Shift from Inflation Targeting to Nominal GDP Targeting – Prof. Yusif Urges BoG

Professor Mohammed Hadrat Yusif, an economist at the Kwame Nkrumah University of Science and Technology (KNUST), is calling on the Bank of Ghana (BoG) to consider a shift from its current inflation-targeting framework to Nominal GDP targeting as the primary rule guiding monetary policy.

Delivering his inaugural professorial lecture on the theme “Monetary Policy in Ghana: Revisiting the Tobin’s Model”, Prof. Yusif explained that Nominal GDP targeting sets a growth target for the overall economy in nominal terms—that is, real economic growth plus inflation.

“If financial discipline is ensured, nominal GDP targeting can help boost real growth, stabilize the job market, and strengthen the financial system,” he noted.

Prof. Yusif noted that although the Bank of Ghana (BoG) was established in 1957 to ensure price stability, manage exchange rates, and regulate the money supply, the country continues to grapple with persistent economic challenges.

He pointed to the sharp rise in public debt as a clear indicator of policy shortcomings. According to him, domestic debt increased from 35% of GDP in 2016 to 90% in 2024, while external debt rose from 20% to 50% over the same period.

In addition, Ghana’s inflation rate stood at 22.5% in 2024, in stark contrast to inflation levels below 2.5% in countries like South Korea, Malaysia, and Singapore.

These trends have cast doubt on the effectiveness of Ghana’s inflation-targeting framework, which many critics say has failed to deliver the promised price stability. This may partly explain why the current BoG Governor is considering reforms to the country’s monetary policy approach.

What’s the Difference?

Currently, Ghana’s monetary policy is focused on inflation targeting—where the central bank aims to keep inflation within a set range. While this helps keep prices stable, it often ignores real economic growth during shocks.

Nominal GDP targeting, on the other hand, allows for a more balanced approach, giving equal attention to economic growth and price stability. For instance, in times of an economic slowdown, this model allows inflation to rise slightly if it helps boost growth, providing more flexibility for the central bank to respond to changing economic conditions.

Stronger Research Partnerships Needed

Prof. Yusif also called for closer collaboration between the BoG and academic institutions, such as KNUST, to improve the quality and effectiveness of monetary policy. He emphasized the need for research that focuses on understanding the drivers of economic growth, the transmission mechanisms of monetary policy, and the efficacy of current tools.

“A strong research partnership between the Bank of Ghana and universities like KNUST is not just desirable—it is necessary,” he stressed.

A Broader Economic Vision

In reviewing Ghana’s economic journey compared to peers like South Korea, Malaysia, and Mexico, Prof. Yusif noted that Ghana has lagged due to persistent macroeconomic instability, high inflation, and unsustainable public debt.

He recommended a review of key fiscal laws, including the Fiscal Responsibility Act, 2018 (Act 982) and the Bank of Ghana Act, 2002 (Act 612), which have failed to enforce fiscal discipline. He suggested Ghana look to Norway and Sweden as models for transparency, accountability, and responsible fiscal management.

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