High inflation slowing financial sector support for growth – Prof Ahiawodzi


Anthony Kwame Ahiawodzi, a professor of Financial Economics, says high inflation continues to impede the financial sector’s capacity to mobilise savings and investment to support Ghana’s sustainable economic growth.

This is because, over the years, financial market efficiency – the ability of the financial sector to mobilise savings for investment needed to promote economic growth has been inadequate.

Prof Ahiawodzi made this observation when analysing Ghana’s banking, insurance, and capital market, in two separate periods, spanning a total of 53 years, during his inaugural lecture in Accra, on Thursday, July 25.

He noted that between 1988 and 2023, when Ghana started implementing financial sector reforms, there was an improvement in the market inefficiency levels, compared with 1970 to 1987.

He was delivering his inaugural lecture, on the theme: ‘Assessing efficiency of the financial sector in Ghana, and implications for growth: an application of the Ahiawodzian model.’

Through the Ahiawodzian model ana
lysis, he found that the growth in inefficiency levels in the country’s financial sector has not been strong enough to attract the catalytic savings and investment to support sustainable growth.

‘There have been improvements in financial sector inefficiency, which is an indication that successive governments have not thrown away financial sector reform programmes, but their best is not enough,’ he said.

In an interview with the Ghana News Agency, Prof Ahiawodzi said the main factor making the financial sector unable to mobilise adequate finance to lend to businesses for growth and expansion was the high inflation rate.

Other factors were high interest rates, persistent depreciation of the Cedi against its major trading currencies, non-prioritisation of development of the agriculture sector, and non-economic factors like lack of patriotism.

‘The level of inflation is too high such that it has made the macroeconomy unstable, and that is reflected in the price level of goods and services,’ the professor of f
inancial economics, said.

The situation, he said, had led to inadequate mobilisation of domestic financial resources, high cost of doing business, inadequate private domestic investment in the economy, and ultimately, low growth output.

He encouraged the Government to prioritise policy measures to reduce the rate of inflation, including ensuring that programmes like the Planting for Food and Jobs (PFJ) and One District-One Factory (1D1F) were implemented effectively.

He said the Bank of Ghana (BoG) was doing well with monetary policy measures, but there was a need to also look at the agriculture sector.

A strong performance of the real and agriculture sectors would feed into the financial sector, saying, ‘When the financial sector grows, the real sector also grows and vice versa.’

‘Our main comparative advantage lies in agriculture, and we should be able to produce enough to first, feed ourselves, then the surplus is given to industry as raw materials.’ Prof Ahiawodzi, said.

Source: Ghana News Agency