Improved savings culture crucial in reducing interest rates – Veep

Vice President Dr. Mahamadu Bawumia is making a strong case for an improved savings culture and financial inclusion to help reduce interest rates the country.

He said several experiences from other economies have shown a direct relationship between improved savings and reduction in the cost of credit. 

Speaking at the opening the fifth Economic Outlook and Business Strategy Conference in Accra Wednesday, Dr. Bawumia said “if you have more savings in your financial system, then you would have more investment in the economy.

“More investment means more growth, more growth means lower unemployment and less poverty,” he added. 

Dr Bawumia believes, “the whole issue of interest rates and how we bring it down sustainably has a direct relationship with financial inclusion.”

“If you have an economy where 60-70 percent of your population are excluded from the financial system, structurally you should expect higher interest rates, other things being equal,” he added.

The Vice President explained further that “the structure of the economy will deliver higher interest rates, so financial inclusion and bringing down interest rates are actually quite linked.” 

Government policies and removal of VAT on financial services

Dr Bawumia reaffirmed government’s commitment to improving the business environment adding that “government of Nana Akufo-Addo is pro-business and we have made it a point that we want to build the most business-friendly economy in Africa.” 

“We are therefore keen on developing the financial sector to deepen financial inclusion and bring more Ghanaians out of extreme poverty.”

He said this informed the decision of the President to abolish the 17.5 percent Value Added Tax (VAT) on financial services.

The abolition, Dr. Bawumia said, is meant to encourage the development of financial transactions and mobile money because research has proven that countries with strong financial systems also experience strong economic growth.

On interoperability

The Vice President charged players in the Banking and Telecom sector to help make it easier for a subscriber to send money from one network to the other, even though he agreed interoperability cannot be forced on players.

He believes it is still critical to ensure there is interoperability between Ghana Link which have the banks, e-zwich and mobile telephone platforms. This he said is not rocket science, “if you put your minds to it this can be done in six months.”

He, therefore, challenged GhIPSS and the banks that “government would like to see us do this, this year. We want to successfully have interoperability between our key players, the telcos, the banks and the payment system architecture in this country.

“I want to encourage banks and mobile network operators to collaborate and increase the range of services available to customers. With many Ghanaians owning mobile phones, it offers limitless opportunities for other sectors to introduce vast majority of our citizens to financial products.

“Some banks now offer the ability to buy Treasury Bills using mobile money, ability to contribute to insurance products and pay bills,” he added.

He pointed out that formalising Ghana’s economy essentially hinges on three pillars; (i). Financial Inclusion (ii). National Identification, and (iii). Property Addressing System, which he said government is trying to implement.  

“If you have these three pillars, then you have the necessary backbone for a formal economy, and these are the three pillars we want to work on this year.

“We have been trying for the past 60 years, but I think that the benefit of technology and the benefit of shared experiences across countries would allow us to do this, this year,” he concluded.