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HIGH expectations of Ghana’s economic turnaround have been dampened by what managers of the economy say are persisting macroeconomic challenges.

According to the Bank of Ghana (BoG), the upward adjustment in energy and utility prices as well as cost push factors associated with the energy sector challenges have led to a dip in economic activities.

The BoG fears that energy sector challenges, fiscal consolidation measures and depreciation of the cedi as well as the current high cost of doing business could continue to weigh down on economic activity.

Governor of the Central Bank, Dr Henry Kofi Wampah admits that “business sentiments have softened while consumer confidence, though up, remained subdued.”

This confirms results of a survey conducted by the Association of Ghana Industries (AGI) amongst its members which revealed a dip in business confidence for the first three months of 2015.

The bank, less optimistic about the situation, last week raised its policy rate from 21 to 22 per cent.

Interestingly, two months ago, the BoG described the economy as one that had bright prospects.

At its Monetary Policy Committee (MPC) briefing in February this year, the Central Bank said economic activities were picking up, with clear signs of economic growth in the coming months, hence its decision to keep its lending rate at 21 per cent.

“Our assessment of the economy shows that economic activities are picking up,” Governor of the bank, Dr Henry Kofi Wampah had told the press.

His reasons then were based on the fact that the last quarter of 2014 had seen an upsurge in confidence in major sectors of the economy and continued into 2015.

Dr Wampah was positive the trend would continue even as expectations were high for support from the International Monetary Fund (IMF).

The fact that donor partners were ready to support Ghana’s development efforts again was more than enough proof that things had began to improve, the Governor said in February.

It will be recalled that the positive outlook given by the regulator in the first quarter of the year was heavily disputed by the business community which lamented high costs of doing business, fueled by a worsening power crisis which was painfully compelling them to lay off workers.

“How come that power which is a major ingredient in our economy is a big problem and yet technocrats from the Bank of Ghana can tell us economic activities are picking up?” President of the Ghana Union of Traders, Mr George Ofori had contended.

The BoG is undoubtedly battling to lower inflation rate, sustain economic growth and stabilize price levels in the economy.

Last year, the BoG reviewed its policy rate three times due to an upward trajectory in consumer inflation.

The first review was done in February, from 16 to 18 per cent. This rate was maintained to the end of the second quarter before being reviewed again to 19 per cent in July. However, the persistent increase in consumer inflation compelled the MPC to review the monetary policy rate upwards to 21 per cent in November.

Given the resurgence in consumer inflation from 16.4 per cent in January 2015 to 16.5 per cent and 16.6 per cent in February and March respectively, experts were hoping that the BoG will keep the rate untouched.

Last month saw a further increment to 16.8 per cent.

The exchange rate volatility, rising inflation and the energy crisis remain Dr Wampah’s headache as he tests the efficacy of measures to help stabilize the situation. 

With the increase in the prices of petroleum products announced last Sunday, the BoG is in for stormy times. 

Reactions to the BoG’s 22 per cent policy rate have so far not been complimentary. 

Former Rector of the Ghana Institute of Public Administration (GIMPA), Professor Stephen Addai says given the current challenging economic situation in the country, the central bank had gotten it wrong.

Dreading the impact of the increase on lending rates of banks which are already high and have recently been the subject of a major campaign, Professor Addai is not charitable at all.

“At this stage when your industries are collapsing, who are those who are going to borrow? There are certain things I believe require radical rethinking. At this moment, I would not have recommended it. Psychologically, the people are so down that you cannot at this time do certain things” he said

“I know that eventually the Government has to increase revenue but all these things must be done within a long -term perspective. This requires radical rethinking of our economy,” he notes.

The Association of Ghana Industries (AGI), the Trades Union Congress (TUC) and other groups have consistently criticized inflation-targeting approach in monetary policy by the BoG as one that could eventually lead to a massive collapse of industries in the country.

A research wing of Groupe Nduom (GN Research) says the 22 per cent policy rate announced by the Central Bank will have devastating effects on the domestic economy. 

Lending rates are expected to go up given that the rate at which commercial banks borrow from the central bank has gone up. 

This will attract risky borrowers and increase the probability of high loan defaults, the Research Group said.

“The collateral requirement of commercial banks is likely to go up due to the increase in probability of default. 

Lending rates are presently hovering above 30 per cent which is already too high for businesses to pay up.

Given that most businesses rely on financial institutions for credit to expand their operations or to augment their working capital, the rising cost of production, will stifle the growth of businesses, especially small scale enterprises and increase unemployment levels. 

Other experts have stressed the importance of prudent fiscal management as necessary condition for the achievement of the objectives of the BoG's monetary policy. Indeed, the Governor admits that government ought to find a lasting solution to the energy crisis so the cost of doing business could come down.