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The unexpected increase in the cost of fuel, electricity and cement is one of the most urgent economic issues confronting the country now.
While interest rates in the sub-region average 10 per cent, interest rates in Ghana hover around 30 per cent. Interest rates impact foreign investments.
The recent losses reported by the Central Bank are much more worrisome. In light of these developments, there is little doubt that the Central Bank is facing significant risks in the banking space. In a bold attempt to salvage the situation, efforts are being made to recapitalise the Central Bank.
However, it is still unclear how the recapitalisation campaign will be waged, although the Ministry of Finance and the Central Bank have signed a memorandum of understanding for it to begin. This is an all encompassing reflection of the problems facing the economy.
Statistics
Government organisations and supporters have produced striking macroeconomic statistics in reaction to economic crises, refuting the public’s assertion that they are experiencing hardship.
In a recent interview, the Finance Minister said the country’s circumstances were improving because this quarter’s inflation, which was 54.1 per cent, dropped to 23 per cent.
However, the macroeconomic indicators that caused the sharp increase in inflation are still lingering and have not completely been eliminated.
Therefore, it is crucial to issue a stark warning that the economy may not be out of the woods just yet. There is still a lot of momentum behind the rise in inflation.
Furthermore, inflation at 23 per cent does not equate to higher wages or greater employment opportunities for individuals. Prices of necessities are not falling. Individuals are still not able to afford a decent livelihood and the standard of living appears to have fallen.
From the viewpoint of the International Monetary Fund (IMF), these numbers are outstanding, but the general public believes that despite significant IMF financial injections, economic circumstances have not improved.
Concerning
The worsening of our homegrown policies is one concerning aspect of the IMF influx. IMF inflows, not superior homegrown policies, are responsible for the decrease in inflation.
IMF injections are borrowed funds that are going to dramatically raise our debt burden.
Besides, a robust economy cannot be built around excessive borrowing. Growth and productivity in important sectors of the economy must be increased.
This means that the cost of energy to drive domestic production must decrease appreciably. The manufacturing sectors suffer greatly from the high cost of power.
Cost
As part of the government’s effort to reduce electricity consumption, the cost of power has risen per the energy consumption patterns of various economic sectors, but customers are unable to predict consumption properly since they are often unaware of the pricing mechanism of the government.
It is crucial to emphasise that to estimate or compute consumption, a causal link between power scheduling and power usage must be established.
As demonstrated by a regression analysis of monthly energy billing data from the administrative records of urban residential customers of the Electricity Company of Ghana (ECG) Limited, power scheduling and power use exhibit an inelastic causal relationship.
This outcome has implications for the government’s Increase in Block Pricing (IBP) programme, which aims to encourage energy conservation in Ghana.
Because of the major power disruptions we have been experiencing lately, the IBP initiative is essential. Energy conservation is important as the energy industry is vital to the development and growth of the economy.
Ghana’s energy market has experienced significant transformation as a result. Worry over electricity shortages has grown and the government has implemented several practical strategies to keep the energy crisis under control.
The IBP is one important pricing strategy used to cut down on energy use. Under this pricing scheme, the Public Utilities Regulatory Commission (PURC) and the ECG have implemented price increases in different blocks to deter energy consumption.
This tactic has caused a sharp increase in the price of power, leading to a sudden surge in the cost of electricity. Even while the surge in prices may promote energy conservation, salaried workers in the public sector incur a huge financial burden.
According to the maximising theory of electricity production and distribution, when the marginal prices of electricity rise, the electricity demand should decline.
The use of a “severe” pricing mechanism to reduce power demand is fundamentally costly for public sector workers. This policy has not been successful in reducing total energy consumption. It has unduly increased the cost of living for public sector workers.
The government ought to take a second look at the policy and reduce the rising cost of electricity in the country.
Source: Dr Gamel Abdul-Nasser Salifu
The writer is Senior Policy Analyst,
Department of Economics & Applied Mathematics,
Ghana Institute of Management and Public Administration (GIMPA).
