A recent research report by Dr. Richmond Atuahene, Isaac Kofi Agyei, and K.B Asante has raised serious concerns over the efficacy of the Bank of Ghana’s traditional monetary policy tools in addressing the country’s persistent inflationary pressures.
The report argues that these measures, once the cornerstone of Ghana’s inflation-fighting strategy, have been overused to the point of diminishing returns, largely due to the structural complexities of the Ghanaian economy.
“These measures have been excessively utilized in previous years and have become less effective due to the structure of the Ghanaian economy, which has developed a level of resistance to them over time.
“Addressing Ghana’s economic challenges requires a comprehensive approach that goes beyond relying solely on traditional monetary policy tools like increasing commercial banks’ reserve requirements or adjusting monetary policy rates”, the report asserts.
Echoing earlier observations by Vice President Dr Bawumia in 2010, the report links the high level of reserve requirements – a key monetary policy instrument – to a legacy of sustained fiscal deficits. This connection underscores the need for a more balanced approach that combines monetary adjustments with robust fiscal interventions.
“Bawumia (2010) affirms that the high level of reserve requirements (monetary policy instrument) reflects a legacy of high fiscal deficits”, it added.
The report advocates for significant cuts in government expenditure as a vital step in easing the country’s economic strain. Specifically, it recommends a proactive reduction in central government spending by an additional 30%, with a targeted focus on scaling back flagship programs that have failed to yield substantial economic dividends.
“In summary, the government should refrain from burdening the banks and instead concentrate on making drastic cuts to its excessively large budget. Commercial banks have incurred considerable losses as a result of the DDEP [Domestic Debt Exchange Programme] and are still in the process of recuperating; they should be allowed to fully recover without further burdens!”, the report stated.
As Ghana grapples with inflationary pressures and economic challenges, the findings of this research serve as a stark reminder of the need to recalibrate policy approaches and adopt a more nuanced, multifaceted strategy to foster sustainable economic growth.
Source:norvanreports