The Chief Executive Officer of the Ghana National Chamber of Commerce and Industry (GNCCI), Mark Badu Aboagye, says improved coordination between fiscal and monetary policies has been central to recent economic stabilisation, particularly in bringing down inflation.
Speaking at the quarterly Economic Outlook on Channel One TV on Monday, April 27, on the theme “Taking Stock – Ghana’s Economic Turnaround: What Changed & What Comes Next?,” he said earlier challenges in controlling inflation were partly due to a lack of alignment between monetary and fiscal policy measures.
“One thing I have observed which is helping us is the coordination between fiscal policy and monetary policy,” he said.
He explained that during the period of high inflation and elevated interest rates, efforts by the central bank to tighten monetary policy alone were not sufficient to curb rising prices.
“When inflation was very high, we said that you cannot manage inflation only with monetary policy. So we saw the central bank increasing policy rates, but inflation was still going up,” he said.
According to him, fiscal decisions at the time, including the introduction of new taxes and cost pressures on businesses, were also contributing to higher production costs, making it difficult for inflation to ease.
“Fiscal policy has a role too because it affects the cost of production, so they were introducing new taxes, new costs for businesses, so it was difficult for inflation to come down,” he noted.
Mr Badu Aboagye said the situation has now improved due to what he described as stronger coordination between fiscal and monetary authorities, which he believes has supported the recent drop in inflation.
He warned, however, that sustaining the gains will require continued policy alignment, citing fuel pricing as a key example of how fiscal decisions can directly influence inflation trends.
“To sustain the level of inflation we have at 3.2, the fiscal is very key,” he said, adding that without coordinated action on fuel pricing, inflationary gains could easily be reversed.
“If you had allowed fuel prices to stay where they are, all of us would have been buying fuel at GHS20 per litre and that would have pushed inflation to a higher level. All the gains we have made would have been reversed and nothing would have been achieved,” he said.
He stressed that maintaining strong coordination between fiscal and monetary authorities is essential if Ghana is to sustain recent macroeconomic gains.
Fiscal policy and monetary policy are both tools used to manage a country’s economy, but they are handled by different authorities and work in different ways.
Fiscal policy is controlled by the government, mainly through the Ministry of Finance. It deals with government spending and taxation. When the government increases spending on infrastructure, education, or health, or adjusts taxes, it is using fiscal policy. Its main aim is to influence economic activity directly—such as creating jobs, supporting businesses, or reducing inequality. However, these decisions can also affect inflation and production costs, depending on whether taxes go up or down and how much the government spends.
Monetary policy, on the other hand, is managed by the central bank—in Ghana’s case, the Bank of Ghana. It focuses on controlling money supply, interest rates, and inflation. For example, when the central bank raises interest rates, borrowing becomes more expensive, which can reduce spending and help bring inflation down. When it lowers rates, borrowing becomes cheaper, encouraging investment and consumption.
In simple terms: fiscal policy is about government money decisions (taxes and spending), while monetary policy is about controlling money flow and interest rates in the economy.
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