Tough measures deliver good prospects Ghana has not escaped the ravages of the coronavirus pandemic. Although its case load has been light compared with some, this has come at the cost of a strict lockdown that has ravaged the country’s GDP growth.
However, shrewd management of the economy means the country is already bouncing back. Credit for this lies in no small measure with the governor of the central bank, Ernest Kwamina Yedu Addison.
Ghana entered 2020 on a high note, tapping capital markets for a $3bn bond. “We were looking forward to a year of stability and high growth,” says Addison. But when March brought the realisation that the coronavirus was not a Chinese problem, but a global problem, everything changed.
“Ghana’s lockdown was unprecedented. There was an almost complete shutdown and the economic fallout was very severe,” says Addison. Acting quickly, the bank lowered the key interest rate from 16% to 14.5%. Addison also presided over the reduction of banks’ conservation buffers, reducing the capital adequacy ratio and lowering lenders’ reserve requirements.
These measures, which an analyst covering the country referred to as “shrewd”, helped minimise the economic impact of the lockdown. Rather than the 5% GDP contraction originally forecast, Ghana’s GDP fell only 3% and Addison believes that leading economic indicators are recovering.
These measures were only possible thanks to disciplined and prudent management of the economy. On the monetary policy side, Addison says that “the monetary policies we have pursued over the last few years have left us with the space to implement loosening”.
Perhaps more crucially, though, Ghana has aggressively cleaned up its banking sector over the past few years, revoking the licences of 347 micro finance institutions and nine banks. Under Addison’s direction, Ghana implemented a Basel III bank capital requirements framework and built up its bank supervisory capacity.
As a result, it entered the coronavirus crisis with well capitalised, strong banks. Thanks to this, Ghanaian banks have advanced 300m cedi ($51.4m) more than they had by this time last year, and bank profitability is stronger as well.
The Ghanaian central bank has also pursued an innovative approach to digitalising money, launching a digital financial services policy earlier this year. Its pioneering E-Zwich cards have given it another advantage in the Covid-19 era, reducing reliance on cash in the economy, as well as improving financial inclusion.
Ghana still faces challenges. Addison highlights that, with the higher deficit caused by the coronavirus response, debt sustainability will be a concern for Ghana as it will all over the world. And, of course, if the resurgence of Covid-19 in a second wave washes into Africa, then Ghana’s economic growth will suffer. However, thanks to the Ghanaian central bank’s prudence in preceding years, and the swift action this year, the impact of the pandemic was far less than it might have been and Ghana’s economy is set to return to growth next year