By Samuel Lartey(Prof)
Ghana’s ongoing short-term debt auction practices, such as the February 16, 2024 auction that raised GH₵9.43 billion, thus 119% above the GH₵8.06 billion target—reflect robust market confidence.
However, the implications of these auctions stretch far beyond fiscal figures. Behind the numbers lies a complex narrative of economic strain on businesses, workers, and investors, with significant consequences for Ghana’s financial ecosystem, business sustainability, and the health and well-being of key stakeholders.
The pains and pleasures of Ghanaian financial services and banking practices:
Ghanaian banks prioritize investing in government securities for their security and guaranteed returns, ensuring stable profits and bolstered balance sheets. However, this cautious approach results in reduced lending to businesses, particularly small and medium enterprises (SMEs), which are vital for economic growth and job creation. The crowding-out effect stifles entrepreneurship, limits access to affordable credit, and slows down industrial innovation.
Additionally, restricted private-sector growth leads to higher unemployment rates and decreased socioeconomic mobility, ultimately weakening consumer spending and economic diversification. While banks enjoy consistent returns with minimal risk, the broader Ghanaian population faces reduced opportunities for financial inclusion, business growth, and sustainable development.
Impact on the Ghanaian economy and business
Sustainability:
The GH₵9.43 billion raised enabled the government to cover GH₵7.5 billion in maturing bills, but the rejection of GH₵8.26 billion in bids reflects concerns over borrowing costs. This reliance on short-term debt tightens liquidity, impacting private-sector borrowing.
Bank of Ghana data shows private sector credit growth dropped from 10.4% in December 2023 to 7.8% in January 2024. SMEs, which drive 70% of employment, struggle with higher interest rates, resulting in slowed industrial growth and a 14.7% unemployment rate (Ghana Statistical Service, Q4 2023). Business closures and reduced expansions weaken productivity and economic diversification, risking long-term financial stability.
Effects on workers, business owners, and investors:
The crowding-out effect creates ripples in the labor market, intensifying stress and burnout as workers face job losses, stagnant wages, and reduced benefits. Business owners contend with mounting debt and reduced profit margins, leading to anxiety and strained relationships with employees, suppliers, and investors. Investor confidence wanes as concerns over private sector shrinkage and limited innovation surface, potentially discouraging Foreign Direct Investment (FDI).
Lifestyle, productivity, and social relationships:
The financial strain from restricted business growth impacts workers’ lifestyles and mental well-being. Longer hours, low morale, and reduced leisure time erode productivity and family dynamics. Increased cases of workplace absenteeism and chronic health issues highlight the far-reaching social consequences of limited private sector growth.
Conclusion:
Ghana’s short-term debt auctions, while solving immediate fiscal needs, compromise broader economic and social health. To ensure long-term sustainability, the government must implement blended finance schemes and incentivize banks to increase private sector lending.
Addressing the health and well-being of employees and business owners is critical, as their productivity drives economic recovery. Ghana’s path forward requires a holistic approach, balancing fiscal health with private sector vitality and societal well-being.
