Pension Reforms Drive Surge in Domestic Capital Markets — Analyst
By: Solomon Nartey Tetteh
Economic Analyst Emmanuel Boateng says countries that adopt pre-funded pension systems with mandatory individual accounts experience a major boost in their domestic capital markets, with domestic capital issuance rising nearly fivefold within four years of such reforms.
Speaking on the Business Breakfast on Zed 101.9FM, Mr. Boateng referenced findings from a recent report showing that while domestic capital issuance surged significantly after pension reforms, international issuance recorded no major increase.
He explained that the mechanism behind this trend is straightforward: a pre-funded pension system creates a large pool of long-term domestic savings that must be invested.
“Typically, one person’s savings translate into a loan for another person,” he said. “There are people who have more money than they currently need, and there are people who need more money than they currently have. When you match these two groups, the economy benefits.”
According to him, these long-term savings naturally flow into the capital market, providing firms with access to patient capital and reducing their reliance on international borrowing. “For countries that went that way with pension reform, domestic capital issuance increased almost five times as a share of GDP within the first four years,” he stressed.
Mr. Boateng added that while pension reform strengthens local markets, international capital account liberalisation can complement this by boosting foreign borrowing and widening funding options for firms.
Citing Colombia as an example, he noted that the country implemented several rounds of capital account expansion, eased restrictions, and offered tax incentives to attract foreign investors, steps that broadened access to international funding sources.
He suggested that Ghana could draw lessons from such reforms as it works to deepen its capital markets and strengthen domestic financing structures.
The analyst also emphasised the critical role of Ghana’s domestic capital market in driving sustainable economic growth, noting that data strongly supports the need to deepen local market development.
Mr. Boateng explained that strengthening the domestic capital market is “absolutely crucial” for Ghana’s economic resilience. According to him, the evidence, rather than personal opinion shows a clear trend in favour of local market financing.
He noted that in low- and middle-income countries, including Ghana, domestic capital markets account for 79% of equity and 53% of bond cumulative net issuances over the review period.
The analyst noted that strengthening the domestic capital market matters, beginning with the ability of firms to raise capital in local currency. This, he stressed, helps avoid the exchange rate risks associated with borrowing internationally, a risk that can be particularly damaging in economies like Ghana’s, where currency depreciation is common.
