Renowned economist and Dean of the University of Cape Coast Business School, Professor John Gartchie Gatsi, has highlighted Islamic banking as a critical tool for addressing Ghana’s ongoing economic and financial challenges.
In an interview on Ghana Tonight with Alfred Ocansey on January 23, Prof. Gatsi emphasized the need for innovative financing options to support Ghana’s development amidst budget constraints and rising debt burdens.
The Finance Minister’s Challenges
Prof. Gatsi outlined the daunting tasks facing Finance Minister Dr. Cassiel Ato Forson, including managing debt repayments, stabilizing the exchange rate, addressing food inflation, and resolving energy sector arrears. He stressed the importance of collaboration between the Finance Ministry, sector ministers, and the presidency to address these pressing issues effectively.
“Every area of the Finance Ministry is crucial. The minister must strike a balance in addressing issues such as payments, loan repayments, and energy sector debts. Nothing should be treated as trivial or prioritized above the other,” Prof. Gatsi stated.
Budget Constraints and Limited Capital Expenditure
Analyzing Ghana’s budget structure, Prof. Gatsi noted that 35.5% is allocated to debt servicing, 24% to compensation, 5.5% to capital expenditure, and 5.4% to goods and services. This leaves minimal room for infrastructure development.
“For some time, Ghana will be working to pay interests, and the budget cannot accommodate significant economic expansion on the front of infrastructure. This is why alternative sources of financing, such as Islamic banking, are crucial,” he explained.
The Case for Islamic Banking
Prof. Gatsi highlighted the benefits of adopting Islamic banking, which offers unique financing mechanisms like sukuk (Islamic bonds) and access to the Islamic Development Bank.
– Sukuk Bonds: These bonds are structured based on equity engagement, where projects themselves generate revenue to repay loans.
– Membership Benefits: Becoming a member of the Islamic Development Bank would open avenues for development assistance in infrastructure, agriculture, and women’s empowerment.
– Diversification: Islamic banking allows the government to tap into non-traditional funding sources, reducing the public debt burden and expanding the capital market space.
“When structured well, Islamic banking promotes public-private partnerships with a Special Purpose Vehicle (SPV) to ensure that project loans are repaid without burdening the public purse,” Prof. Gatsi elaborated.
Support for Islamic Banking
President, H.E. John Dramani Mahama recently hinted at the adoption of Islamic banking during the National Thanksgiving Prayers with Muslims at the National Mosque. This aligns with Prof. Gatsi’s inaugural lecture in 2024 where he advocated for this financing model at the University of Cape Coast on the theme, “Islamic Banking Options: Exploring an Inclusive Alternative or Complement.”
Prof. Gatsi emphasized that Ghana must explore inclusive and sustainable financing options to navigate its economic challenges. Islamic banking, he argued, provides a viable alternative that aligns with the country’s development goals while easing fiscal pressures.
“By embracing this innovative financing model, Ghana can diversify its funding sources, support critical infrastructure projects, create jobs, and reduce the public debt burden”. “This is the way forward for sustainable economic growth,” Prof. Gatsi concluded.