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Nov
08

AH! SO THE GOVERNOR OF THE BANK OF GHANA DOES HAVE SLEEPLESS NIGHTS OVER HIGH INTEREST RATES?

AH! SO THE GOVERNOR OF THE BANK OF GHANA DOES HAVE SLEEPLESS  NIGHTS OVER  HIGH INTEREST RATES?
By CAMERON DUODU
It isn’t often that I smile when I read about what’s happening to my dear country. It is grimace after grimace that afflicts me.
Grimaces of both the physical and intellectual type. For all I see is to be evidence upon evidence that those who hold the country’s purse strings are unable to steer the economy in the direction of viability, to say nothing of actual growth.
That’s why I was pleasantly surprised to read that the Governor of the Bank of Ghana, Dr . Abdul-Nashiru Issahaku, had admitted to the Association of Ghana Industries at an awards ceremony recently that “the high cost of credit in Ghana is a major problem confronting the banking industry” and that he’s been having “sleepless nights over the situation.”

QUOTE: “He noted that the challenges that confront the Ghanaian industry are well known and the necessary steps are being taken to address them. Some of these challenges include currency instability, access to, and high credit. “I have sleepless nights over the high cost of credit and I can assure you that I am working very hard to ensure that the cost of credit comes down.”

“According to Dr. Issahaku, the Central Bank has the primary mandate of [ensuring] price stability, and it can only fulfill this mandate ‘through a healthy and resilient banking sector. If banks are strong and stable, they can transmit our policy decisions to you all.’ [he sad].

[He added:] “The essence of our work is not really the price stability, but to ensure that industries thrive,[that] businesses thrive, for the welfare of all Ghanaians to be improved.”

Industries have called on government to review the current interest rate, which hovers around 35 to 40 percent. UNQUOTE
So, if the Governor of the Bank of Ghana has been having “sleepless nights” over the high interest rates being charged by the banks in Ghana, what does he think industrialists and investors who are at the “coal-face” of the economy experience when they retire to bed at night?
Suppose one is operating a business and there is a shortfall in revenue which is affecting the purchase of badly-needed raw materials. Or one has realised that certain skills are lacking in the factory or other operation and that in order to be able to hire the skilled personnel required, an expensive exercise in head-hunting must occur. And yet there is no money in the kitty. What does the business do? Go and borrow at an interest rate of 30-40%?
How would one expect to be able to recoup the money, even if one were able to service the debt?
It is a mad situation, is it not? Such a high cost of borrowing also affects the cost of living in many dangerous ways. Who are going to be able to borrow enough money to build houses in the numbers required keep rents low so that workers don’t have to pay through the nose just to have a roof over their heads?
Who are going to be able to keep trucks and other vehicles on the roads to cart food and carry workers to enable industry to run smoothly?
Who bears the brunt of the very high inflation rate that such a situation inevitably engenders?
Above all, who are going to be bold enough to “start up” new ventures to encourage growth in the economy? After all even if one had the initial capital; even if one had done enough “due diligence” and come to the conclusion that the opportunity existed for a decent profit to be turned in the chosen field; how would one assure oneself that if a financial crisis arose, one would be able to salvage the situation by doing what businesses elsewhere do – that is seek temporary support from one’s bankers?
30-40 percent! The mere thought of it makes one feel sick! You pay such a huge borrowing cost, and what sort of profit margin do you expect to generate from the business?
Unless you are making between 100 and 200% profit (gross), you might not even be able to meet the ordinary charges that you must defray to stay in business.
Utility bills. Petrol. Value added tax. Import and excise duties. And so on and so forth!
I think we owe many of our businessmen a great deal of respect – for just being able to stay on their feet at all. As for those who are able to turn in a decent enough profit to expand and employ more people, we must bless them all.
What I find rather galling is that the Governor of the Bank of Ghana knows these things and yet all he could tell the industrialists was that he was working hard to resolve the difficulty with regard to high interest rates. When can we see the results of his hard work?
I am sure he goes to IMF and World Bank conferences where he is able to rub shoulders with Governors of Central Banks from all over the world.
He has probably met the Governor of the Bank of England and is aware that that Governor, who is not a Briton but a Canadian, would be put on his ear faster than the air can blow if he did anything that would give the impression to the British that he wanted a recession to buffet British industry in any shape or form.
At its meeting on 3 November 2016, “The Bank of England Monetary Policy Committee voted unanimously to hold the Bank Rate at a record low of 0.25 percent … in order to meet the 2 percent inflation target, in a way that helps to sustain growth and employment.”
Yes! And guess what the Bank of Ghana’s interest rate is?  26%!
On a table that gives the interest rates of all nations of the world, Ghana came in as the country with the third highest interest rate in the world — 26%! Only Malawi and Argentina have a higher interest rate than Ghana. Yes! Here is part of the table showing the company that Ghana keeps in the international interest rate league:

:

Last
Previous
Highest
Lowest
27.00
Oct/16
27
75.53
13
%
Daily
26.75
Nov/16
26.75
1390
1.2
%
Daily
26.00
Oct/16
26
27.5
12.5
%
Daily
23.25
Oct/16
17.25
23.25
7.5
%
Daily
23.00
Aug/16
23
34
12
%
Daily
21.99
Aug/16
21.54
83.73
12.79
%
Daily
20.00
Sep/16
20
31
7
%
Daily
20.00
Dec/16
20
22
10
%
Yearly
18.00
Oct/16
18
480
10
%
Daily
16.00
Nov/16
16
150
8.75
%
Daily
15.50
Sep/16
15.5
15.5
9
%
Daily
15.00
Oct/16
15
21
12
%
Daily
15.00
Oct/16
15
15
2
%
Daily
15.00
Sep/16
15
15
6.4
%
Daily
15.00
Oct/16
15
25
10
%
Daily
14.75
Nov/16
11.75
21.4
8.25
%
Daily
14.20
Sep/16
14.2
17.3
9.3
%
Daily
14.00
Oct/16
14.25
45
7.25
%
Daily
14.00
Oct/16
14
14
6
%
Daily
14.00
Sep/16
14
23
11
%
Daily
14.00
Oct/16
15
300
6.5
%
Daily
13.57
Jun/16
13.55
20.3
13.02
%
Daily
12.70
Dec/14
11.9
12.7
8.5
%
Daily
Ghana’s 26% benchmark interest rate is, of course, the rate which the country’s commercial banks are supposed to pay when they borrow from the Bank of Ghana to lend to their customers with a large profit added to it. (assuming that the Bank of Ghana has any money to lend to them!)
By the way, that’s not a frivolous remark, for the Bank of Ghana has been borrowing ferociously, by way of Eurobonds, at ridiculously high interest rates. One of the latest borrowings, made in September 2016, fetched $750 million at 9.25 %.
That’s considered by some commentators as a ridiculously high figure, given the fact that generally, the countries from which the borrowings were made currently maintain relatively low interest rate regimes.
I’m sure that the Governor of the Bank of England would love to be the head of the Bank of Ghana! Certainly, his job would be at risk in London were he to even contemplate pursuing the type of policies that the Bank of Ghana shoves down our throats. For he would be pressurised — if not crudely forced– to change the policies for the better, not to have “sleepless nights” over them.



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