President and Founder of IMANI Africa, Franklin Cudjoe, has highlighted that Ghana’s inflation rate for July 2023 is three times higher than the inflation rate in crisis-stricken Ukraine.
Cudjoe pointed out that as of July 2023, Ghana’s inflation had reached 43.1%, with interest rates edging close to 40%.
He further noted that Ukraine’s inflation rate for the same month, July 2023, was recorded at 11.3%, which is three times lower than Ghana’s inflation rate.
In a Facebook post dated Thursday, August 10, 2023, the President of IMANI Africa emphasized the alarming pace at which Ghana’s economic situation is deteriorating.
“Inflation is galloping… 43.1% interest rates inching towards 40%. Inflation in Ukraine is 11.3% in July,” he wrote on his Facebook page.
Background
As stated in its 2022 Annual Report and Financial Statement, the Bank of Ghana encountered a substantial loss primarily due to the Debt and Deficit Exchange Program (DDEP).
As outlined in the report, the central bank underwent a restructuring of its holdings of government debt, while its non-marketable holdings of Government of Ghana instruments, which included long-term stocks, a COVID-19 Bond, and overdrafts, underwent a haircut of 50 percent.
Similar terms were applied to the exchange of Bank of Ghana’s other claims (holdings of marketable instruments) as those of other financial institutions participating in the DDEP.
This restructuring resulted in an impairment of GH¢48.40 billion in the year 2022.
Additionally, the Central Bank experienced revaluation losses on its foreign assets and liabilities due to the depreciation of the exchange rate.
The combined impact of impairments and revaluation losses led to a negative equity position amounting to GH¢55.12 billion for the year 2022.
The report further indicated that despite a robust trade surplus, the balance of payments incurred a deficit of US$3.64 billion, attributed to significant net outflows in the capital and financial account.
This situation prompted a drawdown of US$3.46 billion in Gross International Reserves, causing a decline from US$9.70 billion at the end of December 2021 to US$6.24 billion at the end of December 2022. This amount provided a cover for 2.7 months of imports.
The substantial reduction in reserves exerted considerable pressure on the currency, leading to the reduction of the Common Equity Tier 1 capital ratio from 6.5 percent to 5.5 percent, and an increase in the maximum Tier 2 capital ratio from 2.0 percent to 3.0 percent of total risk-weighted assets.
