Use Of Prime Rate Needs Review-Chamber

The President of the Ghana National Chamber of Commerce and Industry (GNCCI), has called on the government to review its use of the prime rate as an instrument to curb inflationary pressures.

“Some of the policy instruments employed by the managers of the economy to achieve the low inflation, particularly the use of the prime rate has been inimical to the development of the private sector”, Mr Wilson Atta Krofah stated.

Speaking at a media encounter with a cross-section of editors in Accra, Krofah said the chamber was of the view that lower inflation was good, however, the use of the prime rate to squeeze credit affects business operations in the country.

He explained that the reason for using the prime rate to squeeze credit flow and possibly reduce demand pressures of the economy was not in the best interest of business operations as it made cost of doing business high.

“Movements of the prime rate either upwards and downwards inform the decision of the commercial banks to either increase or decrease their base and lending rates”, he said.

Mr Krofah added that banks quickly adjusted their base and lending rates upwards anytime the prime rate went up but were reluctant to reduce these rates when the prime rate went down.

He said interest rates in the country was among the highest in the world averaging over 33 per cent, and stressed that “under the present conditions, it is extremely difficult for domestic industries to produce at competitive prices given the fact that other cost of doing business in the country are also high”.

Mr Krofah, who is also the President of the West African Chamber of Commerce and Industry and the Vice-President of the Federation of African Chamber of Commerce and Industry, explained further that the high cost or borrowing resulting from prime rate increases, feed into prices of goods and services, which in turn aggravate the inflationary pressures.

“The Ghana National Chamber of Commerce and Industry is of the view that the solution to the high rate of inflation in Ghana does not lie solely in maintaining high prime rate”, he said and suggested that given the proportion of the food component of the consumer price index, there was the need to strengthen the agricultural sector in order to control inflationary pressures.

The chamber, which is the umbrella organisation of the traders, commerce and industry also expressed concern about the decline in credit to the private sector in recent times.

According to Mr Krofah, the recent Monetary Policy Committee report of the Bank of Ghana, indicated a decline in lending to the private sector, saying “obviously the private sector is denied the financial “oil” needed to operate efficiently and smoothly”.

“This development is not good for an economy that wants to develop on the back of the private sector”, he stated.

The President of the chamber therefore appealed to the government to control its expenditure to align it with the government’s revenue levels so as to reduce the government’s dependence on borrowing from the banks, thereby ‘crowding’ out the private sector.

On the Economic Partnerships Agreement (EPA), Mr Krofah called on the relevant authorities to fashion out a development programme in the EPA to assist the country to develop its industrial sector.

He said such assistance could be in the form of finance, technical and or partnership between Ghanaian firms and their European counterparts.

“Ghana can only take advantage of this partnership agreement if we can develop our industry to produce at a competitive price and also meet all the international standards”, Mr Krofah elaborated.

On the oil find, Mr Krofah cautioned managers of the economy not to concentrate too much on the oil find to the detriment of the other important sectors of the economy.

He proposed that services sectors related to the oil drilling such as bunkering, transportation and catering should be reserved exclusively for Ghanaians.

Again, he said the chamber also proposed that one of the conditions for registration of foreign companies for the extraction of the oil should be to reserve about 30 per cent of their senior professional staff to Ghanaians and training of Ghanaians to replace expatriate personnel with a specified period of time. Share Your Thoughts on this article Name Email Location Comments Graphic Ghana may edit your comments and not all comments will be published