Bold policies must be taken to restore confidence – Addison

On Tuesday, July 2, 2013, all commercial banks started implementing this new formula for calculating the minimum lending rate for borrowers. 

Governor of the Bank of Ghana, Dr. Ernest Addison, has said that to restore confidence it is necessary for bold policies to be taken to repair some of the damage that prevailing global conditions have had on the local economy.

In a speech read on his behalf by Head of Research, Dr. Phillip Abradu-Otoo at a financial literacy workshop for journalists in the southern zone themed ‘Sustaining the recovery: the role of journalist in building confidence’, the Governor said both fiscal and monetary authorities must take additional measures and implement structural reforms to restore confidence in the economy. It is for this reason, he adds, that the central bank recently increased the policy rate by 200 basis points to 19 percent.

Among the bold policies he mentioned that should be implemented are: cutting down on excessive expenditure by the fiscal authorities; taking steps to improve the business environment; and aggressively pursuing export diversification.

“Going forward, both fiscal and monetary policies should remain vigilant and ready to take additional policy measures, as well as structural reforms if necessary, to improve confidence about the economy so as to sustain economic recovery. These include but are not limited to government’s expenditure-control together with new revenue mobilisation measures that support the fiscal consolidation path and help lift financing constraints.

“Bold policies must improve the business operating environment and attract private capital – both foreign direct investment and portfolio investment- through rule of law, protection of property rights, transparency and accountability. In addition, political and macroeconomic stability will contribute immensely to regaining investor confidence.

“Pursuing export diversification and building import substitution industries to leverage the African Continental Free Trade Area provides a tremendous opportunity to increase intraregional trade and regional integration. This will help improve the trade balance and possibly the current account, and reduce the need for external financing,” he said.

Dr. Addison further stated that other bold initiatives to boost confidence in the system include leveraging technology to improve financial flows, and tapping into the diaspora bonds.

“Leveraging technology to improve remittance flows, digitalisation and mobile money applications offer great opportunities for improving the financial landscape. The payment system has been identified as one of the many crucial preconditions that will have to be put in place to foster the building of a strong, business-friendly environment to boost investor confidence.

“Devising mechanisms to tap diaspora resources includes issuing diaspora bonds to help close any financing gap. Addressing diaspora investment challenges and creating a conducive and enabling environment would attract diaspora capital into the sub-region,” he said.

He further emphasised that efforts at boosting confidence must take an all-hands-on-deck approach, with all stakeholders doing what is required of them.

“Efforts at boosting confidence will have to come from all facets of economic life, and every institution must play its role. In no particular order, government must play its role in delivering growth in a stable economic environment; the central bank will have to guarantee low and stable inflation using the tools available at their disposal; while the private agents must take advantage of conditions around them.

“Additionally, the press must leverage all to influence the direction of economic thinking and influence society by harking back to the IPI cardinal principle of journalism,” he said.

The Governor assured that the Bank of Ghana and Monetary Policy Committee will keep being proactive in introducing policies which will foster growth and anchor the rising inflation.

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