News Column

Economists Warn Ghana Over Deficit Financing

June 11, 2014

Masahudu Kunateh

ECONOMISTS have advised the Bank of Ghana (BoG) against printing more money to shore up the country's huge budget deficit as this could be disastrous to the economy.

Local and international economists said such would impact on the strength of the local currency.

"If government prints money faster than the growth of real output, it reduces the value of money and this invariably causes inflation," local economist, Emmanuel Nii Abbey, explained.

Nii Abbey, who is an economist at the University of Ghana, concurred.

"If we print more money, prices will rise such that we are no better than we were before. To see why, we will suppose this is not true, and that prices will not increase much, when we drastically increase the money supply.

"Let us suppose Ghana decides to increase the money supply by mailing every man, woman, and child an envelope full of money. What would people do with that money?" he quizzed.

He reasoned, "Some of that money will be saved, some might go toward paying off debt like mortgages and credit cards, but most of it will be spent. This will automatically fuel inflation in the country."

The warning follows revelations that BoG was wantonly printing more money to finance the country's growing deficit which hovers around 10,2 percent.

According to the United Kingdom-based leading provider of credit ratings, commentary and research, Fitch Ratings, printing more money would aggravate already high inflation (14,7 percent in April 2014) and contribute to further Cedi weakness.

The currency has fallen 21 percent since the start of the year.

"Even the bank has exhausted its two times full year currency printing limit," the agency stated.

Ghana has since the beginning of the year wrestled the incessant depreciation of the Cedi against major trading currencies.

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Source: AllAfrica

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