With just a couple of days to Christmas, consumer spending in Ghana’s major urban centres has remained subdued compared to previous years when a sharp spike in consumerism was clearly noticeable during the last few weeks of the year. While merchants dealing in consumer goods are reporting an increase in sales in the run-up to the Christmas break, they lament that on average the increase is significantly smaller than in previous years.
This appears to be a direct result of the liquidity squeeze that has afflicted the Ghanaian economy, particularly since the second half of this year as government has strived to keep its fiscal deficit within its self- imposed target of five percent of Gross Domestic Product, even as the Bank of Ghana has maintained a tight monetary stance to curb both inflation and cedi depreciation.
To be sure, the effects of the ongoing liquidity squeeze on consumer spending ahead of the end of year festivities were largely expected. Indeed they were reflected in the down turn in consumer sentiments as reported by the latest consumer confidence survey conducted by the BoG in October.
The sheer depth of the liquidity squeeze is illustrated in the slow down in broad money supply growth according to data provided by the central bank. Growth in broad money supply (M2+) slowed consistently through the first eight months of 2019, to 11.8 percent, year on year, by the end of August, which was less than half of the 23.1 percent growth rate recorded a year earlier. Worse still for consumers, the slow down in liquidity growth was mainly the result of slower expansion in net domestic assets, to 14.7 percent, year on year, by August 2019, down from 33.9 percent a year earlier.
While data for the last quarter of the year is not yet available, the situation is unlikely to have changed significantly. The BoG is maintaining its tight monetary stance despite calls for easing by corporate Ghana in order to boost stuttering economic growth, which is likely to be well below the (already downward revised) target of 7.0 percent announced by government in November. However it has refused to further tighten the squeeze, even though the International Monetary Fund, in October, advised it to stand ready to do so.
Furthermore, government is being forced to implement public spending cuts of some GHc3 billion during the last quarter of the year in order to say within its five percent of GDP fiscal deficit cap. These latest cuts are coming on the back of earlier expenditure cuts announced in July as part of the mid-year budget review for 2019.
Add to this a tightening of banks credit stance on loans to businesses and households alike as reported in the BoG ‘s latest monetary survey, dated September, which is further constraining liquidity in the economy.
On the upside, however, the liquidity squeeze is accomplishing its objectives. This Christmas season is the first one since the start of the decade in which Ghanaians are enjoying both single-digit inflation and a stable exchange rate. Consumer inflation for November was computed at 8.2 percent, while the cedi’s exchange rate against the United States dollar was GHc5.5401 to one dollar by the end of last week, which is actually marginally lower than the GHc5.5579 for which a dollar was selling a month earlier. Both consumer goods and foreign exchange are not suffering from demand-pull inflation due to the ongoing liquidity squeeze.
This means that Ghanaian consumers can buy the goods they want during the run-up to the end of year festivities at about the same prices they were paying a month ago, which should be a pleasant surprise. The only problem is getting the money to take advantage of the unusual price stability at the end of the year.