Dr Atuahene: Cheap funds to private sector, expenditure cuts crucial

Banking consultant Dr. Richmond Atuahene has called on the government to provide more affordable funds to private sector players to help stimulate the country’s economy.

Additionally, he advised the government to significantly reduce its expenditure on ministers, as well as Ministries, Departments, and Agencies (MDAs).

In his view, this would enhance the Gross Domestic Product (GDP) and reduce pressure on the government’s finances, promoting economic stability.

Dr. Atuahene made these suggestions while speaking at an Investment Dialogue organized by Citi FM/Citi TV in collaboration with Tesah Capital.

Data released by the Bank of Ghana indicates that the average lending rate for 2023 concluded at 33.75% per annum, reflecting an increase from the 35.58% recorded in December 2022.

This translates to a monthly rate of 2.81% on loans offered by banks.

According to the January 2024 Summary of Economic and Financial Data, the average lending rate experienced fluctuations throughout the year.

In January 2023, it saw a marginal increase to 35.85%, followed by a subsequent rise to 36.64% in February 2023.

In contrast, the Ghana Reference Rate stood at 32.16% in December 2023, offering a benchmark for lending rates in the country.

Dr. Atuahene pointed out that the government’s continued borrowing was risky, especially when the private sector is not competitive.

He cautioned that following this path would not guarantee the country’s economic recovery and could potentially lead to an increase in the unemployment rate.

He quoted Bank of Ghana (BoG) Governor, who recently stated that credit in the private sector has declined in real terms by 10%.

The banking consultant likened the government to a snake that only swallows, questioning what the government uses the money for.

Dr. Atuahene argued for cheap funds for the private sector to turn the economy around, since the much-needed GDP will come from the private sector.

“But, you see, if the government is borrowing and the private sector cannot compete, then we are crowding out the business. And it is a very dangerous thing. There will be no recovery,” he warned.

The banking consultant explained that if the economy does not recover, unemployment would be very high, adding that there is much unemployment and non-job creation in the country at the moment.

He emphasized the need for the government to significantly reduce its expenditure on ministers, as well as MDAs.

He criticized the current number of ministers and employees within MDAs across the country, suggesting it was excessive.

He pointed out that fiscal sustainability is not only about the debt management but also about expenditure cuts when required.

Contributing to the discussions, Associate Professor of Economics at Niagara University in Canada, Dennis Nsafoah, described the 2024 budget as a victory for the country’s fiscal authorities but an economic burden for Ghanaian households and businesses.

He stated that the former Finance Minister, Ken Ofori-Atta, was right when he named the 2024 budget “Nkunim,” as it paved the way for the victory of fiscal authorities.

According to Nsafoah, in the Nkunim Budget, he saw a path through which fiscal authorities could return public debt to sustainable levels, which he deemed a victory.

He emphasized, that “So the 2024 budget was a victory for the fiscal authorities, but the real question is, is it really a victory for Ghanaian households and businesses?”

He expressed concern that Ghanaian households and businesses would bear a significant price for this victory, proposing that measures be taken to effectively manage the country’s debt levels to protect them.

Nsafoah highlighted that monetizing the debt has been effective but harmful to households and businesses, particularly affecting low-income groups due to the disproportionate impact of inflation.

Regarding which party manages Ghana’s economy better, Nsafoah stated that after analyzing economic data from 1992, he has not observed any significant difference.

He pointed out that in all the data he analyzed, including the debt-to-GDP ratio, real GDP growth, average inflation rate, and cedi depreciation, there were nearly identical trends for both the New Patriotic Party (NPP) and the National Democratic Congress (NDC).

While acknowledging that the NPP has historically performed slightly better in terms of cedi depreciation compared to the NDC, he emphasized that this difference is not statistically significant, especially when considering all other economic variables.

Nsafoah said that there is insufficient evidence to support the claim that one party’s economic performance is superior to another’s, stating, “The only variable I saw a statistically significant difference was the cedi depreciation rate.

“It turns out that, in the years the NPP has been in the helm of affairs, the cedi has performed better than when the NDC is at the helm of affairs. Regardless, this does not conclude the debate on who performs better than the other,” he added.