Governor Addison cites poor fiscal consolidation as a factor to high lending rates in Ghana
Governor of the Central Bank, Dr Ernest Addison has mentioned the country’s poor fiscal position and consolidation process as one of the numerous factors for the high lending rates in the country.
The Governor asserts that the disparity in the country’s revenue and expenditure, forces government to borrow from banks, leading to a crowding out of the private sector and the prevalence of high-interest rates.
Dr Addison is of the view that improved fiscal consolidation will help reduce the cost of credit in the country.
“If you look at the macro side, one of the problems we have is the strong demand from the side of the budget. If we were seeing greater fiscal consolidation, you would expect that lending rates will also follow. I use the example of country’s that run balanced budgets. Currently, the banks are holding GH¢ 80 billion in government bonds. If Ghana’s revenues were equal to its expenditures, where do you think that money will be and what do you think will happen to interest rates in that context.”
“So the issue of fiscal consolidation is also very key in addressing this issue of the high lending rates. We are working at it, government is doing its part by trying to reduce the budget deficit. It’s not easy, but work is being done,” he said.
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Data from the BoG’s Summary of Economic and Financial data for the month of September shows that average lending rates have dropped from about 31 percent in 2016 to about 21 percent in 2021.
But despite the improvement in the cost of credit in Ghana over the years, businesses in other African countries enjoy cheaper lending rates.
A research conducted by International advisory firm, Konfidants showed that cost of credit is one of Ghana’s weakest points.
According to the research the country ranks at the bottom of the list when compared to the top African exporters.
The 14.5% policy interest rate in Ghana as of January 2021 was double the African average of 7%, and also compared unfavourably to 1.5% in Morocco, 3.5% in South Africa, 4.5% in Côte d’Ivoire.
