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Government must cut expenditure to reduce interest rates – Ken Thompson

March 15, 2017, 3:13 p.m.

Government will have to cut down its expenditure significantly if the Ghanaian banking sector is to see a reduction in the high-interest rates, the Chief Executive Officer of Dalex Finance, Ken Thompson, has noted.

“If we really want to get the interest rates down, then the government must start with expenditure,” Mr. Thompson said on the Citi Breakfast Show.

This would mean government had to prepare to be unpopular, he said, as “the first thing is you have to look at is the payroll.”

Mr. Thompson was commenting on the latest Annual Percentage Rate (APR) report by the Bank of Ghana that revealed that the average interest on vehicle loans offered by commercial banks in Ghana reaching 35 percent as at the end of February 2016.

“That is where the issue is; cut government’s expenditure and if you cut government’s expenditure, you reduce the government’s appetite for borrowing, interest rates will come down and then banks will be forced to lend to the private sector and we will start to be productive.”

Government’s high appetite for borrowing, also crowded out the private sector, making the cost of borrowing too expensive.

At the rates of 16 to 25 percent, no one wants to lend to the private sector given the risk involved, he explained.

“In other countries where they have low-interest rates, the interest rates governments are paying are very low. In Europe now, it is negative so you are forced to lend to the real sector… If the government didn’t have any borrowing need, it wouldn’t go to the market and what would it do with their money? They would have to lend to us.”

Mr. Thompson also noted the adverse effects on average Ghanaian citing farmers who struggle to afford lending rates from his financial institution even with the subsidised offerings.

“At my cost of money, farmers can’t afford it and we are saying that agriculture is the foundation of the recovery of this economy. These are big issues and we have to deal with them squarely but this stretching around the issue and pretending we are solving it is not going to get us anywhere.”