- There is the need to shift the conversation from ‘who is to blame?’ to ‘how do we fix the problem?’. Albert Einstein, one of the finest brains ever to live, once remarked, “we can’t solve our problems at the same levels we created them”.
- I am not by any stretch telling the authorities what to do. I want to reiterate what a “good” lawyer Cher Cher, told the Chief Justice (CJ) recently, ‘’he is not one of those lawyers, who want to believe they are better than or could reason more than the 9 justices of the Supreme Court’’. As the saying goes facts are sacred and there must be and there is only one version of the truth, but there could be various opinions as perspectives differ.
Controlling the lending rates in Ghana – Some “experts” are advocating for a price control or fixing the lending rates by the BoG. Our ‘experts’ must understand that, this would fail, as whenever or wherever there are price controls – thus disturbing the natural allocation of resources through market forces, behavioural finance or economics studies would tell you, the market participants would circumvent the rules – the controlled price. A parallel market or a ‘black market; would emerge or spring up. The Kenyan Central bankers failed at this in 2016, when the central bank fixed the lending rates. The bankers decided not lend to the MSMEs as in Africa unfortunately, this is critical market segment needing financing but sadly is also the sub-prime segment, and the risk premium needs to reflect in risk-based pricing of credit. Don’t forget in Ghana, prior to the introduction of forex bureaux operations in 1990, there was a vibrant ‘black market’ for forex trading, largely due to controlled FX rates regimes – window 1 for banking business and government transactions and window 2 for the rest of the country. So let’s drop that route as we do not want to go back to ‘windows’ in the lending space.
- Deal with inflation first: From a practitioner’s point of view, the high interest rate is driven primarily by the rate of inflation and expected inflation in Ghana. The policy stance of the central Bank of Ghana, which is incidentally charged with the maintaining of price stability in Ghana, is through the adoption of “inflation targeting” [MPC framework on the BoG website]. May I ask and standing to be corrected, when last was there a review of this policy measure in Ghana and any lessons learnt? Is the central banker going to take this challenge and inform the listen public of a review of this policy [inflation targeting] measure since its inception in 2007 and any review documents on the success or otherwise of “inflation targeting in Ghana”?
In my humble opinion, the medium-term target of 8+/-2% inflation rate; should be reset to 3+/-2%. Ghana has seen a 1.14% inflation rate in past (may 1985) so do not say it is not possible. The South African Reserve Bank has a range of 3-6% currently in their inflation targeting policy, so yes we can as a country. However, given the various literature or writings -Addison E A, Kwakye JK, Aryeetey E N on “inflation in Ghana”, the “imported” and the food inflation will be the biggest challenge to fix in the ‘sources of inflation’ in Ghana. This imported inflation ??? how is Ghana going to fix this as the average Ghanaian has a ‘sweet taste’ for imported goods – from China, Turkey, Dubai, the UK and USA. The food inflation or the CPI is driven off fuel prices. The fuel prices generally in Ghana, is sticky downwards and only more oil finds could fix the fuel impact. With a hold on inflation, the interest rate could be lowered considerably. If we set new objectives of bringing inflation down, and work towards attaining it.
- The Treasury Bill Rates – The next suggestion is to drive downward the treasury bill rates to be in line with lower inflation (given the new target range suggested above – 3+/-2%). Government borrowing could be at a much lower rate as happened in Tanzania in the early 2000s, where the government dropped its treasury rates overnight. This is possible government re-profile its debts with sustainable rates for the refinancing of maturing debts. Government Treasury Rates of under 9% would be ideal and thus compel suppliers of funds – the SSNITs, the Asset & Fund managers and Insurers to rethink their asking price or rates for deposits. Ghana had the lowest 91-day treasury bills rates of 5.25% in Jan 73-May 74 and also in Dec74-Aug 75. This measure would work any day but the rates must be realistic and possibly above inflation.
- The default rates and Cost/Time of Recoveries – the general populace must develop the attitude of repayment of loans. There is currently an ongoing phenomenon of default on mobile money loans (yet to be quantified ratio). Some Ghanaian take the loan and clearly with the intention of not paying back and thus resort to changing their numbers. This is dishonesty to say it mildly. On Corporate Ghana, we know the No- Performing Loans (NPL) ratio is in the highs of 14%. Businesses must honour their loans obligations as the funds advanced are depositors funds and not for the financial institutions, as unfortunately, some think. This was part of the liquidity challenges that led to the failure of some financial institutions in the 2018/2019 Ghanaian Financial Crisis.
The way out of this high incidence of defaults is to shorten the time for legal trials – on average, a default trial from pre-trial to execution is over 4 years and the financial institutions are paying the depositors interest on their deposits and also paying for the legal fees. If we as a country could fix the presidential elections petition in less than 180 days, then we should be able to fix the defaults in the same time of under 180 days under special courts for financial institutions.
In addition to the above, some owners of businesses, directors and individuals who ‘specialize’ in defaults should be criminalized. The ‘revision’ of the criminal code should have a section on this criminalizing default to curtail the ‘unbelievable’ saying, it is my company that owes and not the individual or the owner.
The throwback is who signed the loan documents? Is the company or an individual? Until there is a heavy price to pay, some individuals, directors and business people will push the envelope.
With policy coordination, and within an 18 months period of a monetary policy transmission mechanism framework in Ghana, these efforts will bring us to lower lending interest rates in Ghana.
Conclusions
In certain countries like Japan, Switzerland in the Eurozone, the USA, the benchmark interest rates are zero or near zero, not to mention the negative interest rates in other parts of Europe.
These interest rates defile logic in finance/economics and let’s hope Ghana gets this ‘nice problem to solve’ in the near future as José Mourinho, the Portuguese trainers once remark, there are ‘nice problems to have’ in soccer for managers when there is the dilemma of which player to use when the starting eleven and the bench are equally good to deliver any day.
Till we come asking more questions on the “e-cedi”, which is in pilot mode, let’s keep the flame alive.
