How Ghana can tame rising inflation

Ghana's headline inflation soared to 43.1 per cent year-on-year in July, marking the third consecutive rise in inflationary pressure since the sluggish period between January and April this year. Kweku Arkoh-Koomson, Economic Analyst at Data Bank, delved into the inflation numbers and other economic stories affecting Ghana during a recent CNBC Africa interview. Arkoh-Koomson noted that the recent upticks in inflation, amounting to about 190 basis points over the past three months, were primarily driven by second-round price effects of new revenue streams resulting from the IMF deal. Additionally, the Public Utility Regulatory Commission's decision to raise electricity and natural gas prices by 18.36 per cent further fueled inflationary pressures. The dilemma facing the Bank of Ghana lies in striking a balance between combating inflation and sustaining economic growth above the four per cent recorded in the first quarter of the year. During the last Monetary Policy Committee (MPC) meeting, the central bank raised the policy rate by 50 basis points to uphold its commitment to fighting inflation. However, repeated hikes could adversely impact an economy striving to rebound post-pandemic setbacks. Arkoh-Koomson suggested that the central bank might focus on liquidity containment measures through open market operation bills and consider a minor policy rate hike to mitigate demand pressures. The debt market also captured attention, with a debt swap initiative targeting pension funds launched in July. The comprehensive domestic debt restructuring plan, encompassing USD-nominated bonds, Treasury bills, and sovereign bonds held by pension funds, aims to enhance debt management efficiency. Market reception to the debt restructuring offers is expected to be positive, especially considering the government's commitment to servicing old bonds. Investor confidence emerged as a key point of discussion, with Arkoh-Koomson highlighting Ghana's improved fiscal performance in the first half of the year. The country exceeded targets in primary surplus and fiscal deficit, aligning with the IMF program. While this signals positive prospects for investor confidence, concerns linger over the government's reliance on short-term money markets to finance a significant portion of the fiscal deficits amidst rising yields. Overall, Ghana's economic landscape presents a nuanced picture, with inflationary pressures calling for prudent monetary policy decisions and the government's fiscal performance shaping investor sentiment. Navigating through these challenges will be crucial for sustaining economic stability and attracting capital inflows to support Ghana's growth trajectory.