Economists and financial experts are urging the Ghanaian government to introduce a targeted lending scheme that would empower the Bank of Ghana (BoG) to provide lower interest rate loans directly to selected productive businesses.

This call comes in the wake of recent economic developments and the ongoing implementation of Ghana’s US$3 billion loan-support programme with the International Monetary Fund (IMF).

The suggestion has been championed by Dr. Daniel Anim-Prempeh, Chief Economist with the Policy Initiative for Economic Development (PIED), and Mr. Alhassan Andani, a veteran banker with over 20 years of experience. They argue that by offering loans at significantly lower interest rates, businesses could boost their production capacities, offer goods at more affordable prices, stimulate the local economy, and enhance living standards.

In May 2024, the Monetary Policy Committee (MPC) of the Central Bank maintained the interest rate at 29%, citing the high global interest rate environment and downward pressure on the Cedi as key factors. However, Dr. Anim-Prempeh and Mr. Andani contend that the current interest rates are prohibitively expensive for businesses. They stress the need for government intervention to lower these rates and support industrial growth.

Importance of Consolidating the Recent Gains In Inflation

Dr. Anim-Prempeh emphasized the importance of consolidating the recent gains in inflation and exchange rates. He urged the government to deliberately identify and support businesses that could drive economic growth. Specifically, he proposed that the BoG should offer loans at a 10% interest rate for the next five years to selected businesses, particularly those in the agricultural value chain and the pharmaceutical industry.

This targeted approach would enable these sectors to expand their production capabilities, extend their reach beyond Ghana’s borders, and attract foreign inflows.

“The government must deliberately identify and support businesses that would propel growth, and come up with an initiative where the Bank of Ghana can give loans to businesses at a 10% interest rate for the next five years,” said Dr. Anim-Prempeh. He highlighted the current trend of Ghanaian businesses opting to buy from countries like China instead of producing locally due to the high cost of loans. This practice underscores the need for more affordable financing options to foster local production and economic self-reliance.

Echoing these sentiments, Mr. Andani pointed out that development is unattainable with an interest rate as high as 35%. “It’s too expensive and would not make our businesses globally competitive,” he said. He explained that high interest rates are often a symptom of underlying issues such as excessive money printing, insufficient production of goods and services, and poor fiscal and monetary policies. He called for pragmatic measures to reduce interest rates, thereby enabling businesses to thrive and compete on a global scale.

In response to these concerns, Dr. Alex Ampaabeng, Deputy Finance Minister, announced that the government would launch an initiative in July with a GHS 2.4 billion grant from the Development Bank Ghana (DBG) and other partners. This initiative, known as the Small and Medium-sized Enterprise (SME) Growth and Opportunity programme, aims to resource approximately 100 private sector SMEs, enhancing their capacity to grow, improve revenue performance, and create jobs.

“This is not the usual ‘give the grant and sit back’ initiative,” Dr. Ampaabeng emphasized. “It will hinge on key sectors of the economy, where our strengths are, including agriculture.” The programme is designed to ensure that these SMEs are well-supported and can significantly contribute to the country’s economic development.

By focusing on key sectors and providing affordable financing, Ghana can stimulate local production, reduce dependency on imports, and create a more robust and competitive economy. The proposed initiatives, if implemented effectively, could mark a significant shift towards sustainable economic growth and improved living standards for the people of Ghana.