Finance Minister Dr. Cassiel Ato Forson has revealed that the government wants to push the cost of borrowing in Ghana into single digits, arguing that cheaper credit is critical to helping businesses expand, invest and create jobs.
The Minister is also of the view that the government has already made significant progress in reducing the cost of capital since President John Dramani Mahama took office, but he says the current levels are still too high for Ghanaian businesses.
In an interaction with some section of business owners, he recounted that “Prior to his coming was averaging 30 percent. Today it has been cut by more than half and you’ll be able to borrow from banks up to 13 percent to nine percent.”
However, he stressed that the government’s ambition goes beyond bringing lending rates down from their previous highs. “We want to see cost of capital single-digit so that businesses like yourself can borrow from our banks and expand,” he said.
From Expensive Credit to Affordable Credit
For businesses, the cost of credit can determine whether an expansion plan becomes a reality or remains on paper.
When borrowing costs are high, companies must devote a larger share of their revenues to servicing loans. This can discourage businesses from investing in new equipment, opening additional branches, hiring workers, or expanding production, which in turn are needed to grow and expand the national economy.
A sustained move towards single-digit lending rates would therefore represent a significant shift in the financing environment for businesses, particularly firms that depend heavily on bank credit.
But Dr. Ato Forson admits that cheaper credit alone cannot do the anticipated magic.
Cheaper Credit is Not Enough If Not Available
The Finance Minister also highlighted what he described as another major problem, which is the availability of credit.
He recounted that “We see our banks not lending so much to the private sector. That should not be the case,” signalling that there is a need for a deliberate and conscious effort to ensure that banks lend to the private sector or the real sector.
Dr. Ato Forson’s comments point to a two-sided challenge facing Ghana’s credit market. The first is how much businesses pay to borrow. The second is whether businesses can actually obtain the loans they need.
Even if lending rates fall into single digits, the benefit to the economy would be limited if banks remain reluctant to extend credit to businesses.
For entrepreneurs and business managers, affordable credit means more than seeing a lower interest rate advertised by a bank. It means being able to qualify for and actually receive financing on terms that allow a business to remain profitable while repaying the loan.
The Bottomline
The government’s vision reflects a broader attempt to change the relationship between Ghana’s financial sector and the productive economy.
Cheaper and more accessible credit could give businesses greater room to invest in machinery, technology, inventory and new markets. It could also reduce the pressure that high financing costs place on companies’ cash flows. For small and medium-sized businesses, which often have fewer financing options than large corporations, the availability of reasonably priced bank credit could be particularly important.
For now all eyes will be on the government and the Bank of Ghana for deliberate policies and actions which will seek to ensure both cheaper and available credit to the private sector.
