By G.D. Zaney, Esq.


At a news conference on January 22, 2017, Dr Ernest Kwamina Yedu Addison, Governor of the Bank of Ghana (BoG) and Chairman of the Monetary Policy Committee (MPC) of the Bank, announced the MPC’s decision to maintain the monetary policy rate at 20 per cent.


Monetary policy is the government’s or Central Bank’s process of managing money supply to achieve specific goals—such as constraining inflation, maintaining an exchange rate, achieving full employment or economic growth.


Monetary Policy is, therefore, basically the government's way of controlling the economy by using interest rates and the money supply, while interest rates are the costs of borrowing money from a bank or the amount of money the bank will give you for keeping your money there.


The government sets the base interest rate with its Central bank and the private banks set theirs at around this rate.


When one borrows money from someone, typically a bank, it is called credit and the price of credit is determined by interest rates while money supply is the total amount of a currency (the sum of all the £ / $ in circulation).


The aims of monetary policy are mainly to target inflation (the sustained rise in prices in an economy) and maintain low unemployment [although it is impossible to achieve both at the same time. 


Below are the facts and figures which represented the state of the economy in the assessment of the Monetary Policy Committee at its 80th regular meeting that informed the decision to maintain the policy rate at 20 per cent.


The global economy


Ghana’s domestic economy is inextricably linked to developments in the external environment.


The continued rebound of the global economy is expected to be sustained over the medium term, supported by increased investments, manufacturing activity and trade, alongside general accommodative monetary policies.


The growth recovery has been strong in advanced economies; and other emerging market and developing countries are also picking up, and although near-term growth risks are on the upside, the global outlook is still subject to substantial downside risks including protectionism and geopolitical tensions.


In sub-Saharan Africa, a modest recovery is underway driven mainly by improvements in the three large economies of Nigeria, South Africa and Angola and although global inflation remained largely subdued for the most part of 2017, the closure of the output gap in some advanced countries has led to gradual monetary policy normalization, with favourable financing while low interest rates in most advanced economies persist


The prices of Ghana’s three major commodity exports recorded mixed developments in the course of 2017.


Crude oil


In the first few weeks of 2018, crude oil prices have increased above US$60 per barrel, the highest since 2014―attributable to the decision by Oil Producing and Exporting Countries (OPEC) and non-OPEC producers on extending oil output cuts until the end of 2018 in a bid to clear the global crude oil glut and increased energy demand are among the factors driving up prices.




Gold prices performed better than anticipated in 2017 as the global economic recovery gained traction, but may moderate as interest rates rise in advanced economies.




Cocoa prices on the other hand, were generally depressed in 2017 on account of excess supply across the West African sub-region. Cocoa prices are expected to remain modest as the prevailing market dynamics persist.


The domestic economy


The domestic economy registered a trend decline in prices during 2017, with inflation dropping from 15.4 percent in December 2016 to 11.8 percent in December 2017.


Headline inflation has since recorded two marginal upticks, mainly reflecting price pressures from domestic food and rising international crude oil prices which translated directly into ex-pump prices. All the Bank’s core inflation measures have generally remained flat until recent episodes of elevation in the last quarter of 2017. The Bank of Ghana’s measure of core inflation, which excludes energy and utility, edged up from 12.3 percent in October to 12.6 percent in December 2017 while the Bank’s weighted inflation expectations by businesses, consumers and the financial sector declined in December.


Gross Domestic Product growth


Gross Domestic Product (GDP) growth momentum was maintained throughout 2017, but provisional GDP estimates from the Ghana Statistical Service (GSS) indicate that the economy grew by 9.3 per cent in the third quarter, up from 9.0 and 6.6 percent in the second and first quarters of the year respectively, with non-oil GDP, which was slow in the first half of the year, picking up in the third quarter, recording a 5.9 percent growth, compared with 4.0 and 3.9 percent in the second and first quarters of 2017.


Composite Index of Economic Activity


The Bank of Ghana’s Composite Index of Economic Activity (CIEA) recorded an annual growth of 10.7 percent in November 2017, compared with a contraction of 1.5 per cent in the same period last year, providing further evidence of improvements in the real sector. Furthermore, the Bank of Ghana survey of businesses and consumers show that confidence remained high throughout 2017, pointing to positive sentiments on growth prospects, realization of business expectations and general improvements in the economy.


Growth in key monetary aggregates


Consistent with contained aggregate demand pressures, key monetary aggregates recorded  a slower pace of growth in the during the second half of 2017 while the annual growth in total liquidity slowed to 16.7 per cent in December 2017 from 22.0 percent a year ago.


