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Banks reluctant to lend in Ghana. Why it matters

A reluctance by banks in Ghana to lend is threatening to stall one of Africa’s fastest expanding economies.

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A reluctance by banks in Ghana to lend is threatening to stall one of Africa’s fastest expanding economies.

With almost a quarter of all outstanding loans in the country at risk of not being repaid, credit granted to the private sector is increasing at nearly the slowest pace in four years.

At stake is the 6.8% growth that the government is hoping to achieve to boost revenue and narrow its budget deficit.

Gross domestic product in West Africa’s second-largest economy experienced its quickest expansion in five years in 2017 as oil and gas production surged and following a peaceful transition in government which saw President Nana Akufo-Addo take power.

Read Also: All you need to know about sack of Mozambique airline board

While inflation has almost halved to 10% last month, allowing the central bank room to cut its benchmark rate to a four-year low, companies are yet to reap the benefit from these moves as they struggle to repay older loans and access new credit.

Banks “said they are playing it safe because of a loans-defaulting trend,” Edem Harrison, an economist at Accra-based Frontline Capital Advisors, said by phone. “It looks most certain that the GDP growth target will be missed this year.”

Non-performing loans increased almost 21% to a record 8.63 billion cedis ($1.8bn) in April compared with a year earlier, the central bank said on Tuesday.

The Bank of Ghana has since last year tripled minimum capital requirements for lenders, liquidated two banks for failing to adhere to capital-adequacy requirements and placed UniBank under administration.

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Ghana’s finance minister, Ken Ofori-Atta, hints at external assurance on debt restructuring

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The ministry of finance in Ghana has revealed that after a meeting with the minister, Ken Ofori-Atta, the country is expected to secure financing assurances “very soon”.

A source revealed that the minister met Chinese officials on Wednesday to discuss a proposed restructuring of Ghana’s debt.

According to China’s commerce ministry, the discussion centered on strengthening bilateral economic and trade cooperation.

Ken Ofori-Atta said on Twitter, “So far had very positive and encouraging meetings in China! Looking forward to securing external assurances very soon, even as we pass our outstanding domestic revenue bills back home. Great progress and all fronts.”

Ghana has been struggling with its worst economic crisis in a generation and secured a staff-level agreement with the IMF in December for a $3 billion loan. Still, approval is contingent on it restructuring its debt of 575.7 billion cedis ($47.6 billion).

The West African country agreed on a staff-level agreement through the International Monetary Fund in December for a $3 billion loan but must first ask bilateral lenders to provide financing assurances on existing debts before the IMF board can sign off on the programme.

China is Ghana’s biggest bilateral creditor with about $1.7 billion of debt and the Chinese delegation visited Ghana this month for initial debt talks which the finance ministry said were “cordial and fruitful.”

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South Africa: Consumer confidence falls to lowest level since 1994. Here’s why

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A recent survey released in South Africa shows that consumer confidence plunged to its lowest level since 1994 in the first quarter as the effect of continued power outages.

The survey revealed that the consumer confidence index, sponsored by the First National Bank (FNB) and compiled by the Bureau for Economic Research, slumped to a reading of minus 23 points, from minus 8 points in the fourth quarter of 2022.

FNB chief economist Mamello Matikinca-Ngweny, said “the alarming increase in power outages since December and the concomitant deterioration in South Africa’s economic prospects no doubt rocked consumer sentiment during the first quarter.”

The development is indicative of extreme concerns among consumers about South Africa’s economic prospects and their household finances, according to the survey.

There are concerns that the South African Reserve Bank would hike interest rates by 25 bps at its meeting next week as headline inflation rose slightly in February to 7% from 6.9% in the prior month, data showed on Wednesday,

The country lately has had challenges with its electricity supply which has forced struggling state power company, Eskom to announce the previous series of power rotation arrangements.

Eskom has implemented scheduled electricity outages every day in 2023, with most households and businesses without power for up to 10 hours a day.

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