Financial Sector Reform In Ghana
The ERP or the Economic Recovery Program in its preliminary phase, which was during the period 1983 to 1986 concentrated on the stabilization process of the economy. During this period of financial sector reform in Ghana, the other aspects, which were taken care of included stringent fiscal policies, devaluation of the currency, prices were liberalized and so were the rates of interest.
Earlier the financial sector in the country was backsliding and was mainly characterized by ceilings fixed for interest rates, credit guidelines for different sectors, ceilings fixed for credits.
The country also used monetary control instruments, which were direct. The rates of interest were gradually liberalized. It was only in the year 1987 (September) that the rules pertaining to minimum deposits as well as maximum deposits were abolished.
The interest rates, which were embraced thereafter was more inclined towards the market conditions. This transformation occurred in the year 1988 when the FINSAP or Financial Sector Structural Adjustment Program was adopted by the country.
The financial sector reform in Ghana under the banner of FINSAP or Financial Sector Structural Adjustment Program benefited the country. It can be attributed to the fact that the reform agenda was equally and very precisely spaced out. Moreover, the execution of the financial sector reform in Ghana was consistent and the financial reforms were not characterized by any drastic changes in the economy with regard to modifications in the major polices.
As a result of the reforms, there was an increase in the rates of lending as well as nominal deposits in the country, which registered an increase in the year 1984 in unison with the process of liberalization.
The first 12 months of the reform revolved around liberalization as well as stabilization of the interest rates. There was considerable improvement in the rate of real deposits, which escalated by approximately 86.7 percent points. Therefore, it was observed that after the implementation of the financial sector reform in Ghana, deposit rates were enhanced by 52.2 percent. Owing to these results, which were achieved by the stabilization process, the rate of inflation was also low.
Due to the financial sector reform in Ghana, which encompassed stringent fiscal policies, the private sector gained prominence and flourished manifold.
The government in Ghana also adopted a measure wherein the budget deficit was greatly lowered.
The period of adjustment during the reform implementation manifested more stability in the macroeconomic indicators of the Ghana economy. There was considerable improvement in investment, savings as well as financial mediation. This indicates that the real gross domestic product had also improved than before. Sources, which determine investment in the private sector were also recognized as such improvement of the private sector and its growth were also attempted at. It is being said that financial sector reform in Ghana has been successful to a large extent because the different resources were assigned in an optimum manner.
However, there are certain areas, which failed to live up to the effects of the financial sector reform in Ghana. Some feel that the improvement in the financial sector has taken place only superficially.