Bank of Ghana warns against lifting policy support

A premature withdrawal of policy support introduced to weather the impact of Covid-19 would hamper economic recovery, the Bank of Ghana (BoG) has warned.

The central bank said the signs of recovery are encouraging and would require “careful monitoring and continuous comprehensive macroeconomic policies” to anchor stability.

“A key issue going forward relates to the timing of withdrawal of policy support. This would need to be carefully done so as not to jeopardize the recovery process and the Bank will continue to monitor development and take appropriate decision” Dr Maxwell Opoku-Afari, the First Deputy Governor of the central bank said during a financial literacy workshop organized by the Journalist for Business Advocacy (JBA) at Prampram on the theme: “Understanding Monetary Policy in a Post Pandemic Era.”

Restrictions on movement to curb the spread of the virus and the associated disruptions in supply chains triggered a deep economic downturn, forcing firms in Ghana to slash wages of more than 770,000 workers, and about 42,000 employees were laid off.

Like all central banks did, the BoG stepped in with a broad array of measures to mitigate the effect of the health crisis, which made available an estimated GHS5 billion to banks for onward lending, and purchased government’s Covid-19 relief bond of GHS10 billion.

Africa’s top gold producer recorded its lowest economic growth in 37 years in 2020, despite the swathe of measures to contain the pandemic-induced shocks.

Why the caution?

The caution follows the gradual winding down of fiscal and policy support to households and businesses such as cash transfers, deferred tax payments and debt moratorium to businesses among others which are expiring around the world.

This has further been exacerbated by the quest to restore fiscal discipline, with deficits projected to narrow more than 5 percent of GDP in the short-to-medium term, according to forecasts sighted in Ghana’s 2021 budget.

While this is positive, achieving fiscal discipline in the immediate term would require a sharp withdrawal of relief measures adopted to contain the pandemic. Analysts fear this may impose further harm on livelihoods and truncate business recovery process.

“A careful balancing act between unwinding the policy support and would be needed by policy makers to ensure that stability in a post-pandemic environment is guaranteed,” the First Deputy Governor said. told Business24.

Banking Consultant Dr Richmond Atuahene said the possibility of a third wave of covid-19 deepens the uncertainty and threatens the recovery.

With the threats of a third wave, vaccine procurement constrains and the highly transmissible delta variant seen in Ghana, the economist believes any attempt to unwind the policy support “will erode the gains made in the recvoery process.”

He recommends to the government to maintain the relief measures through to 2022.

Where possible, the International Monetary Fund (IMF) urges economies to “resist tightening fiscal policy too early and instead ensure continued support for healthcare, individuals, and firms.”

“In economies constrained in their ability to spend, a reprioritization of spending may be warranted to protect the most vulnerable,” the fund recommended.

Source: Sani Abdul-Rahman