T-bill rates partly responsible for high cost of lending – Dr. Stephen Amoah

Dr. Stephen Amoah
  • Calls for reevaluation of pricing model of risky assets

Member of Parliament for Nhyiaeso Constituency, Dr. Stephen Amoah, has called for re-evaluation of the pricing model for government short-term bills, saying the high rates they offer are among the reasons cost of lending is so expensive.

He said for wider government policies to yield lasting results, there is need to address “a major financial economic anomaly” by re-evaluating the broad pricing framework of risky assets in the country while taking peculiar nuances of the Ghanaian context into consideration.

According to the lawmaker, the current framework is partly responsible for the comparatively high rate of the 91-day Treasury bill, which is otherwise considered risk-free.

Investors typically consider the 91-day bill to be the safest short-term financial instrument because government is unlikely to default. Whereas in developed economies the rate is typically less than 2 percent, results of the Bank of Ghana’s Treasury securities auction held on June 10, 2022 revealed that the benchmark 91-day rate has inched up to 23.7 percent.

Speaking during the inaugural edition of the Financial Economic Seminar (FES), Dr. Amoah said the prevailing framework – which allows banks to offer, on average, less than half of the 91-day rate for their fixed deposit products – is injurious to businesses and the wider economy.

“How can we have a situation wherein since 2008 – on average – banks have offered about 11 percent on their fixed deposit products?” he lamented.

Calling on stakeholders to adopt a long-term outlook in addressing the issue, the MP who serves as a member on the Finance Committee of Parliament warned that failure to do so will lead to unintended consequences – including double-digit interest rates, inadequate funds for the private sector, extremely high cost of debt financing, as well as distortion of the Gross Domestic Product (GDP) figures.

Banks and GDP

According to Dr. Amoah, a wider effect of the current model is its potential to distort the true valuation of the banking sector, as investments are skewed toward lending to government, while private sector lending carries a premium that is not a proper reflection of the real economy.

He said this could have a material effect on computation of the nation’s GDP, and with it other GDP-dependent metrics.

“Once the figures are questionable, even our GDP figures become questionable; because if banks returns, in my opinion, are questionable, it affects their valuation – and the valuation of the banking system is an integral part of the GDP calculation anywhere, they are strongly correlated,” he explained.

Calling for enhanced synchronisation between monetary policy and fiscal policy, Dr. Amoah said despite the tremendous work done by the apex bank in guiding the sector, it might need to reconsider its inflation-targetting approach which, if not altered, will result in rates that are too high for the private sector and further drive inflation.

The maiden edition of FES, which was held under the theme ‘Identifying and Redefining the Economic Fundamentals of Developing Countries: Anomalies and Challenges – The Case of Ghana’, brought together leading figures in academia and industry, including Development Economist and former Rector of GIMPA, Professor Emeritus Stephen Adei as Chairman, and featured keynote remarks from the Ghana Investment Promotion Centre (GIPC).


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