An economist and Professor of Finance at the University of Ghana, Godfred Bokpin, has stated that the effectiveness of inflation targeting is critically dependent on fiscal discipline, a factor outside the control of the central bank.
Speaking at the Currency Anniversary Conference as part of Ghana’s Cedi@60 celebrations, Prof. Bokpin argued that persistent fiscal missteps have historically forced monetary policy into a subordinate role, undermining its ability to curb inflation and stimulate sustainable growth.
“The source of our economic instability is essentially fiscal,” Bokpin stated. “Like many African nations, Ghana has not fully benefited from the complementary roles of monetary and fiscal policy in driving job creation and growth.”
He highlighted that since independence, Ghana has run an average fiscal deficit of approximately 6.8%, a level he described as “quite high.”
This sustained fiscal pressure, he explained, compromises the central bank’s capacity to deploy monetary policy effectively.
Prof. Bokpin illustrated the long-standing nature of the challenge by referencing the currency’s history. He noted that while inflation was below 1% before the Cedi’s introduction in 1965, it skyrocketed to 26.4% by the end of that year.
He was quick to clarify that the currency itself is not the root cause, but rather a symbol of deeper fiscal issues.
“The problem is not the Cedi; the problem has to do more with the fiscal side,” he emphasized.
Concluding his analysis, Prof. Bokpin stressed that the core requirements for a successful inflation-targeting regime lie beyond the central bank’s mandate.
“For inflation targeting to be more effective, you need fiscal discipline,” he said. “Since the fiscal side tends to misbehave, we end up deploying monetary policy as subordinate to the fiscal side, which diminishes its power.”
