A Development Economist and Head of Research at the Danquah Institute, Dr. Frank Bannor, has cautioned against the oversimplification of attributing Ghana’s post-2021 inflation surge solely to the Bank of Ghana’s money printing to finance government deficits.
During an appearance on Metro TV’s Good Morning Ghana on August 15, 2024, Dr. Bannor engaged in an in-depth discussion with host Randy Abbey, examining the complex factors that contributed to the inflation spike in 2022, which peaked at 54 percent.
Dr. Bannor emphasized that several intertwined factors, such as the depletion of Ghana’s reserves, the depreciation of the cedi, and disruptions in global supply chains, were pivotal in driving the inflation surge.
He pointed out that the depletion of reserves following the COVID-19 pandemic significantly weakened the cedi, leading to higher import costs and contributing to the overall rise in inflation.
“It cannot be the fact that the central bank printed money to finance government deficits. That is why we had a higher inflation rate… In 2022, that was when Ghana had one of its worst reserves. During the COVID time, the president stated that our debt needed to be suspended, in terms of debt service, which wasn’t done. For that matter, in 2020, Ghana had one of its highest reserves since independence, about 4.8 months of import cover. So, we expended most of these reserves in servicing debt due to revenue shortfalls and other expenses. Therefore, we virtually depleted our reserves, causing the cedi to lose its value,” he explained.
Dr. Bannor noted that the global surge in freight prices and the skyrocketing costs of essential commodities, including fertilizers from Ukraine and Russia, further intensified the inflationary pressures faced by Ghana.
“2022 was worsened because of the pricing of fuel. President Joe Biden himself said Putin has weaponized fuel. In fact, food inflation was one of the highest inflations we had in 2022. Why? Because most of the inputs we get to produce food come from Ukraine and Russia. Ukraine and Russia are the two major suppliers of fertilizer. When Putin invaded Ukraine, the global price of fertilizer went up about 15 times. Most IMF reports will tell you that sub-Saharan Africa, in particular, suffered from that incident,” Bannor stated.
Dr. Bannor also highlighted that other countries, such as Turkey, experienced similar inflationary pressures.
However, Randy Abbey insisted that the central bank’s substantial increase in money supply must be considered when analyzing inflation.
He acknowledged that external factors like the Russia-Ukraine conflict and COVID-19 played major roles but emphasized that the central bank’s policies were also a key factor in the inflationary trend.