The Governor of Bank of Ghana, Dr. Ernest Addison is calling for a fiscal policy in next year’s budget that will create a more credible path towards fiscal or financial sustainability.

According to him, this is important for the country’s quest to accelerate its economy rapidly but financially sound.

Launching this year’s Ghana’s Economic Forum, Dr. Addison however said the economy has been able to absorb the Covid-19 shocks very well, turning around swiftly, citing the country’s external position and the banking sector as an example.

“The 2022 budget should be used to reset fiscal policy to create a more credible path towards medium term fiscal sustainability. This would be an important building block to establish and entrench credibility, a key component to stability”.

The Governor further said “the relatively strong performance of the economy in spite of Covid-19 was due to home grown policy credibility that had been earned over four years of economic reform. The Fiscal and Monetary Policy Framework that was implemented provided a solid anchor to disinflation.” Additionally, he said “policy credibility engendered investor confidence which underpinned the significant inflow of capital both portfolio and direct during this period. These measures placed the Ghanaian economy in a good place prior to the pandemic and the necessary policy space to undertake the countercyclical policies that allowed the economy to stay on course.”

Macroeconomic landscape

The Governor  of the Bank of Ghana saidthe prudent and timely policy support— one may call it “homegrown”, removal of restrictions, reopening of business activities, and increased vaccinations, have worked together to systematically support the recovery process.

Also, recent economic indicators show a steady turnaround, with first the impact of the Covid-19 pandemic pushing inflation outside the medium-term target band to 11.4% in July 2020. Since then, inflation has fallen steadily and stayed around the central path of the target band of 8%.

Also, Dr. Addison said economic activity continues to pick up and maintaining the steady momentum since the last quarter of 2020. The second quarter 2021 data from the Ghana Statistical Service pointed to an annual GDP growth of 3.9%, from the 3.1% recorded in the first quarter of 2021.

Again, the Governor said that the external payments position has remained strong despite the decline in the trade surplus due to a stronger import growth, as the economy continues to reopen, adding, the trade surplus narrowed while the current account deficit widened marginally but adequately financed by external inflows from portfolio and foreign direct investments, resulting in balance of payments surpluses.

Banking sector

The Governor of the Bank of Ghana said the comprehensive reforms and recapitalization positioned banks with strong capital buffers before the onset of the COVID-19 shock. In addition, the financial sector received further boost with macroprudential regulatory reliefs to ease liquidity constraints and allowed them to provide financial support to critical sectors of the economy as part of the Covid-19 policy responses.

Following these interventions, Dr. Addison said the banking sector has remained stable, liquid, and profitable, adding, the latest stress tests and macro-prudential risk assessments on the industry show that banks are strong enough to withstand mild to moderate liquidity and credit risk shocks.