In the wake of the Bank of Ghana’s Monetary Policy Committee’s (MPC) decision to maintain high interest rates, the Executive Director of the Institute of Economic and Research for Public Policy (IERPP), Prof. Isaac Boadi, has issued a critical advisory to businesses, urging them to abandon significant loan commitments and explore alternative funding sources to sustain operations and growth.
Last week, by a majority decision, the MPC increased the Monetary Policy Rate by 100 basis points from 27% to 28%. This is expected to translate into higher interest and, therefore, exacerbate the cost of borrowing for businesses.
Prof. Boadi says that with prevailing monetary volatility, it is not financially and economically wise for businesses to make huge loan commitments. The Executive Director of IERPP argues that businesses risk exacerbating financial strain by taking on expensive loans at elevated borrowing costs.
Instead, he recommended that firms adopt a strategic approach by delaying major credit commitments until interest rates stabilize.
“The paradoxical divergence between rising policy rates and falling T-bill yields creates a challenging environment for businesses, marked by an unpredictable cost of capital. While firms face higher borrowing costs due to elevated policy rates, the simultaneous decline in T-bill yields introduces ambiguity in financial forecasting, complicating budget allocations and investment strategies,” Prof. Boadi maintains.
He added, “The recent hike in the policy rate to 28% poses significant challenges for businesses by escalating borrowing costs, thereby stifling access to credit for expansion and operational needs.
As an alternative to traditional bank loans, he suggested that businesses explore equity injections, trade credit, and public-private partnerships (PPPs) to sustain operations and expansion efforts. According to him, these financing strategies offer more flexibility and resilience in an uncertain macroeconomic landscape.
Furthermore, Prof. Boadi urged businesses to closely monitor the Bank of Ghana’s monetary policy signals, highlighting that a sustained decline in Treasury bill yields could signal future rate cuts. Such a development would provide relief to businesses that depend on credit for their growth and operational sustainability.
“Businesses are advised to adopt a prudent approach by delaying significant loan commitments until interest rates stabilize, thereby avoiding elevated borrowing costs amid ongoing monetary volatility,” he admonished.
He further recommended that, “To bridge funding gaps, firms should explore alternative financing mechanisms such as equity injections, trade credit, or public-private partnerships. Concurrently, close monitoring of the Bank of Ghana’s (BoG) policy signals is critical, as sustained declines in Treasury bill yields could prompt future rate cuts, offering relief to credit-dependent sectors. These strategies aim to enhance financial resilience while navigating uncertain macroeconomic conditions.”
His call comes at a time when businesses across multiple sectors are grappling with high financing costs, making strategic financial management essential for survival.
Industry experts argue that alternative financing models could provide a much-needed cushion, enabling companies to sustain operations without the burden of excessive debt.
