Economist raises concerns over reduction of lending rates

Courage Martey, an economist with Databank, has expressed worry over a non-foreseeable reduction of lending rates in the country.

The concerns come as the Ghana Union of Traders Association (GUTA) has backed calls for a reduction in the lending rate as it would enable them to gain access to credit in order to remain competitive.

In an interaction with Citi Business News, Courage Martey on his part admonished government needs to implement safe borrowing measures to address the issue.

“Government needs to do quite an amount of borrowing on the domestic market. And with those capital being pile up towards the government treasuries it is going to compete or outcompete the private sector,” he explained.

“And that could also mean that being a safer borrower compared to the private sector, banks will prefer to lend to the government and that could crowd out the private sector, which will mean that lending rates might not change in favor of the private sector in the very short term especially when the policy rate has not signaled otherwise,” he added.

Meanwhile, Ghana’s central bank in a recent report on lending rates for banks showed that as of October 2020, the rate was 21.26 percent, a figure which was lower in more than a year.

The government through the Finance Ministry in 2020 projected issuing domestic debt securities of a gross amount of GH¢22.19 billion.

According to a debt issuance calendar released by the Finance Ministry, the securities will cover government borrowing requirements for the period.

In 2020, issuance results released by the Bank of Ghana showed that the government issued a total debt of about GH¢45.68 billion on the domestic market.

The amount according to the central bank is made up of both securities meant to roll over maturities and fresh issuances.