BoG throws lifeline to economy

BoG throws lifeline to economy

Two economic experts say but for the central bank’s GH¢44.5 billion support to the government, the economy would have crashed last year.

Dr Said Boakye of the Institute for Fiscal Studies (IFS) and Prof. Peter Quartey of the Institute for Statistical, Social and Economic Research (ISSER), however, noted that the quantum of the central bank support was concerning.


They concurred in separate interviews that while the action was suboptimal, it helped to mitigate the impact of the crisis that the economy was embroiled in.

They cited delayed payment of salaries, insufficient imports, including fuel and medical supplies, and a general breakdown of economic activities as some of the challenges that the country could have been submerged in had the central bank not stepped in with funding.

Given that the international capital market was shut to the country last year, at a time when revenues and treasury auctions were not encouraging, Dr Boakye and Prof. Quartey said the economy could have ground to a halt if the central bank had not intervened with the funding.

Their position confirms the central bank’s assessment on the matter, which was contained in a statement issued on February 8.

In that statement, the BoG said its net advances to the government totalled GH¢44.5 billion in 2022 to save the economy from getting into a ditch.

Public outcry

The two economists were speaking with the Graphic Business during a recent public discussion on the central bank’s funding of the budget in 2022.

The BoG and the International Monetary Fund (IMF) have described the action as a temporary solution to the crisis that the economy faced last year.

In siding with that position, Dr Boakye, who is the Head of Research at the IFS, said 2022 was particularly difficult for the economy, such that unpopular policy choices, such as deficit financing, were necessary.

“Truly speaking, it was very tough in 2022,” he said.

The government had budgeted to go for about US$3 billion from the Eurobond market, but the downgrading of the economy from B plus to B minus and subsequently to C took Ghana off that international finance market; revenues were not coming in and the auctions were also failing.

“So things were very rough and the central bank had to step in to keep the country running and that is understandable,” he said.


Between 2016 and 2020, the country operated a zero deficit financing policy based on a memorandum of understanding (MoU) between the Ministry of Finance and the BoG, in line with the requirements of the IMF under the country’s 16th fund-assisted programme.

In 2020, when the COVID-19 pandemic peaked, the central bank suspended the policy under a certificate of emergency to purchase a GH¢10 billion sovereign bond that it said would help ease the financial constraint emanating from the crisis.

It, however, restored the policy in 2021, only to set it aside again last year in the wake of the economic crisis.

It is understood that the IMF now seeks to codify the policy under the US$3 billion programme that is being financed; given that economic emergencies can occur.

Dr Boakye of the IFS, however, said it was interesting that the IMF was asking the country to legalise zero deficit financing of the budget.

He mentioned the United States of America (USA) and the United Kingdom (UK) as developed economies whose central banks still financed their governments in times of crises and wondered why a developing country such as Ghana would seek to tow the opposite direction.

“If borrowing from the central bank is a sign of irresponsibility, then the Bank of England and the Federal Reserve Bank of USA have been culpable.

“Yes, the borrowing from the central bank adds to the momentum in inflation but there should be some flexibility,” he said.


“To me, the zero financing policy is not justified but I can understand,” he said citing the wanton abuse of the policy in previous years.

Although the Bank of Ghana Act requires that financing of the deficit should not exceed five per cent of the previous year’s revenues, the figure has often exceeded the five per cent limit in years when the central bank had to intervene.

Bitter pill

On plans to cut off central bank financing, Prof. Quartey, for his part, said it was a tough but necessary action.

He said the country needed to mature to the point where policies that spurred growth and sustainability were encouraged over short-term strategies that had long-term implications.


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