The Bank of Ghana says it is resolved to maintain sound fiscal and monetary policies to ensure that the economy remains competitive in the wake of the uncertainties from the turmoil in the world's financial markets.
That, it said, was necessary to secure private investment and donor flows and ensure a robust and well-supervised financial sector to reduce the economy's vulnerability to shocks.
The Governor of the bank, Dr Paul Acquah, who made the call at a news conference in Accra on Tuesday, said “this would strengthen the basis for growth in an environment of macroeconomic stability”.
The call comes in the wake of growing uncertainties among the public, particularly business people, about the impact of the global financial crunch on the Ghanaian economy.
Although the President has been quoted as saying that the crisis was not going to affect the country, there were many, including economics, who think otherwise.
The past three months has seen extraordinary turmoil in international financial markets and the onset of recession in industrial countries whose effects are now spreading globally.
Against this background, Dr Acquah said policies must be prudent and cautious to bolster the fundamentals of the economy to make it more attractive and self dependent to improve its resilience.
He said the bank was closely monitoring the situation both in the country and on the international front and would act as soon as the shocks hit the economy.
Dr Acquah said Ghana might suffer if investors, due to fear and uncertainties, refused to come to the country while the commodities on which the country relied so much on also faced a downturn on the international market.
“Assuming cocoa and gold prices were to soften by some 25 per cent, and oil prices were to move back to around $80 per barrel.
This would entail an income loss of 2.4 per cent of Gross Domestic Product (GDP),” he said.
Dr Acquah said there could also be some tightening of donor flows and remittances and a more generally reduced appetite for investment in developing countries, adding, “all these would have implication for prices, macroeconomic balances, and prospects for growth.”
On the financial sector, he said the BoG as the lender of last resort was prepared to improve the liquidity of the banks should they suffer any such problems.
“Outstanding external borrowing by banks as a source of funding their activities is less than five per cent of total bank funding requirements, an indication of their predominant reliance on domestic deposits,” the governor said.
He added, “also, given the existing levels of outstanding borrowing, only a recall of a significant proportion (in excess of 50 per cent) in exceptional circumstances would have a material impact on the capital adequacy ratios of banks in the country.”
Dr Acquah predicted a real GDP of 6.6 per cent at the end of the year in stead of the projected seven per cent.
“Inflation has started to ease towards the disinflation path, with core inflation easing more rapidly; this year about 27 per cent before returning to 10 per cent in the last quarter of 2009,” he said.
Story by Charles Benoni Okine