The Bank of Ghana’s Monetary Policy Report for May, 2018, has revealed that credit advanced to the private sector moderated in both nominal and real terms, reducing by some 3.6 percent at the end of April 2018.
“In real terms, private sector credit contracted by 3.6 percent in April 2018 against 2.6 percent growth in the same period of 2017,” the report notes.
According to the report, the outstanding credit to the private sector at the end of April 2018 was GH¢32,632.74million, compared with GH¢31,720.27million observed in the same period of 2017.
The moderation of credit to the private sector comes on the back of the reduction in the central bank’s Monetary Policy Rate (MPR) and the trending down of interest on short-term instruments.
The MPR was reduced to 17% in May 2018 after the March Monetary Policy Committee meeting, which witnessed a cut by 200 basis points to 18%. The MPR has cumulatively been reduced by 300 basis points since the start of 2018.
On the Treasury securities market, rates on the 91-day and 182-day Treasury bill instrument continues to trend downward. As at Monday July 9, 2018, the 91-Day bill rate was 13.3 percent while the 182-day bill stood at 13.8 percent – a situation that should have seen increased credit advanced to the private sector.
The Ghanaian privates sector is dominated by the services, industry and construction sectors respectively. The Services sector, whose contribution to Gross Domestic Product (GDP) is estimated at 59.5 percent; industry 21.1 percent; and agriculture 19.4 percent as at December 2017, have all persistently cited access to and cost of credit as a major drawback to their expansion plans.
The Association of Ghana Industries’ (AGI) latest Business Barometer cites access to and cost of credit as a major challenge to its members. President of the Association Dr. Yaw Adu Gyamfi noted that: “Businesses have been under pressure from the high cost of credit, access to credit and delayed payments, particularly to our contractors; and the high cost of electricity prior to the announcement of a reduction of tariffs by the PURC”.
According to the AGIs Business Barometer, the business confidence index declined from 107.9 in the last quarter of last year to 100.5 as at the end of first quarter this year.
Currency outside banks up by 10.1 percent
The report notes that: “Reserve Money Growth in the monetary aggregates showed a downward trend on year-on-year basis. The growth of reserve money (RM) was 14.8 percent as at end-April 2018. This was lower than the 21.7 percent growth in the same period of 2017.
“A breakdown of the constituents of reserve money showed that the slowdown in RM reflected a decrease in the growth of all components.”
A crucial concern noted in the report was that there is still a huge amount of cash outside the banking system. “Currency outside banks increased by 10.1 percent compared with a growth of 20.2 percent recorded in the same period last year.
“Reserves of banks and non-bank deposits increased by 19.0 percent and 23.3 percent respectively in the review period. For the corresponding period in 2017, reserves of banks and non-bank deposits increased by 19.4 and 42.2 percent, respectively.”