Dean of the University of Cape Coast Business School, Professor John Gatsi, has said fiscal dominance by the government is the biggest problem facing the execution of monetary policy by the Central Bank and by extension the management of the Ghanaian economy.
According to him, fiscal dominance by government has over the years undermined the work of the Central Bank in playing its complementary role to engineer economic growth.
Speaking on NorvanReports Twitter Space Conversation titled “Analysing the 2022 Banking Sector Results and its Effects on the Economy”, on Sunday, May 7, 2023, Prof. Gatsi proposed three measures he believes will help reduce government’s fiscal dominance in the economy.
According to him, an efficient monetary policy by the BoG; an efficient fiscal policy management where government expenditure is checked and targeted at productive sectors; and the total independence of the Central Bank such that it is able to deny financing of government deficit beyond a certain level.
In his view, the BoG over the years hasn’t upheld its independence and that has contributed to government’s fiscal dominance.
Fiscal dominance by the government distorts the Central Bank’s ability to effectively implement its monetary policy.
Fiscal dominance is often inflationary and in the case of Ghana where the Central Bank has adopted inflation targeting as its monetary policy framework to reduce inflation, it becomes extremely difficult for the Central Bank to do so as government on the fiscal policy side is contributing to inflation through its excessive expenditure or spending.
Source: norvanreports