Economists decry high interest rates, call for way out
Speakers at a forum on the cost of credit have decried the high interest rate charged by commercial banks, saying it was killing industries and stifling growth.
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Trade Minister Ekwow Spio-Garbrah, renowned economist, Mr Kwame Pianim, and a senior economist at the Institute of Economic Affairs (IEA), Dr J.K. Kwakye, all said high interest rate was a major disincentive for doing business.
The forum, a collaboration between the Ministry of Trade and the IEA, deliberated on the high cost of financial services in the country and was on the theme “the high cost of credit: implications for Ghana and the way forward”.
Dr Spio-Garbrah said the situation where between 30 and 50 per cent of some companies’ revenues go into interest payments and bank charges was killing businesses.
“There must be a way out of this, if industries in Ghana are to survive to allow Ghana’s industrialisation policy and national export drive to succeed,” he stressed.
Ghana, he said, was trying to become one of the lowest cost centres in Africa for business, especially for manufacturing and industry and desired to be ranked high as an attractive destination with regard to the cost of doing business as compared to other African countries.
“But these cannot be achieved, if the cost of credit, whether for domestic manufacturing or for foreign businesses operating in Ghana is very high,” he pointed out.
Kwame Pianim
When it got to his turn, Mr Kwame Pianim tasked the government to fix the ailing economy because it was killing the country’s industries.
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He said high interest rate hovering around 31 per cent was adversely affecting companies because it affected profit margins.
He said the development was making it difficult for companies to expand, adding that once the economy became stabilised, businesses could widen their scope.
Laying the blame on the government, Mr Pianim said “high cost of credit is bad economic management because it doesn’t lead to growth… We woke up one day and the cedi had depreciated significantly. We need to take care of the micro economy, ensure good management and government fiscal loan and then the cost of credit will come down,” he said.
Dr J. K Kwakye
Dr Kwakye, for his part, also blamed commercial banks, the Bank of Ghana (BoG), the government, as well as borrowers for the high interest rates in the country.
He attributed this to research conducted by the Institute of Economic Affairs (IEA).
“I am not leaving anybody out the government, borrowers, banks, regulators are all partly to be blamed for the high rates,” Dr Kwakye said.
However, a researcher with the Institute of Statistical Social and Economic Research (ISSER), Dr Charles Ackah, held a different opinion. In his view, the situation had arisen due to poor regulation by the Bank of Ghana.
Background
The cost of credit in Ghana has been persistently high for the past two decades. Interest rates in most parts of Europe and North America are currently between zero – five per cent.
However, average lending rate of banks in the country hovers around 30 per cent, while that of microfinance institutions is around 70 per cent.