Mr Speaker, I am extremely thankful to you and your noble outfit for according me this prestigious opportunity to make this important statement in this august House.
Mr Speaker, I am making this statement on certain fundamental financial economic anomalies in Ghana which need to be rectified. One of such policies is the management of our monetary policy with respect to the periodical adjustments of Ghana’s policy rate. Monetary policy is simply about decisions made by central banks such as the Bank of Ghana (BoG) makes on the money supply and interest rates. Normally, policy rates are determined to optimise the amount of money in circulation. The strategic technique of adopting inflationary targeted monetary policy in Ghana has not really yielded the expected results. It has rather been a strategic drift.
Mr Speaker, policy rate increased from 12.92 per cent in 2011 to 25 per cent in 2016 with their respective inflationary rates increasing from 8.73 per cent to 17.51 per cent. Policy rate decreased from 22.5 per cent in 2017 to 16.00 per cent in 2019 with their corresponding inflationary rates of 12.39 per cent to 7.17 per cent. Gross Domestic Product (GDP) growth reduced from 13.90 per cent to 3.4 per cent in the same period. Between 2021 and 2023, GDP reduced from 5.10 per cent to 2.90 per cent.
Mr Speaker, policy rates in 2020, 2021, 2022, and 2023 were 14.75 per cent, 14.00 per cent, 20.22 per cent, and 29.50 per cent and inflationary rates were 9.94 per cent, 9.96 per cent, 31.49 per cent and 40.28 per cent respectively. In inflationary targeted monetary policy, the policy rate is increased to reduce inflation so that the economy can be stabilised. The above trend illustrates the opposite. Increases in the policy rates rather increases inflation most of the time. It means that it is not just the magnitude of the inflation that determines how the monetary policy should be adjusted but rather, the cause of it.
Mr Speaker, this policy anomaly must be checked by the relevant stakeholders to stop its dysfunctional contribution to our unstable economic performance. It erodes the purchasing power of Ghanaians. It increases the cost of doing business and lowers standard of living. It is only when inflation increases as a result of demand pull, that is when people are buying and selling and there is a high circulation of money on the market, that one can adjust the policy rate upwards and vice versa.
Typically, Ghana’s inflation is induced by cost push that is from the supplier’s side. Interest rate has been a very strong element in the aggregate cost of doing business, as most investors in Ghana rely on debt financing, I mean loans. Cost push inflation does not profoundly induce economic growth. In the trends analysed above, the corresponding GDP growths were not rather following the expected trends.
Mr Speaker, my maiden statement during the 8th Parliament also unravelled another important anomaly. That was the pricing of treasury bills, that is, government securities or risk free as categorised in investment or risk return principles, and the comparable risky assets on the market. It is making Ghana’s market or economy deviate from the global standard. In fact, all the traditional models for computing the returns from investing in risky assets are not effectively applicable in Ghana. It defeats the fundamental principle of riskreturn policy in investment. Examples are the Capital Assets Pricing Model (CAPM) and the Arbitrage Pricing Theorem (APT).
It is introducing the element of arbitrariness in the decisionmaking processes of capital assets’ pricing in Ghana. Some schools of thoughts have it that it is as a result of governments’ high demand for funds. We are dealing with a dysfunctional policy decision and its adverse impact on our economy. All these comments are welcome as they may assist in dealing with the inimical policy. It is indeed, dysfunctional to the performance of the republic of Ghana. It calls for a policy shift as well as regulatory reforms by the relevant stakeholders..
Mr Speaker, being hungry does not necessitate intake of pathogenic materials or toxins, or even poison. These anomalies contribute not only to the high cost of doing business but also high exchange rates, low productivity, high unemployment, and banks’ risk exposure. Ghanaian companies cannot produce to meet aggregate demand and, accordingly, resort to importation. Ghana’s economy can be accordingly described as a double-digit interest rate economy, and it is basically, among other factors, caused by these financial economic anomalies.
There are other policies that we need to critically look at. For instance, absolute free market economy: a country in which we have a weak entrepreneurial ecosystem and profiteering culture.
Mr Speaker, we should begin a conversation as to whether we need a mixed market economy to provide specific price caps for monopoly, oligopoly, or even cartels. For controlled market economies, I will not advise for a capitalistic economy to be exercised.
However, I would like to propose that a committee is set up by the Finance Committee, Committee on Economy and Development, and Budget Committee to engage the Bank of Ghana and, possibly, the Finance Ministry on these important policies. We need to remedy these fundamental anomalies to enable us to build a resilient economy for the purposes of attaining the needed longterm economic growth and stability. Without that, our quest for economic independence, national import substitution, strong and stable currency, and high employment rate would never be realised.
Mr Speaker, I would like to end with a plea. Please, I pray that some of these critical issues be accorded the needed attention and action. I thank you, Mr Speaker, once again, but in anticipation.