Editorial: Emerging global risks makes it imperative to remain vigilant policy-wise!

Policymakers are being urged to remain vigilant and direct economic strategies in response to emerging global risks.

the IMF’s latest World Economic Report highlights that the global economic outlook remains fragile despite promising signs of recovery. Key risks, such as regional conflicts, climate shocks and migration slowdowns require urgent action.

Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the IMF, emphasised that “policymakers need to shift gears” in a coordinated approach to address evolving challenges.

He outlined a ‘triple pivot’ policy that aims to safeguard global growth and mitigate downside risks.

To mitigate these risks, the IMF proposes three critical policy pivots – monetary, fiscal and growth financing reforms – that could strengthen the global economy.

The decline in inflation has opened the door for central banks to begin easing policies, which could relieve some pressure on emerging markets. However, he cautioned that vigilance is necessary, particularly in sectors like services where inflation remains persistent.

The second pivot focuses on fiscal policy, noting the need for governments to stabilise debt levels and rebuild fiscal buffers.

In this context, Ghana’s performance has been a bright spot. Despite global challenges, the country’s fiscal measures and debt management strategies amid an IMF programme have been largely effective.

That notwithstanding, the IMF urges continued caution; recommending that Ghana and similar economies remain committed to multi-year fiscal adjustments to avoid destabilising shocks.

The third pivot focuses on growth-financing reforms.

Mr. Gourinchas stated that while some nations have implemented industrial and trade policies aimed at protecting local industries, these measures are often short-lived and fail to deliver sustained improvements in standards of living.

Instead, the IMF encourages ambitious domestic reforms that boost innovation, human capital and competition.

“Growth must come from reforms that foster innovation and improve resource allocation,” he noted.

In September, the Bank of Ghana reduced its Monetary Policy Rate by 200 basis points to 27 percent, citing improvements in the country’s macroeconomic conditions. However, the Bank has now revised its year-end inflation target to 18 percent – citing upside risks including some geopolitical developments.

Notwithstanding, a surprise uptick – which saw inflation reach 21.5 percent in September 2024, up from 20.4 percent in August – prompted suggestions that the apex bank might have been hasty with its reduction.

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