Dr Addison: BoG’s intervention prevented economic standstill 

Governor of the Bank of Ghana (BoG), Dr. Ernest Addison has defended the Central Bank’s decision to finance government expenditure last year to prevent the economy from being totally destabilized.

Economic instability

According to him, without Central Bank intervention, the economy would have come to a standstill, leading to an economic instability.

Ratings downgrade blocked access to $3bn from capital market

He explained that 2022 started with the downgrading of the economy by credit ratings agencies blocking the country’s access to the capital market where Ghana borrows at least $3 billion each year prior to 2022.

Revenue projections fell far below expectations

Dr Addison pointed out that in addition to losing access to the capital market, revenue projections fell far below expectations.

Govt finances in trouble

Speaking at the annual stakeholder meeting of the State Interests and Governance Authority (SIGA), the Governor said the developments put government finances in trouble as there was no money to fund expenditures.

GH¢44.5bn net claims on govt in 2022

BoG records show that net claims on the government increased by about GH¢44.5 billion at the end of December 2022.

GH¢7.2bn purchase of treasury bonds

Giving a breakdown, BoG noted that GH¢7.2 billion, represented its purchase of treasury bonds from banks to provide them with liquidity to enable them meet their obligation to customers.#

GH¢8.9bn on-lending facilities granted by IMF

In addition, GH¢8.9 billion is on-lending facilities granted by IMF for onward lending to government.

GH¢37.9bn overdrafts

In the same vein,  GH¢37.9 billion, represents overdraft extended to government, solely meant for the purpose of addressing auction shortfalls and paying customers whose bonds had matured and for which government did not have adequate resources.

GH¢9.5bn govt deposit liabilities

According to BoG, Government Deposit liabilities recorded an increase of GH¢9.5 billion in the course of 2022.

BoG stepped in to prevent economy from being standstill

Dr Addison stated that the Central Bank stepped in to prevent the economy from destabilizing and coming to a standstill.

Crisis would have been much earlier

He pointed out that if the BoG had not stepped in, Ghana could have gone into this crisis much earlier and investors in government bonds would not have been paid their interest.

Situation unsustainable by mid 2022

The Governor explained that the situation became unsustainable by mid 2022, leading to the government’s decision to seek support from the International Monetary Fund (IMF).

IMF supports BoG financing of govt

According to him, IMF agreed that financing from the Central Bank was needed until a plan is finalized.

IMF applauded BoG for stepping in

He revealed that the IMF applauded the Central Bank for stepping in on time to stabilize the macro-economic condition to avert a collapse of the economy.

“We have been discussing this plan with the IMF over the last three to six months and finally had a staff-level agreement in December,” he added.

Fiscal consolidation and debt restructuring

The plan, according to Dr. Addison, involves fiscal consolidation and debt restructuring.

“So when people speak as if we have been reckless, I disagree completely,” he said.

Analysts criticize BoG’s intervention

Some analysts have criticized BoG for supporting government expenditure in 2022, arguing that the central bank acted irresponsibly.

Critical role of BoG

He maintained that one of the critical roles of the Central Bank is to step in and stabilize the economy when there is danger ahead.

No more BoG support for govt

According to Dr. Addison, one of the key objectives of the IMF programme is to ensure that the revenue and expenditure plan for 2023 does not require Central Bank financing in order to make BoG’s interest rate policy more effective and targets achievable.

State-Owned Enterprises

He added that there was also a decision on aligning structural policy, hence the decision to include State-Owned Enterprises (SOEs).

Competitive and efficient SOEs

“It is important that SOEs are competitive and efficient and it is expected that we will have a policy which will state clearly what the objectives and guiding principles of state ownership will be.

Roles and responsibilities of shareholders, management of SOEs

“It must also state clearly what the roles and responsibilities of the shareholder or the management of SOEs will be.

Financing of SOEs and dividend payments

“The policy should also specify what the fiscal relations between the government and SOEs are, including the financing of SOEs and dividend payments,” he added.

Remuneration of board members and management of SOEs

Dr. Addison is of the view that it is important for the policy to also provide a framework for the remuneration of board members and the executive management of SOEs and also a framework for the appointment of board members, as well as executive management, based on their technical competence.

Cap on salary adjustment of SOEs

He pointed out that it is long overdue to place a cap on the salary adjustment of SOEs.