A professor of Financial Economics, Anthony Kwame Ahiawodzi, says high inflation continues to impede the financial sector’s ability 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 that promotes economic growth has been inadequate. 

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

The lecture was on the theme: “Assessing the efficiency of the financial sector in Ghana, and implications for growth: an application of the Ahiawodzian model.” 

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

Through the Ahiawodzian model analysis, he found that inefficiency levels in Ghana’s financial sector had not been strong enough to attract the catalytic savings and investment to support business growth and sustainability. 

“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 loan 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, mainly, the Dollar, 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 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 enhance the real and agriculture sectors. 

He noted that 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.