Move the market system from crippling top rates of interest to improve companies – Otumfuo urges BoG Governor – Life Pulse Daily

Introduction

In a powerful call for economic reform, Otumfuo Osei Tutu II, the Asantehene, has urged the Bank of Ghana (BoG) to take decisive action to lower interest rates and make credit more accessible to businesses across the country. Speaking after a high-level meeting with the central bank, the traditional ruler emphasized that while recent declines in borrowing costs are a positive sign, more must be done to translate macroeconomic stability into tangible business growth and job creation. His remarks underscore a critical juncture for Ghana’s economy, where monetary policy can either act as a brake or an accelerator for private sector development.

Why This Matters for Ghana’s Economy

The Asantehene’s intervention highlights a growing consensus among business leaders and economists: high interest rates are stifling entrepreneurship, particularly among small and medium-sized enterprises (SMEs), which are the backbone of job creation and inclusive growth. By advocating for a shift from a “crippling high-interest regime” to one that stimulates enterprise, Otumfuo Osei Tutu II is calling for a fundamental reorientation of financial policy to prioritize real economic activity over short-term financial stability metrics.

Key Points

Background

Ghana’s Interest Rate History and Economic Challenges

Ghana has experienced periods of high inflation and currency depreciation, leading the Bank of Ghana to adopt tight monetary policies, including high policy rates. While these measures have helped stabilize the cedi and bring inflation under control, they have also made borrowing prohibitively expensive for many businesses. The real lending rates—interest rates adjusted for inflation—have often remained negative or barely positive, discouraging savings and investment.

The Role of the Asantehene in National Discourse

Otumfuo Osei Tutu II is not only a traditional ruler but also a respected voice in national economic and social matters. His interventions often carry significant weight, bridging traditional authority with modern governance. By addressing the Bank of Ghana directly, he underscores the urgency of aligning monetary policy with the needs of the real economy.

SMEs: The Engine of Growth Under Strain

Small and medium-sized enterprises account for a significant portion of employment and GDP in Ghana. However, access to affordable credit remains a major constraint. High interest rates increase the cost of capital, reduce profit margins, and discourage new business formation. This creates a cycle where limited credit access hampers growth, which in turn limits the ability of businesses to generate the revenue needed to service debt.

Analysis

The Impact of High Interest Rates on Business

High borrowing costs have a cascading effect on the economy:

• Reduced Investment: Businesses delay or cancel expansion plans due to high financing costs.
• Lower Profitability: Interest expenses eat into profits, reducing funds available for reinvestment.
• Job Creation Stagnation: Without expansion, businesses cannot hire new workers, contributing to high unemployment.
• Increased Risk of Default: High rates increase the likelihood of loan defaults, especially among SMEs with limited cash flow.

The Central Bank’s Dilemma

The Bank of Ghana faces a delicate balancing act. On one hand, it must maintain price stability and protect the value of the cedi. On the other, it needs to support economic growth by ensuring credit is accessible. The Asantehene’s call reflects a growing demand for the central bank to prioritize growth without compromising its inflation-fighting credibility.

The Case for Pro-Growth Monetary Policy

A shift toward lower interest rates can stimulate the economy through several channels:

• Increased Business Investment: Lower borrowing costs encourage firms to invest in equipment, technology, and expansion.
• Boosted Consumer Spending: Cheaper loans for individuals can increase demand for goods and services.
• Enhanced Competitiveness: Businesses can invest in efficiency and innovation, improving their competitive edge.
• Job Creation: Expansion leads to hiring, reducing unemployment and increasing household incomes.

International Perspectives

Many emerging economies have successfully used accommodative monetary policies to spur growth after periods of stabilization. For example, countries like India and South Africa have adjusted policy rates to support private sector investment while maintaining macroeconomic stability. Ghana can learn from these experiences to design a balanced approach.

Practical Advice

For the Bank of Ghana

• Gradual Rate Cuts: Implement a phased reduction in the policy rate to avoid sudden shocks to the financial system.
• Targeted Lending Programs: Introduce or expand credit guarantee schemes for SMEs to reduce perceived risk for banks.
• Enhanced Communication: Clearly communicate the rationale for rate adjustments to maintain market confidence.
• Monitor Inflation Closely: Ensure that rate cuts do not reignite inflationary pressures.

For the Government

• Fiscal Discipline: Maintain responsible fiscal policies to support the central bank’s efforts.
• Improve the Business Environment: Reduce bureaucracy, improve infrastructure, and ensure the rule of law to attract investment.
• Support SMEs Directly: Provide grants, tax incentives, and training programs to enhance business capacity.
• Strengthen Financial Inclusion: Expand access to banking services in rural and underserved areas.

For Businesses

• Improve Financial Literacy: Understand the implications of interest rates and manage debt wisely.
• Strengthen Business Plans: Develop solid proposals to increase chances of securing loans at favorable rates.
• Explore Alternative Financing: Consider microfinance, cooperatives, or digital lending platforms.
• Build Credit History: Maintain good financial records to establish credibility with lenders.

For Citizens

• Support Local Businesses: Patronize SMEs to boost demand and encourage investment.
• Engage in Financial Planning: Save and invest wisely, taking advantage of lower rates when available.
• Stay Informed: Follow economic developments to make better financial decisions.

FAQ

Conclusion

The Asantehene’s call for the Bank of Ghana to move the market system from a crippling high-interest regime to one that stimulates business and employment is both timely and necessary. While macroeconomic stability is essential, it must serve the broader goal of improving the lives of citizens through job creation and business growth. A balanced approach that combines prudent monetary policy with targeted support for the private sector can unlock Ghana’s economic potential. The central bank, government, and private sector must collaborate to ensure that financial stability translates into real economic progress. By making credit more accessible and affordable, Ghana can empower its entrepreneurs, boost productivity, and build a more resilient and inclusive economy.