A renowned Ghanaian Economist and Professor at the University of Cape Coast, John Gatsi has warned the recent increase fuel prices is will have knock-on effect on the prices of other commodities and services in the country.
According to Prof. Gatsi in a discussion with Awake Business, the increase in fuel price has resulted into deepening of ‘income erosion and [ads1]socioeconomic hardship’ in country.
Prof Gatsi has maintained that “The ordinary workers know the income erosion and difficulties they face today is worse than two years ago.
They know transport fares and fuel prices have worsened. Contractors are holding contracts they cannot executive because the ability of banks to finance such projects is weaker today”.
“A lot of people are from “above” poverty line to “below “ poverty line either through collapse of businesses, job losses and inadequate social support”. – he added
Prof. Gatsi revealed that “It is a fact that reducing inflation rate from 19% in January 2016 to 9.8% in May 2018 through an IMF program does not mean reduction in prices of goods and services but it definitely means prices are not increasing very fast”
For Prof. Gtasi, the recent 10% hikes in fuel prices which resulted into the increase of transport fares thereby leading to the general skyrocketing of prices has put the gain made in subduing inflation under serious threat.
He also pointed out that “it is also a fact that inflation cannot be treated as achievement on its own because it must reflect in other fundamental economic and social benefits to the people”
“If the prices of food items are being magnetized to the skies and fuel prices move from GHC 14 per gallon to about GHC23 with negative volumetric effects for businesses and ordinary workers, then the public will disagree with the government as to the relevance of such economic fundamentals” – He emphasized
Prof. Gatsi agues that the citizens “are right to disagree with so-called economic fundamentals when such indicators are not what the public relate to. For instance policy rate reduction is of no significance to a business or household that pays interest called lending rate and not policy rate”
Read the discussion with Prof. John Gatsi
Generally, stable macroeconomic indicators are preferred to when they are volatile. Stable and low inflation, stable and lower exchange rate and stable, lower lending rates are good indicators to mimic good fundamentals of an economy. An economy should be managed for the people.
Joblessness and erosion of incomes and fair opportunities have made many spectators in the economy. For managers of the economy , public acceptance of economic fundamentals and their effects on expectations of businesses and households is more important than the reports.
It is a fact that reducing inflation rate from 19% to 9.8% through an IMF program does not mean reduction in prices of goods and services but it definitely means prices are not increasing very fast. It is also a fact that inflation cannot be treated as achievement on its own because it must reflect in other fundamental economic and social benefits to the people. If the prices of food items are being magnetized to the skies and fuel prices move from GHC 14 per gallon to about GHC23 with negative volumetric effects for businesses and ordinary workers, then the public will disagree with the government as to the relevance of such economic fundamentals.
They are right to disagree with so-called economic fundamentals when such indicators are not what the public relate to. For example policy rate reduction is of no significance to a business or household that pays interest called lending rate and not policy rate. Businesses and households don’t ordinarily buy foreign currency from bank of Ghana but from a commercial banks and Forex Bureau. So if the Bank of Ghana rates are quoted when the public is aware that from where they trade in forex, $1 is equivalent to GHC4.7, the public will certainly disagree. The fact is the volumetric effect on businesses and households of a movement from GHC 3.8 per dollar to GHC 4.7 to the dollar cannot be glorified even if the new rate remains constant over a period of 6months.
Sometimes, political comparison make the public to disagree even more. The ordinary workers know the income erosion and difficulties they face today is worse than two years ago. They know transport fares and fuel prices have worsened .Contractors are holding contracts they cannot executive because the ability of banks to finance such projects is weaker today. A lot of people are from “above” poverty line to “below “ poverty line either through collapse of businesses, job losses and inadequate social support.
Managers of the economy should always bear in mind the public understands the economic fundamentals better.
Source: AwakeAfrica.com | Efo Korsi Senyo
