What legacy would you like to leave as governor of the Bank of Ghana?
I want to improve professionalism at the bank. This will drive the process of transforming the Central Bank into an excellent, world-class institution that is able to deliver its mandate of price stability. Without those conditions, we will not see Ghana reaching the high middle-income objectives. The Central Bank's role in that vision is critical. Our current framework of inflation targeting indirectly steers the economy to a low price regime by anchoring inflation expectations. In trying to make a monetary policy decision, we look at the execution of the government's budget and adherence to the fiscal consolidation process, the balance of payments, and the country's ability to build reserves and create buffers that drive exchange rate stability. All these feed into the decision of where to place the policy rate. In 2017, we lowered the monetary policy rate by cumulative 550 basis points to 20%, while lending rates declined by some 150 basis points. We expect banks to further lower lending rates as inflation continues to decline and bank balance sheets are cleaned up to provide added impetus to growth conditions.
How do you seek to maintain the positive trajectory of considerable increases in the capital and financial accounts?
The external payments position has shown resilience and improvements in the trade and current accounts balances in the first three quarters of 2017. We have seen the trade deficit turn around from USD1.82 billion in 2016 to a surplus of USD708 million in 2017. That was driven by significant improvements in export revenues from cocoa, gold, and oil. There was also a slight slowdown in imports. On net basis, the capital and financial accounts recorded positive inflows from FDI and portfolio inflows, which offset the current account balance, resulting in a balance of payment surplus of 0.8% of GDP. Moving forward, we expect oil production to increase in 2018. One can only expect it to positively impact our trade balance.
What was the main driver of economic growth in Ghana in 2017?
The issue of confidence is front and center. We started 2017 with a change of government and high expectations. There was a new economic policy package that boosted investor confidence both locally and foreign. A great deal of the growth we have seen thus far has been driven mainly by increased crude oil production. Non-oil growth has not been as high as anticipated, though once we resolve some of the issues in the banking sector and see an improvement in private sector credit, alongside implementation of government policy initiatives to boost manufacturing and agriculture, there will be a pick-up in non-oil growth as well. Growth and stability are not only important for investors internally, but external investors as well who might need to repatriate their interest and profits.
What was the long-term strategy behind the new capital requirements for mergers and financial transactions?
There was a constraint set by low levels of capitalization and the high inflation rate in the country for banks that are not able to finance any large transactions without a waiver from the Central Bank due to single exposure. The capitalization of banks has been quickly eroded by years of macroeconomic instability. If a business entity is not well capitalized, it is not attractive and things are riskier, even for banks. Strengthening a bank's capital makes it more attractive to other investors, especially those institutions that provide banks lines of credit. Going forward, if we are able to get these banks to have minimum capital of GHS400 million (USD90.7 million) by the end of 2018, they will be able to undertake transactions for activity in the oil, construction, and mining sectors without approaching the Central Bank for waivers. We want banks to be able to finance growth-enhancing infrastructure.