Bank of Ghana’s financing of govt not fatal
Dr Ernest Addison — Governor, BoG

Bank of Ghana’s financing of govt not fatal

Last week, the Minister of Finance, Ken Ofori-Atta, told Parliament that the Bank of Ghana (BoG) loaned a total of GH¢37.96 billion to the government in 2022 to help meet public expenditure demands.


The report to the Legislature was in compliance with Section 30 (6) of the Bank of Ghana Act, 2002, (Act 612), which requires that the Minister alerts Parliament of the amount that was borrowed from the central bank under emergency.

The Graphic Business finds the action by the Finance Minister as a feather in the cup in our push for good governance and institutional oversight, albeit late in coming.

Having descended into an economic crisis of historical magnitude last year, the country needed to marshal all its forces to help steady the ship and guide it to calmer waters.

Bank of Ghana

This required the resort to unpopular yet emergent policies akin to jettisoning in ocean transportation where some shipments were sometimes thrown overboard during emergencies to help save the rest.

In the case of Ghana’s economic situation last year, one of those avenues was to the resort to the central bank for resources to close the gap created by low revenues in the midst of a lack of market access and the ballooning expenditures.

Although the practice has been accepted to be suboptimal and was, therefore, rarely used, it came up as one of the credible avenues to saving the situation.

As Mr Ofori-Atta said in his statement to Parliament, the situation presented a very challenging macroeconomic environment during 2022, leading to a widened financing gap of the budget.

He said it, therefore, became necessary for BoG to fund shortfalls at the auction market to avoid a disorderly default and prevent a deeper crisis.

Financing of govt

There is no belabouring the point that unrestrained deficit financing is counterproductive: It crowds out the private sector, fuels inflation, depresses demand and ultimately slows down economic growth.

This explains why the government, BoG and the International Monetary Fund (IMF), had adopted the zero deficit financing until the emergencies caused it to be set aside.

However, as laws are made for man and not the reverse, it is a mark of prudence to bend backwards to save a situation with a temporary but emergent arrangement than allow an entire system to crash in a supposed defence for a standard.

Examples abound in developed economies, including the United States of America (USA), the United Kingdom (UK) and Europe where central banks have stepped in during emergencies to keep economies afloat.

What should not be countenanced though is the abuse of these emergency windows to the neglect of other prudent tools such as expenditure rationalisation.

While we re-emphasis our mantra for efficiency and prudence in spending, we are comforted that BoG, the Ministry of Finance and the IMF are in agreement that deficit financing will become a thing of the past.

For us at the Graphic Business, deficit financing is not fatal once it is done within the requirements of the law but a continuous resort to it will be a mark of fiscal indiscipline.

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