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Tackle Inflation – Prof Asante Tells Gov’t   
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The uncertainty over inflation and other macro-economic variables in Ghana is damaging the country’s private sector, Professor Felix Asante, Director of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, has said.

Speaking on Tuesday at a breakfast meeting series jointly sponsored by Stanbic Bank/Graphic Business in Accra, Prof Asante said such a situation makes planning by businesses in the private sector very cumbersome.

He was speaking on the topic: “Election year budget: Implications for macro-economic stability.”

Records from the Ghana Statistical Service (GSS) show that from 17.7 percent in December 2015, inflation jumped to 19.0 percent in January 2016, slipping to 18.5 percent in February.

It rose to 19.2 percent in March, slid again to 18.7 percent in April, inched up to 18.9 percent in May and dropped to 18.4 in June.

In July, it declined to 16.7 percent, followed by an upward adjustment to 16.9 in August and 17.2 percent in September 2016.

Budget deficit

Prof Asante explained that an analysis of the country’s budget deficit trends since 1996 showed that the majority of such deficits were recorded in election years.

It usually takes the next three years after every election period to adjust deficits only to relapse to its status quo the next election period, he said.

He therefore advised government to be resolute in its decision not to spend, adding that the passage of the Public Financial Management Bill (2016) would help to provide some relief to managers of the public purse in future.

Rush to commission projects

He also touched on the ‘rush’ by government to inaugurate projects which have been piled up six months to elections.

“Controlling expenditure in the last quarter will send good signals to the investment community and can translate into increased investment and economic activity post elections,” he mentioned.

Exchange rate

Prof Asante indicated that due to the imbalances in the import-export mix, the exchange rate also suffered as a result of fiscal indiscipline.

“The exchange rates are more volatile in election years and just after the elections, there is semblance of stability in the first or second year after the election.

With such volatility in the exchange rate market, a lot of more harm would have been done to the economy before realignment kicks in.

“So you will notice that over the years, the exchange rate which also speaks to the fiscal indiscipline, the rates would be going high and this has an impact on businesses in the economy and also how things are managed in the economy.”

High dependency on imports

The ISSER Director also said the high dependency of the country on imports made volatility in the exchange rate market impact directly on inflation.

“When debt service to domestic revenue and exports is high, and coupled with volatile exchange rate, inflation will not be stable.”

Causes of overruns

In a presentation, Finance Minister Seth Terkper, explained why there have been overruns in the country.

“We should not be too hard on ourselves since some of them are due to external shocks such as the fall in commodity prices such as cocoa, gold and crude oil. We experienced a simultaneous drop in the three commodity prices this year.

“For the first time, we went to Parliament to reduce the budget because the revenue was simply not going to come.”

He said some external shocks, including the price of crude oil which fell from $90 a barrel to $53 and the cut in gas supply from Nigeria over the past two and half years culminated in budget deficits.

“These are circumstances beyond our control,” he pointed out, adding that should the Sankofa FPSO, which is 80 percent complete, come on stream, some of the economic challenges would be resolved.

Mr Terkper said hitherto the government used over 70 percent of its budget to pay the salaries of public sector alone, which did not bode well for the country’s economy.

Since the introduction of the SSPP, he said the payment of salary arrears alone had cost the government GH¢3 billion, adding that unreasonable Treasury bill and bond rates have led to the deepening of budget deficit.
Source: Daily Guide

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