The Impact of High Interest Rates on the Ghanaian Worker

Ghana’s economy is currently grappling with significant challenges, most notably a historic cost-of-living crisis that disproportionately affects informal employment sectors in Accra. The roots of this crisis are multifaceted, stemming from various economic pressures and policy shortcomings. The International Monetary Fund (IMF) reports that these issues have pushed over 850,000 Ghanaians workers into poverty.

Economic Realities

The Trade Union Congress Boss poignantly states, “The Ghanaian worker depends on loans to survive.” This stark reality underscores the desperation many workers face due to stagnant wages and rising living costs. With inflation reaching 54% in December 2022, a 22-year high, the cost of living has surged, severely impacting the affordability of goods and services. Although inflation has moderated to 25%, it remains high compared to neighboring countries, which have managed to maintain single-digit inflation rates. This situation is exacerbated by economic mismanagement, fiscal imprudence, and monetary policy failures.

Global and Local Economic Influences

Global disruptions have significantly impacted Ghana’s economy. Fluctuating oil prices, supply chain interruptions due to the COVID-19 pandemic, and geopolitical tensions have increased the costs of essential imports like food and medical supplies. Locally, policy missteps, corruption, and fiscal policy failures have worsened the situation. High levels of government debt and fiscal deficits have limited investment in essential public services and infrastructure.

The Depreciating Cedi

The depreciation of the Ghanaian cedi further compounds the problem. Between September 2022 and April 2023, the cedi lost over 50% of its value, with an additional 18% depreciation in 2024. This depreciation has worsened living conditions for workers in an import-dependent economy, driving up the cost of imported goods and services.

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Burden of High Borrowing Costs

High borrowing costs are a significant burden on Ghanaian workers. Data from the Bank of Ghana shows that the average Annual Percentage Rates (APRs) for household loans are exceedingly high. For instance, First Atlantic Bank Limited and Stanbic Bank Ghana Limited report APRs of 43.64% and 50.92%, respectively. On average, borrowing costs are almost 40%, reflecting banks’ response to elevated lending risks amid economic instability and high default rates. The non-performing loans (NPL) rate stood at 24.6% in 2023, further highlighting the challenging lending environment.

Dependence on Loans

The reliance on loans to survive has become a lifeline for many Ghanaian workers. This dependence results from the significant loss in purchasing power due to high taxes and unfavorable economic conditions. Incomes have not kept pace with the rising cost of living, forcing many to borrow to cover daily expenses. This reliance on credit has increased financial vulnerability among workers.

Daily financial burdens include high transportation costs driven by fluctuating fuel prices and inadequate public transport infrastructure. Rent prices have skyrocketed, making housing unaffordable for many. Food prices, a critical component of daily expenses, have surged due to inflation, further straining household budgets. Additionally, the cost of healthcare, education, and utilities continues to rise, despite stagnant wages.

The Vicious Cycle of Debt

The high cost of borrowing exacerbates financial strain. With interest rates averaging nearly 40%, the cost of accessing credit remains prohibitive. This creates a vicious cycle where workers take out loans to manage daily needs but struggle to repay them due to exorbitant interest rates and rising living costs. This cycle of debt and hardship highlights the severe economic challenges faced by Ghanaian workers.

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Impact on Poverty

The economic turmoil has had a profound impact on poverty levels in Ghana. Rising inflation, economic instability, and high borrowing costs pushed over 850,000 Ghanaians into poverty in 2022. The increased cost of living, especially for food, healthcare, and housing, has made it difficult for many to meet basic needs. This situation is dire for those in the informal sector, who typically lack social safety nets and whose earnings are unstable.

Vulnerable Groups

The crisis disproportionately affects vulnerable groups, including women, the elderly, and children, who are often dependent on the informal sector. These groups are less likely to have savings or assets to cushion against economic shocks, making them more susceptible to food insecurity and reduced access to healthcare.

Conclusion

Ghana’s economic challenges are a  reminder of the impacts of economic mismanagement and policy failures. High inflation, economic instability, and exorbitant borrowing costs are pushing more Ghanaians into poverty and struggles for those already on the margins. Addressing these issues requires serious policy reforms, improved fiscal discipline, and support for vulnerable populations. Comprehensive economic strategies are essential to protect the livelihoods of Ghanaian workers and promote sustainable economic growth. Without these changes, the cycle of debt and financial vulnerability will continue to deepen, further worsening the quality of life for Ghanaian workers.

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