The Governor of the Bank of Ghana, Dr. Ernest Addison has stated that despite the country’s recent macroeconomic stability, the economy remains fragile as non-resident investors continue to hold significant investment in local bonds.
Addressing the press at the announcement of the monetary policy rate, the Governor said the actions of these non-resident investors could have a dire impact, for instance, should they decide to sell off their investments.
Essentially, when non-resident sell-off their investments in local bonds, they will have to convert their cedi investment into dollars for onward repatriation — an event that could lead to an unreasonable demand for dollars which the central bank will struggle to meet thereby leading to a depreciation of the cedi.
He also mentioned that the rising external component of the public debt also means that a sharp depreciation of the cedi could drive the nominal debt up without necessarily meaning that the country has taken on more borrowings.
According to the Bank of Ghana’s summary of economic and financial data, the country’s total public debt stock as at May 2019 stood at US$38.8 billion out of which is US$20.5 billion is owed to external borrowers.
The Governor explaining the decision to maintain the policy rate at 16 percent said given the vulnerabilities that face the economy, the Monetary Policy Committee had to also factor in the possible impact a decrease or otherwise of the policy rate could have on the economy.