IMF wants Ghana to raise interest rates, but businesses won’t be happy

Ghanaian businesses are in for tougher uphill challenges, as interest rates are likely to go up soon.

The Ghana government was elated and most Ghanaians were happy when the International Monetary Fund (IMF), gave Ghana a $1 billion loan to help prop up the country’s budget.

But little was heard in the euphoria about the full implications of the conditionality attached to the loan.

The IMF has suggested that Ghana should tighten monetary policy to reduce inflation which has been pushed up by high cost of food, strong domestic demand and a currency depreciation.

The IMF has said in its annual review of Ghana’s economy, “with a tighter fiscal stance, it would be an opportune time for monetary policy to reduce inflation, therefore, in light of the negative real interest rates and the need to increase credibility of the inflation targeting framework, (IMF) directors supported a further tightening in the monetary stance.”

Ghana’s annual inflation rate rose marginally to 20.74 per cent in June up from 20.06 percent in May.

The increase is 0.68 over the annual inflation rate of 20.06 per cent registered in May.

The Ghana Statistical Service attributed the rise to increase in fuel prices.

“The cost of transport contributed largely to the increase. This may be the negative effect of the last adjustment in petroleum prices,” its officials said.

The IMF approved a $600 million loan agreement with Ghana this week, part of $1 billion in IMF resources due to the country over the next few years to get its fiscal house in order before the start of new oil production in June 2010.

But this development would not sound good to businesses in the country. In a recent report released by the Association of Ghana Industries (AGI) depreciation of the Ghana cedi, inflation, cost of credit, access to credit, corruption, and bureaucracy of government were cited as difficulties to businesses in the country.

Cost of credit or high interest rate has long being the bane of businesses in Ghana.

Meanwhile, the Bank of Ghana Monetary Policy Committee began its quarterly meeting to review the economy last Tuesday July 14, 2009. On top of the agenda would be a review of the prime rate. Ghanaian businesses, however, do not hope for a raise, as a raise would certainly increase the cost of borrowing and subsequently make the cost of doing business higher.

By Emmanuel K. Dogbevi