Economist, Dr. Eric Osei-Assibey has cautioned government not to be tempted to go in for the 5 percent budget deficit financing from the Bank of Ghana (BoG).
According to him, even though there is a window of opportunity for government to access 5 percent financing from the central bank despite the International Monetary Fund (IMF) insisting on zero financing, the move could be counterproductive, worsening government’s aim at attaining economic consolidation.
Speaking to Citi Business News, at a post budget analysis programme organized by PricewaterhouseCoopers (PwC), Dr. Osei-Assibey maintained that government has a fine opportunity of avoiding fiscal slippages, hence must not consider financing from the central bank.
“In the banking law its 5 percent but if we are still within the framework of the ECF [IMF] then we cannot go for the 5pecernt since the IMF has pegged it at zero percent,” he stressed.
He argued that the move may not be necessary since the 2017 budget has an economic policy that is expansionary in nature.
Outlining some negative effects of accessing central bank financing now, Dr. Osei-Assibey warned that the economy could suffer intense inflationary pressures.
He explained that the move will put excess money into the economy, leading to a situation where more money will chase fewer goods.
“Honestly with the budget now which is much more expansionary in nature, I think that we may not need it. We may not need it in the sense that it could create enough inflation pressures for the economy because you will be putting too much money in the system[and] with the very limited productive capacity that can really lead to high inflationary levels,” he reiterated.
Dr. Osei-Assibey was however of the opinion that government can always go for central bank financing after the IMF programme is over since government may have achieved economic consolidation.
“Perhaps in the next period when we have gone out of the IMF programme and government has been able to properly consolidate its fiscal position then the 5 percent comes in handy, and I think we should revert to the 5 percent” he suggested.
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By: Lawrence Segbefia/citibusinessnews.com/Ghana