"Do not rush to replace the cedi with an ECO" – Economists

General News of Saturday, July 6, 2019

Source: Graphic.com.gh

2019-07-06

Ghana should strive to meet a set of economic prescriptions necessary for the adoption of the ECO, the currency guaranteed by ECOWAS, but is slowly ceding to exchange the cedi with the new currency, some economists warned.

They felt that it was important for Ghana to put in place strong economic protection mechanisms in the form of sustainable fiscal discipline in order to withstand the shocks generated by the use of financial instruments. a common currency.

As Ghana is inconsistent in maintaining fiscal discipline and therefore does not meet the criteria required for the adoption of the common currency, Professor Peter Quartey of the Institute for Statistical, Social and Economic Research (ISSER ) and Dr. Said Boakye of the Institute of Tax Studies (IFS) agreed in separate interviews that the adoption of ECO at any time in the short term would mean that the country was doing so on a weak economic basis.

One of the negative consequences could be the suffering of the repercussions of the mismanagement of a member country's economy.

2020 deadline

Both economists spoke to the Daily Graphic following the adoption of the ECO as a common currency for the region by the Authority of Heads of State and Government of the Economic Community of West African States (ECOWAS) on June 29, 2019 in Abuja, Nigeria. after an ECOWAS summit.

The currency must begin to circulate in member countries that met a criterion in January 2020.

Criteria are a budget deficit of no more than 3% of gross domestic product (GDP), average annual inflation not exceeding 10% and gross international reserves representing at least three months of import coverage that have eluded the 15 member countries. country since 2000.

The reports

Designed in 2000, the ECO was to be operational in English-speaking West Africa in 2003, but was postponed four times in 2005, 2010, 2014 and 2015 due to persistent fiscal slippages in the region and a weak political commitment to the cause.

At the ECOWAS summit on June 29 this year, leaders agreed that the previous plan to adopt the ECO in all member countries in 2020 would be maintained and that they would pursue the implementation of ECOs. A plan to help members meet the required criteria.

But the new date may also suffer from a problem, experts say.

In a 2016 report on the ECO, the African Development Bank (AfDB) said it was "likely that the 2020 deadline" is also postponed.

Economics of anchoring

Professor Quartey pointed out that the absence of an "anchor economy" in the region could be the cause of the delay in the adoption of the common currency.

Quoting the euro used by member countries of the European Union (EU) for example, Professor Quartey said that Germany was using its strong economy and its weight at the same time. 39 to play the role of "big brother and prefect of clbad" in the period before the adoption of this currency in 1999.

When asked if Ghana should aspire to play the role of "prefect of clbad", the economics professor said the country should rather be interested in complying with the criteria.

"We should strive to achieve this goal and if, after we are anchored, it is good," he said.

About Ghana's membership in the ECO in 2021, Professor Quartey said that "we can not say a yes or no. "When we meet and evaluate the macroeconomic structures of other countries and that these are good and stable, we can join together.

But by 2021, if the majority of them are struggling with their macros, then I do not think we should join. "

He added that, while the benefits of a common currency were enormous, "they are not automatic; they come when certain conditions are met and that is why the convergence criteria have been defined. "

Speculative attacks

Boakye, a senior researcher at IFS, a tax policy think tank, said Ghana should strive to join the ECO to take advantage of the increased stability of trade and the currency. .

"Because different countries are putting their GDP at stake, speculative attacks in some countries may not be as useful," he added.

Boakye said the CEO's criteria were superior to Ghana's budget targets, hence the need for the country to work hard to comply.

The Financial Accountability Act limits the budget deficit to 5% of GDP, which is higher than the ECO requirement of 3% maximum of GDP for member countries.

Boakye also advised the government to look for "bad actors" in member countries that had mismanaged their economies before adopting ECO.

These countries, he said, tend to nullify the gains of a monetary union.