Declining interest rates


Following improved macroeconomic conditions, interest rates followed a declining trend. Interbank rates, that is, the rates at which commercial banks lend among themselves, declined to 19.3 percent as against 25.4 percent in December 2016. The interest rate equivalent of the benchmark treasury securities also declined — the 91-day treasury bill rate dropped to 13.3 percent (16.8 percent in December 2016), the 182-day rate also declined to 13.8 percent (18.5 percent in December 2016) and the 1-year note also declined markedly to 15 percent (21.5 percent in December 2016).


Credit to the private sector


Credit to the private sector by banks grew steadily from 6.8 percent in August 2017 to 12.8 percent in December, on year-on-year basis, reflecting recovery from the slack in the first half year.


The gradual increase in private sector credit extension was supported by some easing of credit stance on loans to small, medium and large enterprises. The survey, however, showed net tightening of credit stance to long-term loans to enterprises and households as banks continue to repair their balance sheets.


Evidence from all these leading indicators monitored by the Bank of Ghana show that the revised end year projected GDP of 7.9 percent is attainable.


The banking sector


The banking sector as a whole continued to be liquid, profitable and solvent although asset quality remained a concern, with the total asset base of banks increasing to GH¢93.2 billion in December 2017, indicating an annual growth of 12.8 per cent compared with the 30.4 percent growth recorded in 2016. The asset growth was mainly funded by total deposits which went up by 10.6 percent on a year-on-year basis.


The banking industry’s Capital Adequacy Ratio (CAR) which fell to 14.8 percent in June 2017 after the AQR exercise, increased to 18.0 per cent at the end of December 2017, significantly above the 10.0 percent prudential requirements after implementation of the capital restoration plans in the sector.


Return on assets improved from 17.6 per cent at the end of December 2016 to 18.8 per cent at the end of December 2017 while efficiency indicators on costs to income and operational costs to gross income remained largely unchanged compared to a year ago.


Other financial soundness indicators recorded some improvements, but the quality of banks’ loan portfolio still remains a source of concern as the Non-Performing Loans (NPLs) ratio moved from 21.6 percent at the end of October to 22.7 per cent in December 2017, with over half of these loans in the loan loss category. Adjusting for the loss category that has been fully provisioned for, the ratio drops to 10.8 percent.


Government operations


Provisional data on government operations indicated an overall budget deficit of 5.4 per cent of GDP in the year to November 2017, against the target of 6.0 per cent. Total revenue and grants was 17.1 per cent of GDP, below the target of 19.0 percent while total expenditures, including arrears clearance, was 22.5 percent of GDP below the budgeted estimate of 25.0 percent. Preliminary banking data show government receipts and payments indicate that the overall budget deficit is likely to stay within the 2017 target of 6.3 percent of GDP.


Total public debt

Total public debt as at November 2017 stood at GH¢138.8 billion (68.7% of GDP) up from GH¢122.6 billion (73.3% of GDP) in December 2016. Of the total, domestic debt went up by 20.1 percent to GH¢64.2 billion, while external debt rose by 7.9 percent to GH¢74.7 billion.


The maturity profile of domestic debt show that the proportion of short-dated instruments declined from 37.6 percent in December 2016 to 23.1 percent in November 2017. In contrast, the share of medium-term instruments increased from 38.1 percent to 57.2 percent in the same period. This trend was also complemented by a correction of the yield curve.


External sector developments for 2017


The external sector developments for 2017 were very strong. Provisional estimates of the balance of payments reflected significant improvements in the trade and current account balances relative to 2016. The trade account recorded a surplus of US$1.1 billion (2.3% of GDP) compared with a trade deficit of US$1.8 billion (4.2% of GDP) in December 2016, and driven mainly by higher export receipts from oil, cocoa and gold. This translated into a lower current account deficit of US$2.1 billion (4.6% of GDP) compared with US$2.8 billion (6.6% of GDP) in 2016. The current account outturn, together with positive net inflows estimated at US$3.0 billion (6.6% of GDP) in the capital and financial account resulted in a balance of payments surplus of US$1.1 billion (2.4% of GDP) against a surplus of US$247 million (0.6% of GDP) in 2016. This provided some room for a stronger reserve build-up of over US$1 billion in 2017. Consequently, Gross International Reserves (GIR) stood at US$7.6 billion (4.3 months of import cover) compared to US$6.2 billion (3.5 months of import cover) in December 2016.


Domestic currency market


As a result of a external sector the domestic currency market remained stable throughout 2017, although some seasonal demand pressures emerged in the last quarter. Overall, the Ghana cedi depreciated against the US dollar by 4.9 percent year-on-year, compared with 9.7 percent in 2016, and this has been the strongest performance of the cedi against the dollar since 2011.












The writer is an officer of the Information Services Department.






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