Once upon a time we proclaimed our desire to arrest run away exchange rates. We chalked some limited success but sustainability eluded us as we faced the grim realities of an economic system not solidly anchored on pillars that can easily be tweaked for rapid growth, at least, not in the short term.
No wonder some notable politician teased that the IGP must re-arrest the stubborn exchange rate and his twin brother named inflation. These twins appear to be misbehaving after the stability chalked between 2010 and 2012 when measures to tame them worked briefly.
Like a bad dream though, we woke up suddenly to find that these measures lie in the bossom of the monetary and fiscal bodies, not the security agencies.
Inflation targeting brings me nostalgic memories of the mid-1980s at the University of Ghana Business School. As first year students, my mates and I from the UGBS had to take economics lectures at the “N Block” with other students from the Economics Department.
My fondest memories relate to the times when the about two hundred students had to sit before this charming female lecturer who apparently was taking her first university lectureship, having qualified from one of the prestigious universities in the United States.
Anytime she asked us whether we had understood her presentation, most of the students cried in unison that they did not understand. “Which part of the lecture posed problems; she would ask in her romantic voice. “The voracious students would shout… “the whole show!”
As a mature student then, on each of such moments, I could see the truest definition of exasperation from the lecturer’s pretty face and sympathized with her. It was evident that her academic brilliance aside, she was dealing with stage fright, having to face such huge numbers of students she probably had not been exposed to previously.
Over three decades have passed, and I wish she were available again to explain to some of us the measures to contain the current 27.6 % inflation from spiraling any further. We had boasted not too long ago about single digit inflation but now dealing with a galloping inflation, providing fodder for heated political and economic commentaries.
The die appears cast. The Central Bank has embraced inflation targeting as a major policy to deal with the negative effects of rising inflation since 2007 but its efficacy has been varied.
This is expected but as economists will never agree on the effectiveness of the respective measures to deal with the canker, arguments will continue to revolve around what may potentially work, how and why, given our peculiar economy and the circumstances in which we find ourselves within the global space.
Simply put, inflation targeting connotes the measures a central bank adopts with a view to influencing the soaring level of prices of goods and services in an economy to stay within a prescribed threshold. The ultimate objective of inflation targeting is to stabilize prices to support economic growth and ensure predictability for investors, consumers and other agents.
The central bank employs the use of monetary tools like tweaking the money supply growth through open market operations, adjusting reserving requirements and interest rates, inter alia. Keen observers may have noticed how Bank of Ghana reduced the commercial banks’ reserving requirements to cope with the challenges imposed by covid 19 in the past two years.
Over time, however, these measures have had to be reversed to pre-covid levels in line with the desire to manage rising inflation that seem to be eroding purchasing power and returns on various investment instruments.
It appears the central bank is convinced after careful analysis that excess demand is the main culprit for the soaring inflation, and the spill-over effects on weakening exchange rates.
The fiscal authorities are expected to address widening deficits through pragmatic public expenditures to align with revenue mobilization; an exercise made even more difficult in the face of unmet election promises, unfavourable global events like oil price hikes and global food shortages, caused by major producers now busy warring.
Fiscal deficits invariably lead to increased government borrowing as part of measures to fill the yawning gap. This carries a tendency to push interest rates higher to make it more attractive to lend to a government naturally intent on meeting its election promises as the months tick by towards another crucial election.
Asking a government to halt projects, freeze employment or resist pressures to raise public sector wages becomes a herculean task, irrespective of the rhetoric to cut expenditures by up to 20 percent. Widening deficits limit the private sector’s ability to borrow at favourable rates to expand production, which further exacerbates the supply side dynamics.
The private sector’s diminished capacity to borrow from the banks due to the high cost of borrowing negatively affect production and deepen unemployment.
Curiously, the term “inflation targeting stance “ in economics has always fascinated me, especially the hard choices to be made from an array of fiscal and monetary tools available to a government torn between the devil and the deep blue sea as far as economic management is concerned. It is like clutching on a straw when drowning in some tough currents in the Odaw river at Circle in Accra.
There appears to be no doubt, though, that the Central Bank sees the chief culprit for the spiraling inflation to be excessive demand, given its emphasis on addressing the problem through tight monetary policy.
Other commentators blame supply deficits for the canker and urge more attention should be paid to addressing the factors impeding supply from both a local and external perspective.
It has been said that when the going gets tough, it is the tough that gets going. This would imply that as a country, instead of resigning ourselves to soaring prices, especially of foodstuffs and the agitation for increased salaries, we should rise on the back of these shortages to drive a conscious, invigorated agenda to bolster local production.
In other words, the apparent gloom could be turned into massive opportunities to revitalize productive capacities. We cannot remain fixated on the demand side rigidities. The supply side imperfections must be addressed in dramatic ways away from the “business as usual stance”, if equilibrium is to be maintained.
