The Institute of Economic Affairs (IEA) is asking the government to take overall responsibility in checking the rise in the country’s inflation rate, as it suggests the use of a hybrid approach to deal with the situation over the long term.
This approach, according to the Institute, is a combination of the inflation targeting approach, which targets headline inflation, and an approach that directly targets key components that drive up the cost of items that determines the consumer price inflation in the country.
Proposing the new approach to address the rising inflation which currently stands at 29.8 percent, the Institute said the government should “try to cushion pump prices, including from its windfall earnings from higher oil prices, the Energy Sector Stabilisation Levy Act (ESLA) fund, or reduction of some of the taxes and levies”.
Speaking at a roundtable discussion on ‘Rethinking Inflation Management in Ghana in the wake of COVID-19 and Russia-Ukraine war’, Director of Research, Dr. John Kwakye, said government must act with the Bank of Ghana to mitigate the effects of major drivers, which, according to inflation figures, include food, fuel and transport.
“Mitigating the current inflation calls for interventions in respect of food and fuel, especially. For food, it is necessary to augment supply, including accessing the ECOWAS strategic stock, importing some food items and banning the exportation of essential items.”
He added that the government should further “consider providing a temporary subsidy on staples like maize, rice and bread to ease the burden on low-income consumers. Even the IMF, which is known not to be a fan of subsidies, has called on governments to provide food subsidies to their citizens.”
Ghana’s current economic situation
The month of June has seen another rise in inflation to hit 29.8 percent, mainly driven by transport, which includes fuel, registering the highest price growth at 41.6 percent.
This hike comes at a time where Ghanaians continue to mount pressure on the government and the Bank of Ghana to quickly institute measures to check the continuous rise in the consumer price index.
Ghana currently has a total public debt stock of GH¢391.9 billion, as of the end of the first quarter of 2022. The cedi is also the worst-performing African currency, after falling some 22 percent against the dollar this year.
Already, the increasing inflation and rising cost of living prompted protests from some opposition groups earlier in July. Labour unions are also threatening to go on strike to demand cost of living allowances from the government.
Meanwhile, the government has blamed the country’s woes on a combination of external forces including COVID-19, the war in Ukraine, and American and Chinese economic downturns.
To salvage the situation, the government has now turned to the International Monetary Fund (IMF) for a bailout of almost US$2 billion to shore up its finances to support the economy.
Despite efforts such as the increase in Monetary Policy rate aimed at addressing the inflationary pressures, the situation persists.