Are there vacancies for BoG top posts?

BY: Suleiman Mustapha
The trio at the BoG. Dr Ernest Addison (middle), Dr Maxwell Opoku-Afari (right) and Mrs Elsie Awadzi
The trio at the BoG. Dr Ernest Addison (middle), Dr Maxwell Opoku-Afari (right) and Mrs Elsie Awadzi

The tenure of one of the most outstanding public executives during the first term of the President Nana Akufo-Addo administration is about to come to an end.

Appointed during the first half of 2017, Dr Ernest Addison’s first term as Governor of the Bank of Ghana expires just a few months from now.

Surely, the chief central banker can have his tenure extended for a second term. Indeed, in decades past this was the usual practice; the tenure of a central bank governor tends to correspond with that of the President who appoints him and so usually in the past, the BoG Governor has tended to have a tenure of two four-year terms that more or less mirrors the two four-year terms of the President.

Instructively, however, the last central bank governor who served two full terms was Dr Paul Acquah, the appointee of then President John Agyekum Kufuor, and whose second term expired at the start of 2009. None of his successors have lasted two full terms in the job; indeed over the past 12 years, Ghana has had four different central bank governors and two of them did not even last a single four-year term. Indeed only the late Paa Kwesi Amissah-Arthur – who left the central bank to become Vice-President after one term – and Dr Ernest Addison, have seen out full four-year terms since then.

The conventional wisdom is that Dr Addison will return the tenures of BoG Governors back to how they used to be.

Tough measures

Despite taking some tough and uncompromising measures, financial industry analysts and monetary economists alike agree that his performance as chief central banker has been truly exemplary.

But another tradition in Ghana – and this one not having been in abeyance in recent times – is political lobbying for top tier public sector positions and there are few higher than BoG Governor.

Already there is talk that the President is being lobbied by several potential candidates to pass the mantle over to them at the imminent expiration of Dr Addison’s first term.

Unsurprisingly, this political lobbying is based on political considerations rather than monetary economics, primarily because with regard to the latter, the incumbent’s track record in office is impeccable.

However, following the victory of President Akufo-Addo at the December 7, 2020 polls, lobbyists for the job are arguing that a governor with a more populist approach to monetary policy and financial intermediation industry regulation is needed.

They argue that the hard choices made by Dr Addison and his team have contributed to angst among the electorate who want more liquidity in the economy, greater local participation in the banking sector and a more tolerant regulatory stance to financial intermediation.

Effectively though, this amounts to asking the President to place political expediency above economic necessities.

Economic analysts

It is instructive that the harshest criticism of the BoG under Dr Addison has come from the government’s political opponents rather than from economic analysts and even broader public policy commentators. Indeed, Dr Addison and his team have resisted the temptation to adopt populist monetary and regulatory policies, at the cost of their personal popularity among the less enlightened segments of the populace, who have accepted the deliberately distorted criticisms of those with narrow vested interests, that he has put key performance indicators ahead of the general well-being of the people and has deliberately allowed foreign interests to dominate the commanding heights of the financial intermediation industry.

But the ultimate outcomes of his policies provide incontrovertible proof that under his unerring guidance, the central bank has done the right things. This is illustrated most vividly in two ways.

One is the resilience and sheer performance of the financial intermediation industry in 2020 that faced the biggest external challenge it has ever faced – the impacts of the outbreak of the global COVID-19 pandemic.

Financial sector reforms

It is worthy of note that the financial sector reforms carried out by the BoG between August 2017 and the end of 2019 made the industry more resilient while deepening the corporate governance and risk management practices to navigate the deeply adverse effects of the viral outbreak last year without missing a beat– even the relatively small microfinance institutions have all stayed afloat despite a severe run on deposits by panicky customers.

At the same time, prodded by solid monetary stimulus initiatives introduced by the BoG as part of the COVID-19 response strategy – such as a reduction in the requisite capital buffer and reserve requirements – commercial lenders, actually increased their financial support to customers in spite of all factors at the time suggesting a retreat from offering new loans was on the cards out of sheer conservative prudence in the face of huge economic and business uncertainties.

Alongside this, the BoG’s initiatives towards promoting and facilitating digital banking, since 2017, prepared the industry for the unforeseeable but urgent need to replace traditional banking product and service delivery with digital channels for consummating financial transactions and intermediation. Consequently, even during the outright lockdown of Greater Accra and Kumasi, Ghana’s two largest economic hubs, financial service delivery continued unabated, quickly quelling the initial panic of the banking public.

Sand box strategy

Indeed, the central bank’s efforts in this regard have been transformational and can still be stepped up with the introduction of sand box strategy to allow financial institutions pilot new technology driven products and services without risk to the banking public.

One of the accusations of the BoG is its liquidity stance as a reason for voter angst last December. This is incongruous — under Dr Addison, monetary easing has seen the benchmark Monetary Policy Rate lowered from 25 per cent to 14.5 per cent within barely three years.

Further easing has only been curtailed by the need to prevent government’s inordinate but necessary fiscal deficit of 11.8 per cent of Gross Domestic Product (GDP) forced on it by COVID-19, from translating into runaway inflation.

But even more importantly, the management of the central bank has introduced some crucial new initiatives that have greatly enhanced and accelerated policy transmission with regard to monetary easing.

One that easily comes to mind is the Ghana Reference Rate, used as base lending rate by all banks, which instructively has been very effective in bringing down lending rates faster than the benchmark MPR’s decline, in turn lowering the real cost of credit significantly.

Targeting inflation

All this has brought exemplary success to the BoG in its primary role as an inflation targeting institution. Prior to the inevitable effects of the COVID 18 outbreak, inflation had been brought below the median level of the central bank’s inflation target band of eight per cent plus or minus two per cent, (meaning between six per cent and 10 per cent).

Even after COVID- 19’s effects spiked inflation above the band, the BoG has expertly managed the situation bringing it back to the target band’s upper end with expectations of returning to the eight per cent median before the middle of 2021.

This achievement is in part the result of arguably the BoG’s most impressive feat — the stabilisation of the exchange rate.

In 2020, the cedi only depreciated by some 3.5 per cent against the United States dollar despite the severely dampened economic productivity and inordinate fiscal deficit caused by the coronavirus outbreak and even more importantly, the general election which traditionally results in a spike in cedi depreciation.

The key here has been the introduction of forward foreign exchange sales which, by setting formal future price expectations for forex among traders, has pulled the rug from under the feet of forex traders who hitherto took speculative positions against the cedi for profit.

Forex sales

The BoG ‘s forward forex sales now ensure that the exchange rate is determined by economic fundamentals rather than speculative trading and expectedly this will provide a sustained solution to the longstanding problem of inordinate steep cedi depreciation.

Little wonder then that Dr Addison was last year voted the world’s best central banker even as the BoG itself was adjudged the best central bank worldwide.

There is absolutely no reason, therefore, to change Dr Addison; indeed, he should be persuaded to stay even if he wishes to bow out.

It was even more encouraging that the President in his last State of the Nation’s Address touched on how the central bank had protected depositors’ funds and had steered the financial sector to soundness and safety.

As for those lobbying for the job – they should be told in no uncertain terms that there is no vacancy for the job of BoG Governor.