A Senior Economist at the Institute of Economic Affairs (IEA), Dr. J. K. Kwakye, last Wednesday stated that in the 3rd quarter of 2011, Ghana was reported to have posted the highest rate of the growth worldwide, boosted by oil.

This was contained in a press statement issued by the IEA as the Institute reviewed the Ghanaian economy in the second half of 2011.

Dr Kwakye indicated that the review focused on the real sector; fiscal sector; money and prices; and the external sector, thus the 4 main areas of the economy.

According to the statement, real Gross Domestic Product (GDP) grew strongly at nearly 24%, which was driven by Agriculture, but [was] slackened in the 4th quarter to below 1%, with growth of all sectors slowing down in the 3rd quarter of 2011, indicating that oil- fuelled strong growth of industry as a whole, making the real GDP growth of over 14% in 2011.

The senior Economist said that the government’s (cash) budget recorded a deficit of 2.2% of GDP during the half year, adding that [this] brought the deficit for the year as a whole to 4.4% of GDP; that was marginally higher than the budget estimated by the government, whiles annual revenues and expenditure were both higher than budgeted.

Dr Kwakye again said that Ghana’s domestic debt increased by 9.7% to GH¢ 11,841.1 million (20.0 % of GDP), the external debt by 7.2 % to US$ 7,589.5 million (19.9 % of GDP), and the total debt by 10.0% to GH¢ 23,608.5 million (39.9 % of GDP), explaining that [this] was made possible by the continuing single–digit food inflation while non-food inflation remained in double digits.

The statement revealed that during the half year, inflation remained at single- digit, ending the year at 8.6%, “this was made possible by continuing single- digit food inflation, whiles non- food remained in double digits.”

Dr Kwakye further said that while the cedi depreciated against both the US dollar and the pound sterling, it appreciated against the euro.

“Indicating that the benchmark US$/GH¢ it has driven seasonal demand for dollars by imposters ahead of Christmas period, spate of disinvestments from the money and capital markets by foreign investors, and apparently reduced presence of the Central Bank in the market as it sought to consolidate its reserves position.”

He stressed that persistent cedi decline has characterized Ghana’s exchange rate regime, which reflects fundamental imbalance between foreign exchange supply and demand, advising that stemming the demand requires policy interventions to increase export earnings and import demand.

The senior Economist mentioned that interest rates generally trended downward, adding that the Policy Rates, Treasury Bill Rate as well as the average banks’ lending and savings rates all declined in the half year.

He indicated that during the half year, broad money supply (M2+) increased by 17.3 and by 33.2% on a year – on – year basis, adding that M2+ growth rates have been persistently high.

“In the past, high M2= growth was found to be associated with high rates of inflation, in recent period, however, inflation rates have been relatively low even as M2+ growth rates have remained high,” he said.

Dr Kwakye further said that Ghana’s gross international reserves increased to US$ 5.4 billion, equivalent to 3.2 months of imports during the half year, stressing that the import cover is the conventional measure of reserve adequacy.

The senior Economist advised that countries that are vulnerable to economic shocks, including commodity–producing countries, need to maintain higher levels of reserves as a cushion, adding that countries with less flexible exchange rate regimes need higher reserves to protect the exchange rate, stressing that for such countries, a rule of thumb is to keep reserves adequate to cover at least 4 months of imports.


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