Zero financing conflicts with BoG Act
The Bank of Ghana (BoG) is violating its own act by adhering to the prescriptions of the International Monetary Fund (IMF) to cut the financing of the government’s budget to zero.
Advertisement
This is because, the recommendation by the IMF is in conflict with the Bank of Ghana Act 2002, Act 612, a Chartered Economist, Dr John Gatsi, has observed.
He said before the IMF programme with the government, under which the state is to receive US$ 946 million dollars, the Act governing the BoG stipulated that the central bank could extend loans to the government not exceeding 10 per cent of the previous year tax revenue.
“But the IMF programme is stating that that should not happen at all. I do not think the IMF programme should actually undermine or contradict any of our laws, even though it’s a package to help us strengthen our finances as a country; but we also need to marry the two, that there is already a provision in our laws guiding that. If we are to go by that instruction word by word, it means that we need some change in the BoG Act,” he said in an interview with the GRAPHIC BUSINESS.
Dr Gatsi, who is also a lecturer of the University of Cape Coast, said it was crucial for the central bank to finance the activities of the government because of its inability to raise all the financing to be able to finance its programmes.
Therefore, one of the ways to support the government “is to receive borrowing from the BoG and if that is going to stop it means that there will be pressure on the government to raise more money through other means and that is one of the reasons why it has to look elsewhere.”
Bank of Ghana Act 2002, Act 612
The total of the loans, advances, purchase of treasury bills and securities together with money borrowed by the government from other banking institutions and the public at the close of a financial year under subsection (1) shall not exceed 10 per cent of the total revenue of the fiscal year in which the advances were made.
Zero financing
The 2012, 2013 and 2014 Auditor General's reports on the BoG show that government borrowings were in excess of the limits imposed in the BoG Act.
For instance, they noted significant balances on drawing accounts operated by the government directly through other government institutions, leading to an increase in the net exposure to the government in excess of the ceiling that had been set by Section 30 (1-3) of the BoG Act.
They recommended that the central bank should initiate measures to ensure that the provisions of the BoG Act regarding loans and advances to government were complied with.
The Governor of the (BoG), Dr Abdul-Nashiru Issahaku, has said the central bank had stopped extending loans to the government beginning this year.
This means the government is not enjoying any financing from the BoG.
Correcting economic imbalance
According to Dr Gatsi, although one of the main reasons for the IMF recommendation is to help correct the economic imbalance but not to destroy the country’s economy, Ghana’s economy is used to some kind of financing from the central bank such that stopping it all together will definitely put some difficulty on the economy.
“For example, if the central bank lends money to the Government of Ghana at 26 per cent, that forms a basic of interest rate development in the country. Now if that is collapsed and the central bank is not lending money to government at all, then it means that that base that is set higher to determine interest rate in the country has collapsed and that will also help in the restructuring of the interest rate regime in the country,” he said.
He recommended that “as Ghana goes through review programmes with the IMF from time to time, the areas where there is the need for some relaxation and flexibility ought to be discussed during the review process so that the IMF can also look at whether it is possible to review some of its conditionalities set up in the agreement.”