Our capacity for food self-sufficiency cannot be doubted. The real challenge, in my view as a farmer, is for the government to move away from short term sloganeering to pragmatic measures. The blueprint that ensured mass food production under the “Operation Feed Yourself” programme can easily be modified to suit our present circumstances.
In my candid view, the “Planting For Food and Jobs “ programme has not met expectation, given the quantum of resources invested and the fanfare that has enveloped the project.
We must vigorously pursue the low hanging fruits where agriculture sits and make it the fulcrum around any meaningful industrialization drive. The tomato glut is here again and we appear helpless with processing, while producers complain of heavy loans contracted for their cultivation.
If we continue to do what we have always done, we shall only end up with what we have always earned, and what we have always earned has clearly been inadequate; demonstrated unequivocally through soaring inflation and worsening exchange rates. The time for positively radical measures is now.
We need to engage in targeting fertilizer subsidies and bolster other inputs to the real producers, engage the increasingly idle hands into productive agricultural pursuits, like the involvement of the prison inmates into massive agricultural ventures beyond the subsistence levels being practiced within the Prison Service.
Massive rural road construction, supported by the Field Engineers Regiment of the Ghana Army, (seen during the Busia regime) must be undertaken to open up the network for food production, processing, distribution and storage, while insisting that the school feeding programme should increasingly be confined to sourcing local food items.
Deep-seated frustrations and violent demonstrations
I earnestly long for a coordinated, inter- ministerial effort to galvanise efforts towards the food chain before the current crises degenerate into unwarranted social challenges. A hungry, desperate population can be difficult to control but we have the means to channel our energies into desired ends, if we muster the political will. Radically sorting food insecurity in the wake of rising unemployment and population growth must be paramount.
The country appears to be faced with a different kind of war against endemic frustration. This increasingly finds expression in violent demonstrations so uncharacteristic of otherwise peace-loving Ghanaians. If care is not taken in a holistic way to deal with rising unemployment among the youth, we might end up merely resourcing the security agencies to quell demonstrations (and they can be high-handed sometimes), partly borne out of deep-seated frustrations.
People gainfully engrossed in viable economic and social pursuits will be less likely to find the time and energies to join demonstrations, the purpose of which is sometimes unclear to even majority of the visibly angry demonstrators, sweating and shouting themselves hoarse.
The politics of “gobe”
I read from some quarters that some SHS students were complaining of having been served with gari and beans (affectionately called gobe) too often in their school. I was beside myself with incredulity. Tired of eating good old nutrient rich gobe free of charge? I mused.
I wish I could take those students to the mid- 1970s when even as a salaried worker in the Ministries in Accra, constantly eating “gobe” was a welcome survival strategy. I used to buy two lots of ten pesewas “gobe” from Tema station, neatly folded in green leaves; one for breakfast and the other for the late afternoon to cover dinner.
Why should my taxes fund free SHS students who have the audacity to complain about eating too much gobe? We appear to be taking complacency and pampering to absurd levels! I know of many illustrious, virtuous women who attended a prestigious SHS in the country who were occasionally fed with cassava from the school’s own farm. They survived and are now making incredible waves in the country.
It was not because their parents were poor or the school could not afford “exotic foods”. It was simply a deliberate design to groom the students to learn how to cope with the vagaries inherent in real life; and it worked!
Perhaps, this complacence we are involuntarily instilling in the students should remind the government that the time is ripe to review this whole free SHS concept in its current form as part of pragmatically dealing with the budget deficit that has become an albatross in the fiscal space.
How about shelving some of the freebies, (the uniforms, textbooks and boarding fees). Why can we not make able parents pick up some of the bills to conserve money to pay for the striking caterers in the basic schools?
This also takes me back to the idea of schools producing some of their food needs from their fallow lands that are under constant threat of encroachment from estate developers. After analysing which school has comparative advantages in the production of various food crops, animal husbandry, fish farming, etc, these students could be introduced into agriculture even before they graduate. Learning agricultural science will be lifted from the abstract to the practical realms to make it more exciting and rewarding.
Apart from the numerous benefits, including boosting their nutritional status, this could also lessen the burden on feeding costs. Additionally, this will give students hands-on experience which some of them could capitalize on to become the entrepreneurs we trumpet about without real focus.
Is this nuclear science beyond the skills of the school heads who are complaining bitterly but being asked to shut up for political reasons?
The Agona Swedru- Bawjiase road
I travelled on the newly constructed road about a fortnight ago and was very disturbed about the undulating nature of the road. The road markings are superb but I wonder whether the compacting machines used on the road were manufactured in Afienya or the operators of those machines were trained in Darkuman-Kokompe!
One does not need to be a civil engineer to predict that this road will not last for even two years before we request fresh funds for further rehabilitation. Can we be fair to already bleeding Mother Ghana for once?
The writer is a Fellow of the Chartered Institute of Bankers, an adjunct Lecturer at the National Banking College, a farmer and the author of “Risk Management in Banking” textbook.
Email; [email protected] Tel. 0244 324181
