International Monetary Fund directs the government of Ghana to set lower target for inflation, here’s why

The International Monetary Fund (IMF) has urged the government of Ghana o set a lower medium-term target for inflation.

IMF Chief Economist, Gita Gopinath

This, according to the IMF, will enable the economy remain competitive among its peers in sub-Saharan Africa.

“If inflation remains below or close to target, it may be appropriate to adopt a lower target over the medium term, provided that this change is carefully implemented and communicated. Coordination with fiscal policy would also be key, including to ensure that a lower target and related tightening of money supply would not crowd out private-sector credit.”

IMF said this in its Article IV report to the country.

The government of Ghana achieved its medium-term inflation target of 8±2 in the 2020 Budget, despite a rebasing of the basket in August 2019 that saw inflation drop to 7.8 percent from 9.4 percent in July.

It was, therefore, expected that it would set a new and lower medium-term target in 2020. However, that didn’t happen.

Due to this, the IMF says it would be better for managers of the economy to revise the target, especially when the country’s peers in sub-Saharan Africa all have medium-term targets lower than the 8±2 percent – making their economies more competitive than Ghana’s.

For example, Kenya has a medium-term target of 5±2.5 percent, South Africa is 3-6 percent and Uganda 5 percent.

The report, however, added that government says it will consider lowering the target, in order to “maintain competitiveness against trading partners and in line with ECOWAS criteria."

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