued its strong growth increasing by GH¢1,615.8 million compared with GH¢846 million recorded for the same period in 2007. The private sector accounted for 81 per cent of the increase in credit.
"Dr Acquah said evidence from the Bank's survey of credit conditions indicated increased access to credit by both enterprises and households and the easing of credit conditions was broad based with small and medium enterprises gaining improved access to credit.
"According to him the strong growth in liquidity of the banking system had been supported by significant increases in deposit mobilization with the opening of more bank branches and introduction of new products to attract deposits.
"Total deposits increased by 42 per cent year-on-year to GH¢4,828.9 million at the end of the first quarter of 2008 compared with 40 per cent for the same period in 2007.
"Dr Acquah said preliminary banking data of the fiscal position for the first quarter of 2008 showed buoyant revenue growth matched by sharp expenditure growth.
"Total revenue and grants for the first four months of 2008 amounted to GH¢1,505.28 million (9.2 percent of GDP), compared with GH¢1,436.71 million (10.3 percent of GDP) for 2007.
"On the other hand, total expenditure (excluding foreign financed capital) was up at GH¢1,964.19 million (12.1 percent of GDP) including an estimated GH¢200.8 million (outlays on the energy infrastructure financed by sovereign bond proceeds), compared with GH¢1,536.4 million (11 percent of GDP) recorded for 2007 and a budget target of GH¢5,109.3 million for the year.
"This brings the narrow budget deficit (defined to exclude foreign financed capital expenditure) but including expenditure financed by capital market borrowing for the first quarter of 2008 was GH¢479.54 million (2.9 percent of GDP), compared with GH¢125.97 million (0.9 percent of GDP) for the same period in 2007.
"The deficit in addition to a foreign loan repayment of GH¢207.86 million, were financed from the domestic economy.
"Total public debt stock stood at US$7,607.0 million (46.7 per cent of GDP) at the end of the first quarter of 2008 compared with US$7,146.5 million (51.1 percent of GDP) at the end of 2007."
Dr Acquah and his Team would have to answer a few more questions.
One is no doubt whatsoever, that they know the way out of the present predicament that the economy has found itself. Has the Team been able to impress on the Government to embark on certain measures to bring the economy on to an even keel?
Our Elders say, "if your mother is dead and you tell us that she is asleep, it is up to you. If the time for meals comes and you get home and there is no food for you, nobody will tell you how wrong you have been".
The Ghanaian middle and upper classes should be told that they couldn't continue to live the way they are living. Their lifestyles are too expensive for the economy to sustain - the big mansions; flashy cars, imported food and fancy clothes. Filling their fuel- guzzling cross-country vehicles and zooming off for weekend rendezvous with paramours are big drain on the economy and that is making life unbearable for the ordinary Ghanaian.
If one got into the homes of these people everything is imported; from the toiletries, through the furniture to the snacks - imported coconut, mango, orange, pineapple and guava drinks or concentrates; chocolates, biscuits and cookies.
The point being made here is not that people should not be allowed to enjoy the fruits of their labour, but that the Government should be able to redistribute wealth through taxation. For example, slapping a tax of 1,000 per cent on luxury items. India has been able to do this successfully.
The situation where a few have everything at their beck and call while the majority wallow in poverty and do not know when and where the next meal would come from can lead to instability. Populist adventurers could seize on this to destabilise the country.

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