Ghana’s economy on rebound with sustained pick-up in economic activity

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Dr Ernest Addison, Bank of Ghana governor

The Ghanaian economy is on a rebound with a sustained momentum in pick-up in economic activity, the Monetary Policy Committee of the Bank of Ghana (BoG) has said.

According to the central bank, the updated Composite Index of Economic Activity (CIEA) recorded an annual growth of 13.9 per cent in January 2021, which is the highest since December 2019, compared to 3.4 per cent in the corresponding period of 2020.

It noted that the key drivers of economic activity during the period were construction, imports, industrial consumption of electricity, domestic VAT, passenger arrivals at the airport, and port activity.

Additionally, the bank’s latest confidence survey conducted in February 2021 showed some softening of both consumer and business sentiments.

“Although business and consumer sentiments softened on the back of the surge in COVID cases in the early months of 2021, the rollout of the vaccination programme has increased optimism about the future and will further add a boost to the anticipated recovery in growth. Even though private sector credit growth remains generally weak due to the pandemic, the rebound of input supplies evidenced by increased non-oil imports should support the ongoing rebound in economic activity,” it said.

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BoG gave the assurance that the banking sector remains well-positioned to continue with the core objective of financial intermediation to support the ongoing recovery process.

 

“Banks are projected to sustain the strong performance under mild to moderate stress conditions. While some of the regulatory reliefs extended to the industry have helped banks’ continued support of the real sector, close monitoring and heightened supervision will be required to address potential vulnerabilities in the industry, as the pandemic lingers,” it said.

 

This was made known in a statement by BoG Monetary Policy Committee on Ghana’s economic developments for the first two months of 2021.

 

Financial soundness

It further said that Ghana’s financial soundness indicators remained positive underpinned by robust solvency, liquidity, and profitability indicators.

“The industry’s Capital Adequacy Ratio was 20.2 per cent at end-February 2021, well above the regulatory minimum threshold. Core liquid assets to short-term liabilities was 26.5 percent in February 2021 compared with 31.3 percent a year ago. Net interest income for the first two months grew by 10.9 percent to GHC2.0 billion compared to 25.9 percent a year ago. Net fees and commissions grew by 13.7 percent to GHC435.4 million, compared with 18.4 percent growth recorded during same period last year, reflecting the observed dip in growth in loans and trade finance-related businesses,” it explained.

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“Operating income rose by 8.7 percent, lower than the corresponding growth of 23.6 percent, but was supported by cost control measures which resulted in operating expenses declining by 0.3 percent, in contrast to the 18.6 percent increase for same period in 2020. Loan loss provisions, however, grew sharply by 62.2 percent, significantly higher than the 6.5 percent a year ago, reflecting continued elevated credit risks.  Profit before tax, increased to GHC1.1 billion over the first two months of 2021 compared to GHC1.0 billion the same period last year,” it added.

The Central Bank noted that notwithstanding the sluggish credit demand and supply conditions due to the pandemic, the COVID-related regulatory reliefs and policy measures continue to support lending activities, with New Advances for the first two months in 2021 totalling GHC4.7 billion.

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In the latest Credit Conditions Survey, banks expect an increase in demand for credit and are signalling an ease in credit stance over the next two months.

“Non-Performing Loans (NPL) ratio increased from 13.8 percent in February 2020 to 15.3 percent in February 2021 arising partly from the general pandemic-induced repayment challenges as well as some bank-specific loan recovery challenges,” it said.

Policy rate

The Committee, having reviewed recent global and domestic developments as well as the local economy, decided to maintain the policy rate at 14.5 percent for the 6th consecutive time.

It attributed the decision to a number of factors, including the emerging short-term pressures on inflation emanating from rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget.

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