## IMF Survey: Ghana's Reforms Transform Its Financial Sector

_IMF News, May 22, 2008_

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**Canonical URL:** [IMF Survey: Ghana's Reforms Transform Its Financial Sector](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar052208a)

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## Bibliographic details
- Authors: Mahamadu Bawumia, Theresa Owusu-Danso Bank
- Published: May 22, 2008

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### Overview
- Ghana's macroeconomic stabilization has enabled notable development of its financial sector, attributed to solid "buy-in" from key stakeholders—especially the private sector—and coordinated donor assistance.
- Goal emphasized: financial stability through deeper markets and better resource allocation.
- Source authors: Mahamadu Bawumia and Theresa Owusu-Danso (Bank of Ghana) and Arnold McIntyre (IMF African Department).
- Publication date: May 22, 2008.

### Reforms to date and impact on growth
- Financial-sector liberalization was well-sequenced, with enhanced competition (including from abroad) and gradual capital account liberalization.
- The joint IMF-World Bank Financial Sector Assessment Program (FSAP) assessment in 2000 and its 2003 update identified a medium-term financial-sector strategy and guided reforms.
- Key indicators of success:
  - Growth rose to 6.3 percent in 2007 from 4.5 percent in 2002.
  - The ratio of money (M2) to GDP doubled after 2004, reaching 43 percent of GDP by the end of 2007.
  - Banks account for about 70 percent of the financial sector.
  - Capital adequacy ratio reached 14.8 percent in 2007 from 9.5 percent in 2003.
  - Share of nonperforming loans fell to 5.4 percent in 2007 from 14.7 percent in 2003.

### Donor assistance, ownership, and structural change
- Reforms guided by the government's Financial Sector Strategic Plan to deepen the financial sector, build capital markets, and increase outreach and access.
- Coordinated donor assistance was vital for institutional development and training programs.
- Reduced direct state involvement has increased financial sector dynamism; the government expected to complete selling its shares in private financial institutions by the end of 2008.
- The state's role is shifting toward oversight to ensure the integrity of the financial system.
- In pensions, facilitation of private schemes is seen as vital to building the domestic capital market.

### Financial stability and soundness
- The banking system dominates Ghana's financial system; total banking system assets to GDP were 72.4 percent in 2007.
- Concentration: the three largest banks accounted for 41 percent of banking sector assets.
- Financial soundness improvements:
  - Emphasis on capital adequacy, bank risk management, and more on-site supervision.
  - Despite rapid credit expansion, the banking system's resilience to shocks increased through stronger regulation, technological advances, and improved risk management.
  - The central bank publishes a periodic financial stability report discussed by its monetary policy committee.

### Developing financial and capital markets
- Partial capital account liberalization via the Foreign Exchange Act in 2006 opened up longer-term instruments to nonresident investors and accelerated bond market development.
- Remaining challenges in capital markets:
  - Secondary government bond market is illiquid because most non-central-bank-held bonds are bought by banks.
  - Need to broaden the local private investor base beyond the Social Security and National Insurance Trust and the State Insurance Corporation.
  - Ghana Stock Exchange (GSE) characteristics: small and illiquid, total value traded is less than 1 percent of GDP, and turnover is below 4 percent.
  - Regulatory reform of the GSE completed; priorities include expanding the investor base through public education and fiscal incentives for mutual and private pension funds.

### Next steps and policy recommendations
- Priorities identified:
  - Deepen secondary capital markets.
  - Reform small and medium-sized enterprise finance, microfinance, and rural banking.
  - Increase the private-sector role in the pension and insurance systems.
  - Expand the equity market and ensure careful supervision of the evolving financial system.
  - Address cost inefficiencies that keep interest rate spreads too high.
  - Continuously adapt supervision to maintain stability amid rapid financial deepening and new financial instruments.
  - Update the government's Financial Sector Strategic Plan to address these priorities.
- Financial inclusion objective:
  - Banking serves only about 10 percent of the bankable population.
  - The central bank, with commercial banks, is spearheading a National Payments System to ensure delivery of financial services to all segments of the population, to be in place by June 2008.

### Firmer regulation of nonbank financial institutions
- Medium-term goal: firmer regulation of nonbank financial institutions.
- The Bank of Ghana drafted a nonbank bill covering:
  - Licensing, capital, liquidity, and other requirements.
  - Ownership and corporate governance.
  - Accounts and financial statements.
  - Powers of supervision and control.
  - Receivership and liquidation.
- The nonbank bill is presented as a key element to bolster regulation and supervision for a dynamic financial sector.

*IMF Survey: Ghana's Reforms Transform Its Financial Sector — Mahamadu Bawumia, Theresa Owusu-Danso, and Arnold McIntyre; May 22, 2008.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the financial assessment](https://www.imf.org/external/pubs/cat/longres.cfm?sk=17098.0)
- [Ghana and the IMF](https://www.imf.org/external/country/GHA/index.htm)
- [Inflation targeting in Ghana](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR021408A.htm)
- [Africa growing rapidly](http://www.imf.org/external/pubs/ft/survey/so/2008/CAR022108B.htm)
- [Risks to Africa's expansion](http://www.imf.org/external/pubs/ft/survey/so/2008/CAR041208A.htm)
- [Debt relief helping Africa](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR022508A.htm)
- [Investor interest in Africa](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW022508A.htm)
- [IMF support for Africa](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR022908A.htm)
- [Inflation targets in Ghana](http://www.imf.org/external/pubs/ft/survey/so/2008/CAR021408A.htm)
- [Financial Sector Assessment Program](https://www.imf.org/external/np/fsap/fsap.asp)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar052208a_