The International Monetary Fund (IMF) has asked government to tighten its economic policies to safeguard macroeconomic stability and keep inflation within a target band of 5.7-11.7 per cent.
"This should still allow the economy to expand at a robust pace of more than eight per cent in 2012," Ms Christina Daesking said in a statement to journalists after the mission's visit to the country.
Ms Daesking said the rapid depreciation of the cedi in the first five months of this year had begun to feed into domestic prices, while adding to short-term balance of payments pressures through higher cost of imports.
She said there was broad agreement that the cedi depreciation was consistent with underlying economic factors, such as inflation differentials and a high current account deficit, but that the pace of depreciation in recent months created challenges for anchoring expectations.
The IMF said contributing factors to the slide of the cedi were seasonally strong demand for foreign exchange and high domestic liquidity.
In this environment, the large interventions by the Bank of Ghana in January provided only temporary relief. More recent actions to tighten liquidity and hike domestic interest rates appear to have been more effective in halting the cedi’s slide.
The IMF encouraged the Bank of Ghana to maintain a tight policy stance to help stabilise the currency and achieve its inflation target while gradually rebuilding its stock of foreign reserves.
It suggested measures to improve the liquidity and functioning of the foreign exchange market as a way to reduce excessive exchange rate volatility.
On government's fiscal performance, the IMF said while government had made strong progress in reducing the stock of domestic payment arrears by GH˘1.5 billion, new spending pressures from public sector wage hike and the rising cost of fuel subsidies.
The Mission encouraged government to accelerate the on-going public payroll audit and discontinue payments to those not eligible and eliminate costly subsidies on fuel and energy consumption, which benefit the higher income groups.
Both measures together, it said could generate monthly savings of about GH˘160 million, which were needed to protect more productive expenditure and allow for an expansion of well-targeted social programmes to help the most vulnerable groups cope with the tighter cost of living.
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