Interview : Ernest Addison
What factors have contributed to the strengthening of Ghana’s economy, and what challenges remain?
ERNEST ADDISON: Ghana’s three main export commodities – cocoa, gold and oil – have recently experienced robust growth in production. Gold exports are up and cocoa has stabilised at just over 850,000 tonnes per annum, but oil production has seen the most significant change. From an average export of 32m barrels per day (bpd) between 2011 and 2016, crude oil exports picked up in 2017 to 57m bpd. By mid-2018 we had a trade surplus of $1.3bn, representing a fundamental shift in the makeup of our balance of payments, moving away from the traditional trade deficit. This transformation has encouraged the private sector to grow and led to an influx of new oil fields drilled by multinational companies, which are predicted to produce more than 500,000 bpd in the medium term.
The strength of Ghana’s macroeconomic fundamentals has led to a marked reduction in inflation and the central bank has responded to improved conditions by lowering its key lending rate. Since 2016 the rate has been reduced by 850 basis points to 17%, and lending rates have decreased from 32% to around 28%. The year 2017 ended with strong foreign currency reserves, at almost 4.5 months of import cover, and provided a backbone for a stable currency. However, during the summer of 2018 issues in emerging and frontier economies served to undermine global confidence. The currency markets were impacted severely, resulting in rapid depreciation of currencies across emerging-market economies, including Ghana.
Regardless of the strength of a country’s fundamentals, negative sentiments such as those resulting in capital outflow can weaken macroeconomic conditions. To counteract this, the monetary policy committee upholds its operating framework of transparency, accountability and communication. By circulating regularly updated economic information in a structured manner, the negative impact of adverse news on the markets can be offset. This is also important to ensure that the public does not lose confidence.
How have changes to banking policy affected the sector, particularly non-performing loans (NPLs)?
ADDISON: The new banking policy framework has created a stronger lending environment, and the issue of NPLs is becoming more important. We are aiming for the highest standard of corporate governance for our banking system. Within the region, Ghana performs well in this area, and the 2018 minimum capital requirement programme will help to solidify the banking sector. Additionally, directors of commercial banks have had their tenure limited to two years. This is a tighter regime than in some G8 economies and is illustrative of Ghana’s march towards accepted best practices in corporate governance. Banks are largely on board and supportive of the ongoing reforms, and have helped to foster responsible behaviour in the sector.
It is important to note that NPLs mainly arose during the recent energy debt crisis. Since this has been resolved, we are seeing the NPL ratio improve. Banks have had to make provisions for these loans and many will be written off; GHS1.2bn ($259m) of NPLs were written off in October 2018. Banks have more capital and are better governed, and have improved their risk-assessment processes and risk-based supervision.
How is the Bank of Ghana regulating innovative digital money products?
ADDISON: We believe that regulation must not stifle innovation, and it is important that regulators appreciate the needs of both customers and operators. Telecommunications companies have been particularly innovative in financial services, and have transformed the entire monetary system in only a few years. For example, a young person selling items on the street can now easily access short-term credit, and the service is valuable enough that default levels are very negligible.
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