BoG must work to restore confidence
The complex web of monetary policy and government financing is once again in the spotlight as the Bank of Ghana (BoG) comes under criticism for incurring a loss of GH¢60.8 billion last year.
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There are concerns that the central bank printed GH¢77.6 billion for the government, which was later written off and replaced with a 15-year bond.
The amount exceeds the acceptable threshold of five per cent of the previous fiscal year’s total revenue as mandated by law.
BoG undertook the actions without adhering to the legal requirement of informing the Finance Minister who would, in turn, report to Parliament.
The bank attributes the loss to the impact of the Domestic Debt Exchange Programme, specifically affecting “Legacy Government Papers and Transactions” dating back to 1992.
For many, these alleged violations provide ample evidence of wilfully printing money to finance the government.
If this is proven to be true, it means that the central bank has not only disregarded legal obligations, but also set aside its duty to uphold the sanctity of the country’s financial regulations.
Indeed, a recent World Bank report revealed that the inflation caused by the BoG’s excessive money printing plunged nearly 850,000 Ghanaians into poverty by the end of 2022.
This alarming statistics highlight our collective failure as a country to help improve the lives of the average citizen.
Instead, some wrong economic policy-making and implementation have resulted in more people becoming poorer.
We have noted the central bank’s explanation that it triggered Section 30(6) of the Bank of Ghana Act (612), as amended, to purchase GH¢10 billion COVID-19 bonds to support the economy through the difficult period of the pandemic.
Indeed, Section 30 (6) of the Bank of Ghana Act (612), as amended, allows the Governor, the Minister of Finance and the Controller and Accountant General to agree on a new limit of central bank financing. The law says that the Minister of Finance will then have to inform Parliament.
The BoG insists that no law had been breached because the minister informed Parliament as part of his briefing to update the House on the IMF programme and the status of the Domestic Debt Exchange.
While we will not dispute the BoG on this matter, there are still critical questions that remain unanswered.
For example, did the BoG inform Parliament through the minister that it was exceeding the regulatory limit of the previous year’s fiscal total revenue? If it did, what limit did they agree on with the Controller and Accountant General and the Finance Minister?
To the extent that Parliament is raising issues of regulatory breaches, it means that the BoG will have to strengthen its reporting lines to ensure transparency.
There are many who believe that the BoG has compromised its independence and has been over-exposed to the government.
For us, these concerns, as legitimate as they may be, undermine confidence in the financial sector and once credibility is lost, it becomes difficult to restore even if the bank becomes solvent.
The Daily Graphic, however, warmly welcomes the measures and assurances instituted by the BoG to restore confidence in the lender of last resort.
The measures are aimed at bolstering confidence in the bank, retaining profits and helping rebuild capital until equity firmly returns to a positive region.
The bank also said it was taking immediate steps to optimise its investment portfolio and operating a cost mix to bolster efficiency and profits.
It also plans to assess the potential need for recapitalisation support by the government in the medium to long term.
In this regard, we urge the central bank to adhere strictly to the Memorandum of Understanding on zero financing of the budget signed between it and the Ministry of Finance on April 26, 2023.
The Daily Graphic supports the bank’s continued efforts to restore macroeconomic stability and debt sustainability in addition to the long-term efforts at building reserves and providing enough basis for continued operational policy efficiency.
We, therefore, appeal to all stakeholders and the general public to engage the central bank and to refrain from undermining its confidence-building measures because once confidence and credibility are lost, it takes years to restore them.
