Dr. Augustine Fritz Gockel of the Department Of Economics, University Of Ghana, Legon, has said that if monthly inflation continues at this pace, 12-month inflation could climb back to about 17% to 20% by December this year.

Dr. Gockel said this at a Workshop On Improved Economic & Financial Reportage in Accra last Friday on the theme "Half-Year Performance Of The Economy."

He said that the monthly inflation rates averaged 1.4% in the first eight months of 2004, adding that the headline inflation dropped from its January 2004 level of 22.4% to 11.3% in February, and to 10.5% by the end of March 2004.

This deceleration trend, according to the lecturer, has reversed in April with an inflation rate of 11.2%. "For May 2004, the reported inflation is also 11.2%".

June Inflation was at 11.9%. He disclosed that July and August inflation rates were reported to be 12.4% and 12.9% respectively.

"Indications are that the acceleration may continue."

However, Dr. Gockel said some of the reasons for lower inflation this year had been the impact of the steep fuel price rise in February 2003 working its way out of the 12-month inflation data and the lower food price inflation (down from 25% in June 2003). The stability in the nominal exchange rate was also seen as a contributory factor.

The nominal exchange rate was relatively stable in the first half of 2004, depreciating by 2% against the dollar. On a year-to-year basis to July 2004, the cedi depreciated by 3.8% against the dollar.

A stable exchange rate was supported by strong private inward remittances & debt relief, which offset a widening trade deficit.

The relative stability of the cedi against the dollar helped to dampen inflation because it held down the domestic cost of imports denominated in dollars but possibly making Non Traditional Exports less competitive.

Touching on Fiscal Revenues, he said the provisional data from January through July of 2004 suggested that total receipts amounted to ?12,096.4 billion, about 5.9% above its programmed level.

The increased total receipts reflect improved domestic revenue mobilisation and HIPC assistance.

Fiscal expenditure saw a total payment for the same period amounting to ?12,027.3 billion, about 5.8 % above the projected estimate of ?11,368.1 billion.

One of the main expenditure items responsible for the breach of the total payments limit was wages & salaries and pensions which exceeded its budgeted level of ?3,615.7 billion by about ?579.9 billion.

He, however, said total capital expenditure fell short of target. Capital expenditure for the first half of the year amounted to ?2,240.7 billion, compared with a target of ?2,712.1 billion.

The adjustment downward of capital expenditure reflected in both the foreign and domestic financed components.

The resource gap of ?1,418.4 billion created, together with a net foreign repayment of ?12 billion were financed from the domestic economy.

Net domestic financing at the end of June 2004 stood at ?1,431.1 billion (1.8% of GDP) compared with programme level of ?538.0 billion (0.7% of GDP).

This increase in net domestic financing was, however, reversed by resource inflows (tax revenue and donor inflows) in July, including World Bank support of $125 million (after Ghana reached the Completion Point under the HIPC Initiative).

He said there were lots of parastatal losses, and intimated that the failure to raise fuel prices to cost recovery levels in 2004 costs TOR at least $10 million per month and the cost of TOR's losses are eventually borne by the budget.

"Government is committed to deregulating the fuel market by February 2005, but may retain influence over prices."

Dr. Gockel further said Government was also subsidising VRA ($40 million in H1 2004). As well, government has taken over Ghana Airways operations and is ultimately liable for its debt of $160 million.

Ghana Commercial Bank is kept afloat, primarily, by the large interest rate spread and the consequent interest income, not to mention the sale of VALCO.