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Ghana’s economic performance for the first half of the year was mixed, the Institute of Economic Affairs (IEA) has stated.

Characterized by single digit inflation, high growth rate of 16.4 percent mostly due to oil production, the economy was also hit by exchange rate fluctuations, high debt stock of almost 41 percent of Gross Domestic Product (GDP) and high lending rate of about 28 percent.

Dr. John Kwabena Kwakye, a Senior Economist at the institute, who led the review of the Ghanaian economy in the first half of the year, said Ghana’s growth rate is taking place from a relatively low GDP and per capita income even after rebasing the economy.

He added that the country’s growth potential was huge, stressing that there was high unutilized industrial and human capacity as a result of insufficient jobs.

“As a matter of fact, Ghana needs to sustain a sufficiently high rate of growth if all the Millennium Development Goals (MDGs) are to be attained and Ghana’s per capita income is to reach higher levels within the middle-income group of countries,” said Dr. Kwakye.

He stressed the need to prioritize the non-oil sectors in order to avert the “Dutch Disease.”

The study was based on economic growth, prices, fiscal sector and the external sector. According to the institute, future reviews will be more comprehensive covering a wider range of topics, some of which will be outsourced to external experts.

On inflation or prices, Dr. Kwakye said the end of year target of 9.0 percent was achievable. However, it may be challenging going forward given potential pressures from public sector wage demands, oil fuelled spending and election-related spending among others, he added.

Market watchers, analysts and some economists have expressed worry about the high lending rates despite low inflation. But the banks have argued that economic dynamics has created a situation whereby even though inflation was coming down interest rates were still quite high, citing high cost of doing business including stiff competition for highly skilled and qualified human resource for the banking and finance sector.

It emphasized the need for the Central Bank to impose a cap on interest rate spreads, for instance 10 percentage points for a start. It also proposed the reduction of the reserve requirement of the Bank of Ghana from nine to five percent.

On the fiscal sector, Dr. Kwakye said though tax revenue was higher than budgeted, grants from donor countries recorded a marked shortfall. He also expressed worry about the high level of payment arrears. The arrears as at July 2011 stood at GH¢1.7 billion.

Ghana’s balance of payment recorded a small overall deficit during the period under review. This was the result of a large deficit in the current account and an offsetting surplus in the capital and financial account. As at the end of the June 2011, Ghana’s reserves stood at $4.8 billion, representing about 3.5 months of import cover.
Source: Daily Guide

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