​​​​​​​IFS blames high policy rate on gov’t borrowing


The Institute for Fiscal Studies (IFS) has cautioned government to reduce its appétit for borrowing in the financial market.

The Institute says despite the consistent reduction in the monetary policy rate and inflation, lending rates are still on a high side thereby recording a slow reduction as a result of government’s borrowing.

Despite the Bank of Ghana’s quest to drive down the lending rate by maintaining the monetary policy rate for the third time to 16%, IFS believes government must be careful of its spending.

Businesses and retail lenders are yet to experience a significant reduction in interest rate.

Speaking ahead of the Mid-year Budget Review on July 22, Senior Fellow at the Institute, Leslie Dwight Mensah, says government’s move to borrow more has contributed to the slow reduction in interest rate.

Meanwhile, on the issue of revenue management, IFS fears if government fails to tackle issues of compensation in the public, the economy might be weakened.

The Finance minister is encouraged to implement measures that will open up employment opportunities for the youth in the extractive industry.

“The inference of extractives- driven economic growth is that its direct and indirect effect on employment and incomes will be few due to the growth driven by, say services, agriculture and manufacturing.

“The main threat to government is to develop growth in the non-extractive sector to enlarge operations in economic growth to boost employment and a broad range of incomes,” he said.

The macroeconomy has been developed since 2017, with a reduction in inflation, relative currency stability and low nominal interest rates.

“The latter picked up in the first half of 2019 due to an increase in domestic government borrowing, especially in the first quarter of the year” Leslie Dwight Mensah said.

Story by Ghana|Myjoyonline.com |Ebenezer Sabutey | Joy Business