Former deputy minister of finance, Stephen Amoah has urged the government to correct certain “fundamental economic anomalies” in Ghana. According to him, Ghana’s economic instability stems from technical anomalies that have been overlooked by successive governments. One of such anomaly which needs to be rectified is the “management of monetary policy with respect to the periodical adjustment of Ghana’s policy rate”, where the technique of adopting inflationary targeted monetary policy hasn’t yielded expected results.

For instance, policy rate increases from 12.92% in 2011 to 25% in 2016 saw corresponding inflation from 8.73% to 17.51% in the same period. However, when policy rate declined from 22.5% in 2017 to 16% in 2019, inflation rates fell from 12.39% to 7.17% while GDP growth also reduced from 13.9% to 3.4% in the same period. Dr. Amoah (MP, Nhyiaeso) who was speaking in Parliament on Tuesday, made it known based on the above that increases in policy rates rather increases inflation most of the time.

“This policy anomaly must be checked by the relevant stakeholders to stop its dysfunctional contribution to our unstable economic performance. It erodes the purchasing power of Ghanaians. It increases the cost of doing business and lowers standard of living. It is only when inflation increases as a result of demand pull that is when people are buying and selling and there is a high circulation of money on the market that one can adjust the policy rate upwards and vice versa.”, He noted

Dr. Amoah continued that other government securities such as treasuries have made Ghana’s economy deviate from the global standard where all traditional models for computing returns from investing in risky assets are not effectively applicable. He said that defeats the fundamental principle of risk-return policy in investment. Citing examples of the Capital Assets Pricing Model (CAPM) and the Arbitrage Pricing Theorem (APT) of introducing the elements of arbitrariness in the decision making processes of capital assets’ pricing in Ghana.

“These anomalies contribute not only to the high cost of doing business but also high exchange rates, low productivity, high unemployment and banks’ risk exposure. Ghanaian companies cannot produce to meet aggregate demand and therefore resort to importation.”

He then proposed to the soon-to-be-composed Finance Committee as well as the Committee on Economy and Development and the Budget Committee of Parliament to engage the Bank of Ghana and possibly the Ministry of Finance on the policies.