Controversy Over Govt Inflation

Low inflation figures touted by the ruling National Democratic Congress (NDC) have sparked wild controversy in the country’s law-making body as some Members of Parliament (MPs) have raised doubts about the reported downward inflationary rates.

“The inflation figures touted around look artificial,” Professor George Yaw Gyan-Baffour, MP for Wench indicated whilst contributing to a statement on high interest rates charged by commercial banks operating in the country.

Current inflation rate, according to Ghana Statistical Service (GSS) is about 8.4 percent, which has encouraged government officials to propagate their economic management prowess.

However, Prof. Gyan-Baffour, who is also a former Deputy Minister for Finance and Economic Planning, said it defies all economic principles that inflation rate is reported to be going down considerably and yet the country has recorded negative growth rate of -5.1 percent and interest rates still high.

He said apart from this, prices of commodities and services such as cement, gari, sugar, construction works and house rents are going up almost every day.

“If the figures we give out are wrong, the Bank of Ghana (BOG) will get it wrong because the Central Bank uses the figures in setting the base rate for commercial banks for them to also set their interest rates,” he noted.

The former Deputy Minister for Finance and Economic Planning revealed that although he has never doubted the integrity of Government Statistician, Dr. Grace Bediako and her staff, he has a feeling something was wrong somewhere.

Some MPs from the ruling party argued that Prof. Gyan-Baffour’s elucidation was an attack on the integrity of Statistical Service.

But the Wenchi MP was quick to reiterate his confidence in the state agency, stating that the inflation figures needed to be reconsidered.

The whole controversy started when Nana Yaw Ofori-Kuragu, MP for Bosome-Freho made a statement on the floor of Parliament. He could not fathom why banks should maintain high interest rates despite a cut in base rate by BOG and drastic decrease in inflation.

There have been several complaints over the years by individuals and businesses over high interest rates charged by banks.

He noted that the increasing trend does not engender economic growth of the country.

Fortunately the country’s lawmaking body has decided to probe the issue of huge disparities between BOG’s base rate and the interest rates of the various commercial banks operating in the country.

BOG’s current base rate is 13 percent but the average interest rate of commercial banks hovers around 25 percent or even higher in some cases.

Justice Joyce Adeline Bamford-Addo directed the Finance Committee of Parliament to investigate the issue and report to the House within a month for action to be taken, stressing that the trend must not be allowed to continue.

“This is not the first time that we have considered this issue. We have got nowhere. I remember that on one occasion when the Finance Minister came here, we put that question to him and he said he will try and convince the banks to reduce their rates.

“As we all know, that does not help us much. It has been suggested that the reduction could be made by policy rather than by just persuasion. We also know that this is an international problem with the banks and their high profits. And how to reduce it has been discussed internationally but it is our national problem too. As Parliament, we have to grab this opportunity today and this is why I suggest that we refer it not only to the Bank and the Minister but to the Committee in charge because this is a national problem. This is Parliament and it is time for us to take some action and I am glad to say that this is the consensus for the whole house and we are not going to let this pass,” Justice Bamford-Addo emphasized.

MPs were outraged over what they described as “unacceptable astronomical profits” being made by both local and foreign banks operating in the country.

“Banks like any other business ventures need to recover their costs and make profits. But Madam Speaker, our banks are making huge profits and are still passing on the cost of operations to their clients. There needs to be a reduction in the cost of operations of our banks in terms of the salaries, the cost of premises, utilities, allowances, commitment fees and so on. Perhaps if the banks are run more efficiently, cost reductions could consequently be passed on to the customers,” MP for Bosome-Freho, Nana Yaw Ofori-Kuragu noted.

“Is it a systemic issue or what is it? Is it that they have a cartel in Ghana where all the banks probably meet secretly and tell one another that this is the band for our lending rates. So I think this is a wake-up call,” Moses Asaga, MP for Nabdam and Chairman of Parliamentary Select Committee on Minister and Energy stated.

Commenting on the issue, Minority Leader, Osei Kyei-Mensah-Bonsu noted that if interest rates are overly high, the country’s industry and agricultural sectors would not grow.

“This is why agriculture and industry are not growing; it is only the service sector in this country that is growing. And the high interest rates are responsible,” the Minority Leader further noted, saying this will affect the growth of the economy.