afrol News, 21 May - The Ghanaian government has given up its aim to reduce inflation to 9 percent in 2003, now hoping it can limit inflation to 22 percent. The reason is the price shock on petroleum products in Ghana so far this year; prices have hiked by 90 percent, thus doubling the overall inflation.

A letter of intent by the Ghanaian government to the International Monetary Fund (IMF), published by the IMF today, reveals that Ghana has had to correct its macroeconomic aims for 2003 due to the hike in oil prices, particularly as experienced in January this year.

The Ghanaian government had observed a sharp increase in prices in early 2003. "The rise in prices resulted from the positive shock of a 90 percent increase, on average, in domestic petroleum product prices and further adjustment in utility tariffs toward full cost recovery," writes Ghana's Minister of Finance, Yaw Osafo-Maafo.

Mr Osafo-Maafo however assures that "our policy orientation will ensure that this surge in prices is temporary. Nevertheless, the general price level in 2003 is now expected to be substantially higher than assumed in our original program."

In February, the consumer price index (CPI) had jumped by 12.8 percent from the previous month, the Ministry found. "This increase was almost 10 percentage points higher than had been assumed in the program for that month, and took the 12-month inflation rate to 29.4 percent," Mr Osafo-Maafo says. The largest increases had been recorded in the categories directly or indirectly affected by petroleum prices, which had been increased by an average 90 percent in January 2003.

- But larger-than-expected price increases were also observed in other categories, as suppliers of goods and services across the economy realigned their prices, Mr Osafo-Maafo says.

In March 2003, however, the monthly inflation rate had "dropped sharply back toward the program path." The CPI thus rose by 2.5 percent over the February level - compared to 1.4 percent programmed - bringing the cumulative impact of the shock to 15 percentage points, while the 12-month inflation rate increased only slightly to 29.9 percent. "This confirms our belief that the rise in prices has been largely a one-time increase," the Ghanaian Ministry of Finance deduces.

In light of this, "our target for the 12-month inflation rate has been raised," Mr Osafo-Maafo says. Instead of bringing inflation down to single digits (9 percent) by end-2003, the government now aimed to reduce the rate to 22 percent by December 2003.

- Reflecting the largely one-time nature of the price level increase, we expect inflation to fall to single digits in early 2004, and hence our end-year inflation targets for 2004 and the medium term remain, Mr Osafo-Maafo concluded.

Except for the Ghanaian disinflation strategy, the government however still aimed at reaching its macroeconomic aims for 2003. In particular, the Ministry still retained "the assumption that real GDP growth will rise to 4.7 percent in 2003, as in the original program," but it was to "reassess this assumption" at a later stage, Mr Osafo-Maafo told the IMF. Also, fiscal revenue in 2003 was expected to be higher than in the 2003 budget due to the price hikes.

By staff writer

© afrol News

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