When a business fails to achieve its key objectives, leadership or senior management carries the blame. When an organisation triumphs in its overall operations and functionalities, the success is attributed to leadership.

Thus, in celebrating the success of the Central Bank of Ghana, the leadership has to be at the forefront of accolades received. The Bank of Ghana has in a row being adjudged winner of the Central Bank of the Year Award by three different awarding institutions. The editorial team of African Leadership Magazine had an E-interview with the bank governor who bared his mind about the impacts of these honours, the future of financial services and many other exciting topics.

Excerpts;

Question 1: The Bank of Ghana’s report indicated that the banking sector, during the first two months of 2021, remained broadly profitable, well-capitalised, and resilient. How well is the banking sector positioned to sustain and accelerate this growth and momentum?

A key policy objective of the Central Bank is to ensure that the banking sector environment is characterised by solid institutions, able to withstand a myriad of shocks, essential to promoting economic growth and development. The objective is to position the sector as a significant growth driver to support the government’s medium to long-term goal of achieving an inclusive broad-based economy.

Following the 2017 banking sector clean-up, the sector has become stronger as key indicators suggest a well-capitalised, liquid and profitable sector. This is against the backdrop of the effect of the Covid-19 pandemic on the economy. The July 2021 stress tests showed that the banking sector is robust enough to withstand mild to moderate liquidity and credit shocks on account of the strong capital buffers and high liquidity.

The industry’s Capital Adequacy Ratio of 20.8 per cent at the End-June 2021 was well above the regulatory minimum threshold. Non-performing loans portfolio continues to fall even though it has gone up slightly due to the impact of the pandemic on loan repayments. There is also some return to efficiency in the industry as operating expenses are beginning to reduce, resulting in a decline in interest rates to support growth recovery.

Going forward, interest rates are expected to decline because of the increased capitalisation of banks, reducing levels of NPLs, better credit risk assessment in the banking industry, and as government finances improve and fiscal deficit returns to pre-COVID levels. Essentially, these and our quest to continue to sustain the stable macroeconomic environment are the necessary conditions for increasing access to credit for businesses in the economy. It is also essential for access to credit by the small-scale sector, which constitutes the most significant population. The benefits of access to credit will have a significant favourable implication on employment, growth and poverty reduction.  

Question 2: The AfDB’s African Economic Outlook 2021 projected an increase in growth of the Ghanaian economy to 4% in 2021 and 4.1% in 2022, and an easing of inflation to 8.2% in 2021 and 8%, in 2022.  What are some of the monetary policies of the bank in stimulating and driving this projected growth?

The attainment of macroeconomic stability is a necessary condition for higher and sustained growth. Accordingly, the monetary policy focused on delivering low and stable inflation within the targeted band of 8±2 using the Monetary Policy Rate in the context of the Inflation Targeting Framework. We have been successful by keeping inflation within the target band for a sustained period, alongside a stable exchange rate, and the successful completion of the comprehensive financial sector clean-up which had improved prudential regulations strengthened the sector’s efficiency and enhanced the capacity of banks to finance the growing needs of the country.

With the onset of the Covid-19 pandemic with the adverse socioeconomic implications, the monetary policy has been primarily shaped by the need to mitigate these effects on the financial system and the economy to support fast recovery. The bank initiated several interventions, including macro-prudential measures to ease financing conditions, liquidity pressures and ensure credit extension to critical sectors of the economy. To spur economic activity and reduce credit risk, the monetary policy rate was lowered by 150 basis points to 14.5 percent. Again, in May 2021, the Bank’s MPC lowered the policy rate by 100 basis points to 13.5 percent to further support the growth recovery process. In addition, the Bank lowered the Capital Conservation Buffer, the primary reserve requirements, and suspended dividend payments for banks, among others. The Bank also triggered its asset purchase programme (emergency financing provisions for the government), to help reduce the widened financing gap emanating from the pandemic. In addition to these, the bank also permitted moratoria on bank loans to be granted to borrowers in the worst pandemic-hit sectors such as the airline and hospitality industries.

The above monetary policy measures have and continue to complement fiscal efforts to support economic growth.

Question3: While Ghana’s public debt-to-GDP ratio reached 71% in September 2020 from 63% a year earlier, the country has included a gradual medium-term fiscal adjustment in its 2021 budget to support a decline in public debt starting in 2024. What are your thoughts on fiscal sustainability in the country?

Until the first quarter of 2020 when the Covid-19 hit the country, the government’s fiscal policy was on a consolidation path. The fiscal deficits trended below the 5 percent target set under the fiscal rule. For instance, the fiscal deficit as a percent of GDP dropped consistently from 6.5 per cent in 2016 to 4.8 percent in 2019. Similarly, the primary balance GDP ratio was moved from a deficit of 1.4 per cent to a surplus of 0.8 percent over the same period. This effort, however, was derailed by the pandemic and prompted unbudgeted spending amid revenue shortfalls, which widened the financing gap and raised debt levels.

Indeed, a high debt level has long-term implications on the economy, still, the government has put in place measures to gradually unwind the fiscal excesses and return the economy to fiscal sustainability by 2024. These include accelerated fiscal consolidation efforts carefully balanced with growth objectives, efficient debt management strategies, and expenditure rationalisation driven by growth-enhancing spending. It is expected that these fiscal measures, supported by a credible monetary policy, will signal a strong commitment to consolidation, despite the ongoing pandemic.

To be continued……

Access the full interview on the October 2021 edition of the African Leadership magazine.