Ghana’s economic performance in 2010

Dr. Grace Bediako, Government Statistician (left), Mr. Kwesi Amissah-Arthur , Governor of Bank of Ghana (right)

Inflation trends and policy rate
The year 2010 witnessed significant drop of inflation over the past three years. This dip of inflation was mainly attributed to prudent macro-economic policies being put in place by the government. From the beginning of the year, inflation was 14.78% in January, as compared with 19.86% in January 2009.

The inflationary pressures that characterized 2009 were slow in 2010, as annual inflation rate went down from 15.97 percent in December 2009 to 14.78 percent in January 2010. The January 2010 inflation rate was the lowest since the past twelve months, according to Ghana Statistical Service (GSS).

The year 2010 began with inflation rate which was 5.08 percentage points lower than that of last year (January 2009 inflation rate = 19.86%). Between October 2008 (inflation rate = 17.30%) and June 2009 (inflation rate = 20.74%), there was an upward trend. The rate declined thereafter till it recorded the lowest rate in January 2010.

In the monthly rate of inflation, the country recorded 1.59 percent, same as December 2009. The months of August, September and October have always recorded low monthly rates following a seasonal trend. Indeed, during the month of February 2010, inflation rate declined to 14.23%. This rate was 0.55 percentage points lower than that of January 2010 (14.78 %).

The rate of inflation had been relatively stable at a high level in the first half of 2009. Thereafter, it fell for eight consecutive months to reach the current level of 14.23 percent in February

2010.  The February 2010 inflation rate was the lowest in the past 22 consecutive months.

The March 2010 inflation rate was 13.32%. The rate was 0.91 percentage points lower than that of February 2010 (14.23 %).

The inflation trend at this period of the year continued to fall. Ghana’s Statistical Service indicated that “The rate of inflation has been falling since July 2009, with declines more than 1 percentage points occurring in September 2009, November 2009, and January 2010. Significant drops (close to 1 percent) were also recorded in August 2009, December 2009, and March 2010”.

In April 2010 inflation rate greatly dropped to11.66%. The rate was 1.66 percentage points lower than that of March 2010 (13.32 %).

The rate of inflation had been falling for ten consecutive times (since July 2009), with declines more than 1 percentage points occurring in September 2009, November 2009, January 2010 and April 2010.

However, Ghana recorded inflation rate of10.68%. This rate was 0.98 percentage points lower than that of April 2010 (11.66%).

Though, the rate of inflation had been falling since July 2009. Significant declined of more than 1 percentage points were recorded in September and November of 2009, and January, April and May of 2010. The cumulative decline between January 2010 and May 2010 is 4.10 percentage points (from 14.78% to 10.68%).

From June to-date, the country has been swimming in single digit inflation. The July 2010 inflation rate was 9.46%.  But, most Ghanaians did not believe it. According to them, prices of basic food commodities are at skyrocketing level, which the common man cannot afford.

The August 2010 inflation rate recorded 9.44%. The rate of inflation had been falling for 14 consecutive months. The largest decline in 2010 was recorded in April (1.66 percentage points) followed by January (1.19 percentage points) and June (1.16 percentage points).

The other months recorded declines below 1 percentage point. The cumulative decline between January 2010 and August 2010 was 5.34 percentage points (from 14.78% to 9.44%). The food and non-alcoholic beverages group is mainly responsible for the fall in the rate of inflation over the period.

The group has been recording single digit inflation rate since January 2010, falling from 9.08% to 5.33% in August 2010 after increasing to 6.13 % in July 2010.

Furthermore, in September 2010, inflation rate dropped to 9.38%. The rate of inflation has been falling since June 2009. The downward pressure on inflation can be attributed to both the food and non-alcoholic beverages group and the non-food group.

The food and non-alcoholic beverages group has been recording single digit inflation rate since January 2010, falling from 9.08% to 4.69% in May 2010 rising to 6.13% in June 2010 and rising again to 5.67% in September after it has dropped to 5.33% in August 2010.

The non-food inflation rate, on the other hand, though declining has been recording double digit inflation rates falling from 18.79% in January 2010 to 11.84% in September 2010 after it had increased from 11.89 in June 2010 to 12.25% in August 2010. For both October and November during the year under review, Ghana hanged on 9.38 and 9.08% of inflation rates respectively.

Some analysts say the year will close on 9.0% of inflation in December. The monetary Policy Committee (MPC) of the Bank of Ghana in February 2010 reduced its Policy Rate by 200 basis points from 18 percent to 16 percent, in line with the prospects for a continuation of the disinflation process and improvements in economic activity and output growth.

The policy rate which partly determines how much banks charge on loans and other credit facilities which dropped from 18.0 per cent in January 2010 to 16.0 per cent in February. This figure was subsequently maintained in the month of March.

In April, the Bank of Ghana cut its policy rate down to 15.0 per cent for the third consecutive time, following the downward trend of the country’s inflation rate. The prime rate was held at 15 per cent till June, when it saw a further reduction to 13.5 per cent.

The consistent reduction in the rates formed part of the Bank of Ghana’s efforts to bring down the cost of borrowing in the country, including the possibility of placing a legal cap on interest rates. But despite these efforts, most of the commercial banks charge almost twice that rate on commercial loans, raising concerns about the central bank’s ability to whip them into line.

The banks have always justified their high interest rates by saying that the rates are determined by factors beyond their control, including the high Central Bank prime rate, high Treasury bill rates and the need for a higher risk premium as a result of operating in a risky environment.

The high interest rate spread, however, resulted in a series of agitation from industry, which argued that the high lending rates existing in the country was impacting negatively on their cost of production and stifling their competitiveness on the global market.

Wilson Atta-Krofah, President of The Ghana National Chamber of Commerce and Industry (GNCCI) in the heat of the interest rate debate expressed concern over the high lending rates, saying that it would not support industrial growth. “It is important for the Bank of Ghana to find the relationship between inflation and the prime rate. It is not in the country’s interest to use the prime rate to fight inflation, but rather look at the causes of inflation,” he argued.

At its last sitting ,the monetary policy Committee and after having made an assessment of developments in the economy for the first eleven months of the year and factoring in risks in the outlook for inflation, decided to keep its Monetary Policy Rate unchanged at 13.5 per cent.

Oil production

Ghana finally poured its long awaited oil this month, signifying a major turning point for its economic development. The government has forecast that the oil will boost Ghana’s economic growth rate from 5% this year to as much as 12% next year. Production is eventually expected to bring in $1bn a year.

The Jubilee Field is estimated to hold 1.5bn barrels of oil. A second offshore field was discovered in September that is believed to hold another 1.4bn barrels. However, the manner in which revenue from Ghana’s oil find could be utilized for positive economic benefit continues to dominate public discussions.

While a section of Ghanaians tend to see the expected revenue from the oil find as the ultimate engine for instant economic development of the country, experts have cautioned against over-expectation of the amount of revenue from the oil find and the potential economic benefit for Ghana. To be continued

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