Bank of Ghana’s Monetary Policy Committee (MPC) is highly concerned about the declining growth in lending to the private sector from banks, mainly due to their preference to lend to government.
The MPC is worried that if that trend persists, it could affect economic recovery plans, post-COVID-19.
Data from the Summary of Economic and Financial report (July 2021) published by the central bank shows gross advances recorded annual growth of 5.7 percent, relative to 15.7 percent growth in the same period of 2020.
Again, annual nominal growth in private sector credit also slowed to 6.8 percent in June 2021 compared with 14.2 percent in the corresponding period of 2020. . In real terms, private sector credit contracted marginally by 1 percent compared to 2.8 percent growth a year earlier.
The highest growth in credit to the private sector this year has been a paltry 0.2 percent.
The data further indicates that government’s borrowing in the domestic market increased to GH¢170.8 billion in May 2021 from GH¢120.8 billion same period previous year.
Even though the central bank admits heightened credit risk associated with the pandemic could be a factor influencing banks to tread cautiously, it further notes that banks are taking advantage of the excessive borrowing by government from the domestic market, to crowd out the private sector.
This development, the committee fears, will have negative consequences on the economy, especially at time businesses need financial injection to recover from the economic ravages of COVID.
The Committee is also concerned about the continued sluggishness in new lending by banks which could undermine the growth momentum.
This slow growth in lending reflects increased credit risks on account of uncertainties in the business environment due to the impact of Covid-19 pandemic on the real sector, coupled with very high yields offered on government securities due to increased government borrowing, the MPC notes.
“This crowding-out effect continues to keep the credit to GDP gap below the long-term trend, and is likely to delay recovery of the economy and discourage banks from strengthening their credit underwriting processes to manage credit risks from lending to underserved sectors of the economy”.
MPC believes the rising Non-Performing Loans (NPLs) somehow gives banks a justification for their preference of risk-free loans to lending to the private sector which has a heightened risk of ending up as bad debt.
Improving on NTEs to take advantage of AfCFTA
Deputy Minister for Trade and Industry, Herbert Krapa, has expressed the hope that the current volumes of non-traditional exports will increase to US$25 billion from the current US$2.5 billion by 2030.
The move is being powered through the National Export Development Strategy (NEDS) which aims to achieve substantial increase in the manufactured goods and services component of Ghana’s exports to attain a projected revenue of at least US$25.3 by 2029.
Currently, earnings for Non-Traditional Exports hover around US$2.5billion and this has been the case in the last 5 years, growing at an average rate of 2.97 percent.
Mr. Krapa made the disclosure during a tour of Golden Exotics Limited (GEL), one of the largest organic banana farms, at Asutuare in the Shai Osudoku District of the Greater Accra Region, recently.
GEL produces high-quality bananas in strict conformity to European Union (EU) standards and employs over 3,000 Ghanaians located on a surface area of over 8,600 hectares. GEL is Fair Trade certified and produces 50,000 tonnes of bananas, and 10,000 tonnes of pineapples annually; making it the largest exporter of bananas and pineapples in the country.
Ghana needs to achieve a competitive export-led industrialised economy to fully benefit from trade agreements like AfCFTA, and we are pleased to learn that the Ghana Export Promotion Authority (GEPA) through NEDS, hopes to better the contribution of for Non-Traditional Exports to increase foreign exchange receipts.
The deputy Trade Minister’s tour sought to intensify stakeholder engagement to gather knowledge as to the challenges and support that would be needed to achieve such a goal.
The Ghana National Export Development Strategy (NEDS) envisages that over a duration of 10 years Non-Traditional Exports (NTEs) will grow from US$2.8 billion in 2020 to US$25.3 billion in 2029 accompanied by deep structural transformation that positions Ghana as a competitive export-led industrialized economy.
Ghana has historically exported mainly raw commodities which fetched low prices and insufficient foreign exchange revenues. With this new strategy, it is the aim to substantially increase export earnings through non-traditional exports like horticultural products and other agro-based semi-finished and finished products.