Dr Osei-Assibey addressing the participants
A senior lecturer at the Department of Economics at the University of Ghana (UG), Legon, Dr Eric Osei-Assibey, who is a Fellow of the Institute of Economic Affairs (IEA), has urged government and the Bank of Ghana (BoG) to take a second look at the country’s inflation targeting regime.
Dr. Osei-Assibey made the call on Tuesday in Accra in a presentation during a public lecture organized by the IEA under the theme: “Inflation Targeting Under Weak Macroeconomic Fundamentals: Does Ghana Need A Monetary Policy Re-direction?”
According to him, the structural fundamentals of the Ghanaian economy do not allow much economics gains to be derived from inflation targeting regime.
In terms of having lower inflation, the country has done well, but what is the sacrifice cost, the real cost, the real economic cost? Our growth has been flat. We could have done much better; interest rate remains one of the highest in the sub-region, in Africa, across the globe. Unemployment is high.”
Inflation targeting is a monetary policy system in which a Central Bank sets a clear target inflation rate for the medium term and announces this inflation target to the public.
According to Dr Osei-Assibey, there were only 30 countries across the globe that were practising inflation targeting, 90 percent of which are developed and industrial countries with very strong productive and economic structures less sensitive to commodity pricing.
“But in our part of the world, our economies are weak, institutions are weak, transmission mechanisms are weak, we depend on commodity pricing which fluctuate every now and then, so the fundamentals are so weak to support inflation targeting,” according to Dr Osei-Assibey.
Explaining further, he noted: “So what I am saying is that for us to be able to achieve our national aspiration, so this economy will be able to expand rapidly and we accelerate our development and create more jobs, perhaps the time has come for all of us to rethink about inflation targeting regime.”
“If we want to still go ahead with it, and we need to solidify the fundamentals, we need to make sure that the productive sectors of the economy are good, we are exporting more, we have favorable terms of trade, our currency is strong, just like in developed countries so inflation targeting will be good for us.”
Shallow Markets
Former Deputy Governor of the Central Bank, Johnson Asiamah, who chaired the lecture, observed that there was still work to be done to improve the fiscal regime.
According to him, financial markets in Ghana are still shallow and lack feedback mechanisms, adding that there is still limited monetary data.
By Melvin Tarlue