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Ghana’s Finance Minister Moved The Inflation Goal-post

Close-up of a Calculator and Pen on a Financial Newspaper. Blue-toned.

Mr Kenneth Thompson, Chief Executive Officer of Dalex Finance on Tuesday stated that the 2018 budget seems to be shifting the inflation goal-post.

He explained that the Bank of Ghana has consistently indicated that its center point target for inflation in 2018 would be 8 per cent…“This budget now seems to be saying that we are headed for close to 9 per cent.

“Is this an indication that we should expect some laxity in policy in the coming year and what conclusions can we draw from these inconsistencies?

“How will these influence price expectations in the economy for 2018 and how will the exchange rate adjust? Mr Thompson stated in a working document obtained by the Communication for Development and Advocacy Consult (CDA Consult) in Accra.

He however noted that despite these questions; “I am optimistic that between the new regime at the Bank of Ghana and the instincts of the Minister of Finance, inflation will still be kept in the single digit range even if not exactly hitting 8.00 per cent. Practically expect prices to remain relatively stable in 2018”.

On expectations of the budget deficit in 2018, Mr Thompson explained; “my biggest confusion is on the budget deficit. In going through the International Monitory Fund (IMF) programme, the understanding was that by the end of the programme in December 2018, the budget deficit would have comfortably settled at 3.8 per cent of GDP.

“We now see a shift away from that target to 4.5 per cent of GDP. Is this an indication of more loose fiscal policy in 2018 and a relaxation of the consolidation process that was initiated in 2015? What are the implications? Did the IMF agree to loosen its own fiscal consolidation process?

“If this was done with the consent of the IMF, what concessions were made? Should we read this as an indication of a tighter fiscal policy in the year ahead? We all know the linkage between the deficit and debt.

“Should we also read this as a sign of more government borrowing in 2018 and therefore what could be the implications for Ghana’s debt stock as we move into 2018. What could be the implications for domestic and external borrowing? Will interest rates rise in 2018?

“I expect more domestic borrowing in 2018 and hence pressure on the falling interest rates. Most local economic analysts are expecting us to go into a low interest rate regime in 2018, but we may be in for a disappointment in this regard,” he said.

Source: CDA Consult

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