195 total views, 1 views today
My Discussion with Prof. John Gatsi
Generally, stable macroeconomic indicators are preferred to when they are volatile. Stable and low inflation, stable and lower exchange rate, and stable and lower lending rates are good indicators that mimic good fundamentals of an economy.
An economy should be managed for the people. Joblessness, erosion of incomes and unbalanced economic opportunities have made many spectators rather than citizens in the economy.
For managers of the economy, public acceptance of economic fundamentals and their effects on expectations of businesses and households is more important than the face value of the economic reports.
It is a fact that reducing inflation rate from 19% to 9.8%, through an IMF program, does not mean reduction in prices of goods and services, but it definitely means prices are not increasing very fast.
It is also a fact that inflation cannot be treated as achievement on its own because it must reflect in other fundamental economic and social benefits to the people. If the prices of food items are being magnetized to the skies and fuel prices move from GHC 14 per gallon to about GHC23 with negative volumetric effects on businesses and ordinary workers, then the public will disagree with the government as to the relevance of such economic fundamentals.
They are right to disagree with so-called economic fundamentals when such indicators are not what the public relate to. For example policy rate reduction is of no significance to a business or household that pays interest called lending rate and not policy rate. Businesses and households don’t ordinarily buy foreign currency from bank of Ghana but from a commercial banks and Forex Bureau. So if the Bank of Ghana rates are quoted when the public is aware that from where they trade in forex, $1 is equivalent to GHC4.7, the public will certainly disagree.
The fact is the volumetric effect on businesses and households of a movement from GHC 3.8 per dollar to GHC 4.7 to the dollar cannot be glorified even if the new rate remains constant over a period of 6months.
Sometimes, political comparison make the public to disagree even more. The ordinary workers know the income erosion and difficulties they face today is worse than two years ago. They know transport fares and fuel prices have worsened. Contractors are holding contracts they cannot execute because the ability of banks to finance such projects is weaker today owing to non performing loans. A lot of people could be moving from “above” the poverty line to “below “ poverty line either through collapse of businesses, job losses and inadequate social support.
Managers of the economy should always bear in mind the public understands the economic fundamentals better.