Monetary, fiscal policies must align – Minister
By Isaac AIDOO, Accra
Minister of Finance, Dr Mohammed Amin Adam has underscored the importance of ensuring the coordination between fiscal, monetary and exchange rate policies, to ensure effective monetary policy and price stability.
Welcoming policy priorities from the International Monetary Fund (IMF) contained in the Fund’s latest Regional Economic Outlook report for Sub-Saharan Africa, Dr Adam admitted to a disconnect between Ghana’s fiscal and monetary policies, stressing the need for the two institutions to be on the same page.
According to the IMF report which was launched at the 2024 Spring meetings in the United States, “enhanced coordination between fiscal, monetary, and exchange rate policies is crucial to prevent excessively loose monetary conditions that might restart inflationary pressures.”
Dr Adam in his comments on the recommendation said “I give you an example of why this recommendation is important. I informed the Bank of Ghana recently about policy misalignment between us, monetary and fiscal policies. As I continue to rely on treasury bills for financing the budget, recently I’ve been recording shortfalls week after week. The bank is also strongly pursuing its monetary policies of mopping up what it calls excess liquidity.
And so to that effect, the banks, instead of buying my treasury bills, would rather want to use that money to meet the regulatory targets, the new regulatory targets and benchmarks announced by the bank.”
The Minister observed that “so the two institutions are working on the economy, but misaligned on our policies and so, if the outlook is recommending the need for enhancing coordination between fiscal and monetary policies, I think it is the right call to make.”
Touching on diversifying funding sources, Dr Adam said implementing structural reforms such as expediting trade integration and improving the business environment to attract more foreign direct investment were all important recommendations the outlook was prescribing which “we must give attention to.”
The Regional Economic Outlook painted a positive picture about economies in the sub-region.
The report said the overall regional outlook is gradually improving, with economic activity tepidly picking up. Growth will rise from 3.4% in 2023 to 3.8% in 2024, with nearly two thirds of countries anticipating higher growth.
Economic recovery is expected to continue beyond this year, with growth projected to reach 4% in 2025.
In parallel, median inflation has almost halved from nearly 10 percent in November 2022 to about 6 percent in February 2024.
