Business Analyst - May 26

Thursday, May 26, 2022
LET’S MAKE CREDIT
MORE ACCESSIBLE,
AFFORDABLE
THe Bank of Ghana (BoG) has increased its key
benchmark interest rate, the Monetary Policy Rate
(MPR), from 17 to 19 per cent due to concerns over
rising inflation and unfavourable global economic
conditions.
The policy rate is the rate at which the BoG lends
to commercial banks in the country and serves as the
benchmark interest rate for onward lending to
businesses.
The Governor of the BoG, Dr ernest Addison,
announced the policy rate at the Monetary Policy
Committee (MPC) meeting in Accra yesterday.
The increase in the rate, may stem inflation and
control the spiraling prices of goods and services.
Since the Ghana Statistical Service announced the
March inflation rate of 19.7 per cent, prompting the
central bank to increase its policy rate from 14.5 to
17 per cent, inflation had crossed the 23.6 per cent
mark in April, making it even more difficult for the
government to convince investors to subscribe to the
country’s cedi-denominated domestic debt securities.
Foreign investors themselves may not be
attracted by the higher coupon rates generated by
the increase in the MPR, unless it is inordinately
large, since the cedi’s fragility is a major concern.
even when the government has offered a higher
coupon rate, investors are reluctant to subscribe to
short-to-medium-term debt instruments.
Indeed, by mid-May, the coupon rate offered for
91-day treasury bills had risen to 18.23 per cent; 182-
day treasury bills were offering 19.26 per cent, while
364-day treasury notes were offering 21.13 per cent.
These rates are roughly five per cent more than what
they were a year ago.
This means the BoG would have to set the MPR
at a level that pushes treasury bill rates above
inflation.
The problem here is that with the current spread
of a little over 120 basis points for 91-day treasury
bill rates over the MPR, the BoG’s benchmark interest
rate would have to rise to at least 22 per cent for this
to happen.
While interest rates in general and investment
securities pricing are being driven by the
government’s own debt refinancing and fiscal deficit
financing needs, the MPR is just as impactful on the
cost of private sector debt and economic growth
rate.
The increase in interest rates will, in turn, push
the average lending rate, currently at 21.02 per cent,
to over 23 per cent.
Worse still, higher interest rates will
automatically make loans riskier in the perception of
the lender and so banks would tend to increase the
risk premium they put on the base rate they all use.
Much as we welcome the policy rate increase by
the central bank, we are also worried about the
rising cost of funds and the lack of accessibility to
loans for the private sector, which is touted as the
engine of growth.
We are also concerned about the way an increase
in the lending rate could impact on the outlook for
growth and employment and whether we are not
making the cost of living extremely high by further
squeezing the already tight cedi liquidity levels.
We’ll avert any looming
food crisis with effective
planning – AfDB Boss
The African Development
Bank Group president, Dr.
Akinwumi Adesina, says
he is confident that Africa
will be able to avoid a
looming food crisis in the coming
months.
To tackle the disruption of food
imports from the Russian-Ukraine
crisis, the Board of Directors of the
Bank last week approved a $1.5 billion
African emergency Food Production
Facility, to support 20 million farmers
to produce 38 million metric tons of
food.
Speaking during a media briefing
ahead of the start of the 2022 annual
general meeting of the bank,
President of the African Development
Bank, Dr. Akinwumi Adesina assured
of the introduction of more initiatives
to boost food security on the
continent.
“You may ask, why am I so
confident that we will be able to avoid
a looming food crisis? It is because our
plan is based on the incredibly
successful work of the African
Development Bank through its high 5
on Feed Africa,” he said
The war between Ukraine and
Russia has led to a rise in food prices,
especially for commodities such as
wheat, maize, soybeans and other
grains which many African countries
rely on for their staple food.
With the disruption of food
supplies, Africa now faces a shortage
of at least 30 million metric tons of
food, especially wheat, maize, and
soybeans, which are imported from
both countries.
To tackle the disruption of food
imports, the Board of Directors of the
Bank last week approved a $1.5 billion
African emergency Food Production
Facility, to support 20 million farmers
to produce 38
million metric
tons of food.
The plan seeks
to avert a looming
food crisis in
Africa.
The plan is
anchored on the
provision of
certified seeds of
climate-adapted
varieties to 20
million African
farmers.
The African
Development
Bank will among
other things,
provide fertilizer to
smallholder
farmers across
Africa over the
next four farming
seasons, using its
convening
influence with major fertilizer
manufacturers, loan guarantees, and
other financial instruments.
The Facility will also create a
platform to advocate for critical policy
reforms to solve the structural issues
that impede farmers from receiving
modern inputs. This includes
strengthening national institutions
overseeing input markets.
The Facility has a structure for
working with multilateral
development partners. This will
ensure rapid alignment and
implementation, enhanced reach, and
effective impact. It will increase
technical preparedness and
responsiveness. In addition, it
includes short, medium, and longterm
measures to address both the
urgent food crisis and the long-term
“
“You may ask, why
am I so confident
that we will be able
to avoid a looming
food crisis? It is
because our plan is
based on the
incredibly successful
work of the African
Development Bank
through its High 5 on
Feed Africa,” he said
sustainability and resilience of Africa’s
food systems.”
2022 AfDB Annual Meetings
The 57th African Development
Bank (AfDB) Annual General
Meetings which have begun at the
Accra International Conference
Centre will set the agenda for Africa’s
transformation and recovery from the
current economic challenges facing
the continent amid the ongoing
pandemic and Russia-Ukraine war.
The Annual Meetings are the
most important events on the
governance calendar of the bank
group, attracting around 3,000
delegates and attendees annually.
This year’s meetings mark a
return to in-person sessions following
virtual meetings over the last two
years. The meetings will be held in a
hybrid format, with participants
present in Accra and online.
Representatives of governments,
businesses, civil society, think tanks,
academia, and the media, will
convene to discuss key issues
concerning Africa’s ongoing
development.
With a focus on climate change,
the bank will also review its
operations during the preceding year
and take stock of progress with its
shareholders.
Under the theme of Achieving
Climate Resilience, and a Just energy
Transition for Africa, the Annual
Meetings will act as a forerunner to
the Un Climate Change Conference,
or COP-27 taking place in egypt in
november.
The 2022 annual general meeting
is under the theme “Achieving
Climate Resilience and a Just energy
Transition for Africa”.