The first half of 2009 witnessed considerable uncertainty following from the large macroeconomic imbalances of election year 2008, coming on top of the weakening fundamentals of two years of fiscal indiscipline and monetary accommodation. These were manifested in exchange rate expectations, inflation and inflationary expectations and general macroeconomic uncertainty in spite of the promise of a more stringent fiscal stance contained in the 2009 budget. It may be worth noting, that having lost any credibility as inflation fighter over the course of the preceding three years, the monetary targets in the Budget Statement carried no weight. As a result, the first quarter performance could be characterized as following a "business as usual" policy, namely a continuation of trends of the last three years.

Following discussions with the World Bank and subsequently the International Monetary Fund (IMF), a comprehensive policy framework was agreed which maintained some key parameters of fiscal policy in the 2009 budget but had a more coherent and tougher monetary policy stance. Moreover, the programme was supported by resources of both the World Bank and the IMF. This marked the return of the IMF to support the policy framework since the troubled Poverty Reduction and Growth Facility (PRGF) 2003-2005 Arrangement - the successor to the failed PRGF (1999-2002) Arrangement - which, after several waivers, was completed eight months later than scheduled in October 2006.

The Press Release of the Monetary Policy Committee (MPC) of the Bank of Ghana of July 21, 2009 reported in paragraph 9 as follows:

"The June survey shows further softening of business and consumer sentiments along with mixed signals of inflation and exchange rate expectations.....businesses and consumers are less optimistic about the prospects of the economy, suggesting that both businesses and consumers have already factored in the slowdown in economic activity in forming expectations."

The Bank of Ghana's Composite Index of Economic Activity (CIEA) grew "well below the trend growth rate" in the first half of the year, and in real terms "the index declined by 2.2 percent compared with growth rates of 25.6 percent and 17.5 percent respectively, for 2008 and 2007."

The MPC report identified the major sectors driving the slowdown as:

cement sales - an indicator of developments in construction - which decreased by about 28.5 percent in year-on-year terms;

tourist arrivals - an indicator of the impact of the global recession;

domestic VAT - an indication of low consumption levels; and

industrial consumption of electricity - an indicator of scale of industrial production - which recorded a decline, albeit marginal, during the period.

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