Rising gov’t expenditure threatening economy – BoG

Governor of the Bank of Ghana, Dr Ernest Addison, has said rising government expenditure and weakened revenue levels are the major threats to the swift stabilisation of the economy.

He added that some of these concerns forced the Monetary Policy committee to keep the rate unchanged at 16 per cent. This is the fourth time this year that the committee has held the rate since January 2019.

He said this during his interaction with the media after the Monetary Policy Committee meeting to review the health of the economy this week.

The Governor noted that the Monetary Policy Committee was also worried about continued revenue weakness which requires expenditure adjustments to contain the larger than the projected budget deficit.

He was however optimistic that despite this challenge the situation would improve “full implementation of the new tax measures will likely impact revenue performance in the last quarter”.

This, he also believed that could help achieve the fiscal deficit target set for the year.  “If the fiscal situation was better and stable we would have gone down on the policy rate” he added.

He said we should not forget about the fact that Budget is particularly dependent on non-resident financing and we don’t want to take steps that would jeopardize the situation.

EIU’s forecast and the Ghana cedis

The London-based Economists Intelligence Unit (EIU) in their September report warned of some volatility for the cedis in 2019 and even going forward 2023.

The Unit argued that the cedi will remain prone to periods of volatility, given the country’s exposure to movements in commodity prices, “currency will weaken to GH¢6.47 to $1 in 2023”.

But responding to these concerns the Governor said things are rather going get better for the cedi as the central bank reserves are in strong position than previously.

“With very strong reserves and we have what it takes to support and firmly stabilize the cedi in the coming months,” Dr Addison said.

He added once the fundamentals are right and the interest rate well positioned, then things should be firmly stabilised going forward.

According to him, the country’s total foreign reserves should hit about $9 billion from the last quarter of this year.

Dollarisation of the economy

Addison said the Bank is satisfied with the level of compliance by some businesses in pricing only in cedis rather than foreign currencies.

He said they took these steps to enforce regulations on foreign exchange because of its impact on the local currency and the exchange rate.

“A careful look at the various adverts in the newspapers have even shown that more companies are now quoting in cedis,” he said.

Status of five banks supported by GAT, especially NIB 

On the status of the five banks that were supported by the Ghana Amalgamated Trust, the Governor noted that all the Banks have indeed met the minimum capital requirement.

He, however, noted that that there is a little challenge with National Investment Bank (NIB).

This is because we realised that the capital requirement is more than what we thought when we got into bank something has to be done about it,” he disclosed.

Dr Addison added maybe a special case has to be made for it.

Should we expect new banks?

The Governor maintained that he does not think there is limit or cap on the number of banks in the country adding that BoG is willing to accept new proposals only if that new institution is able to meet all the requirements.

According to Dr Addison, they have received a fresh request from persons wanting to operate as financial technologies populary called ‘FINTECHS’.

Bank of Ghana and rebased inflation rate

The Ghana Statistical Services recently rebased inflation rate calculation. This resulted in a significant reduction in the inflation rate from July to August 2019. That’s from a little over 9 per cent to now 7.8 per cent.

But the Governor said the recent rebasing may support the push to review of the Bank of Ghana’s medium-term policy for inflation.

“Maybe this is the time that we have to review the optimal target for the inflation rate to make us competitive” he added.

Dr Addison added that by the end of the medium-term target, maybe that framework has to be reviewed.

Post clean up and reducing cost of credit in the  country

Dr Ernest was confidence lending rates going forward would reduce based on completion of the banking sector reforms.

“We think that the reforms are yielding some results based on the strong growth in capital based of the banks and weeding out those that were “shooting up” rates in the market he added.

The governor was of the view that credit growth would be going up very soon.

He was of the view that the projection was not only based on reforms but some developments in the economy that would influence the credit stance of the commercial banks.

Dr Addison added that “when you look at a lending rate based on the MPC data, lending rates are around 23 to 24 per cent and the expectation is that it would go down further”.

He, however, rejected arguments that the current set of banking regulations would rather affect credit growth in the country.

Use of Ghana Card for Banking Transactions in the country  

Since the introduction of the Ghana Card or National Identification Card, some holders have complained about their inability to use the card as means of deification for banking transactions.

Some of the users have told JoyBusiness that on several occasion they have been refused by their banks.

The Governor of the Bank of Ghana Dr Ernest Addison said they would soon issue a directive for the commercial banks to start accepting the card as a valid card for financial transactions.

“From this press interaction, I am going to meet the Chief Executive National Identification Authority to finalize the modalities,” he said