When Dr. Johnson Asiama, Governor of the Bank of Ghana, stood at the Kwahu Business Forum and declared his ambition to drive interest rates in Ghana to 10% or below, it struck a chord with businesses and households alike.
For households and businesses, both large and small, a 10% interest rate and below will be more than just a macroeconomic indicator. It will mean cheaper and more affordable loans, expanded businesses, and a more inclusive economy.
This dream of the Governor, many analysts and experts say, is valid, considering how the Ghanaian economy has grappled with “over-the-roof” interest rates, stifling business growth.
However, the bigger question now is how that vision can become reality.
Banking and financial analyst Dr. Richmond Atuahene also believes it is achievable, but only through deliberate, coordinated reforms that tackle the root causes of high lending rates.
In a research paper copied to The High Street Journal, Dr. Atuahene proposed at least 6 strategic recommendations for the government and the Bank of Ghana to make this vision a reality.
1. Clear Government Arrears to Unlock Credit
One of the biggest barriers to lower interest rates, Dr. Atuahene argues, is the high level of unpaid government debts to contractors and businesses. These arrears have contributed significantly to rising non-performing loans (NPLs), forcing banks to charge higher interest rates to manage risk.
Clearing these debts, especially in sectors like energy and infrastructure, would immediately improve banks’ balance sheets, reduce bad loans, and free up credit for businesses at lower rates.
2. Build a Stable Macroeconomic Environment
For the banking and financial expert, at the core of sustainable low interest rates is macroeconomic stability. Without a stable macroeconomic environment, the vision will remain just a hoax.
Dr. Atuahene emphasizes the need for low inflation, a stable exchange rate, manageable public debt, and disciplined fiscal policy. When the economic environment is predictable, banks face lower risks and can lend at cheaper rates.
For businesses, this means better planning, more investment, and fewer shocks.
3. Gradually Reduce the Policy Rate
With inflation trending downward, there is room for the Bank of Ghana to continue lowering its Monetary Policy Rate (MPR).
A gradual reduction in the policy rate will reduce the cost at which banks borrow from the central bank, making it easier for them to pass on lower rates to customers.
However, Dr. Atuahene cautions that this must be done carefully, especially in light of global uncertainties.
4. Reduce Government Borrowing
Dr. Atuahene observes that high government borrowing from the domestic market has long crowded out the private sector.
When the government competes heavily for funds, banks prefer lending to it rather than to businesses. The result is less credit availability and higher interest rates.
Reducing reliance on domestic borrowing, especially short-term instruments like treasury bills, will ease this pressure and make more funds available to the private sector.
5. Lower Cash Reserve Requirements
Currently, banks are required to hold a significant portion of their deposits with the central bank without earning interest.
Dr. Atuahene describes this as an implicit cost that reduces banks’ ability to lend.
Lowering these reserve requirements would inject more liquidity into the system, enabling banks to lend more and potentially at lower rates.
6. Strengthen Loan Recovery Through Judicial Reforms
Recovering bad loans in Ghana can take years due to slow court processes and enforcement challenges.
To fix this, Dr. Atuahene proposes the establishment of fast-track digital courts dedicated to debt recovery. This would speed up the process, reduce losses for banks, and lower the risk premium built into lending rates.
Stronger legal enforcement, he argues, is key to restoring confidence in the credit system.
A Path Toward Affordable Credit
Dr. Atuahene’s recommendations are a clear indication that lowering interest rates in Ghana is not a one-step solution.
It requires fixing multiple parts of the system, government finances, banking sector risks, legal processes, and macroeconomic stability.
For ordinary Ghanaians, lower interest rates mean cheaper loans, more jobs, expanding businesses, and improved living standards.
The ambition outlined by Dr. Johnson Asiama is bold, but as this analysis shows, it is not out of reach.
With the right mix of discipline and reform, Ghana could move closer to a future where borrowing is affordable and economic growth is truly inclusive.
