BoG explains GH¢22bn financing of gov’t; says it’s not newly printed cash

The Bank of Ghana (BoG) has debunked allegations by a Member of Parliament (MP) that it has printed a whopping GH¢22billion new cash for government.
Dr. Ernest Addison, Governor-Bank of Ghana

The Bank of Ghana (BoG) has debunked allegations by a Member of Parliament (MP) that it has printed a whopping GH¢22billion new cash for government.

According to the MP for Ajumako-Enyan-Esiam, Dr. Casiel Ato Forson, who is the ranking member of the Finance Committee of Parliament, the central bank’s financing of government, to the tune of GH¢22billion captured in the budget, was fresh money printed into the system; adding, it is a breach of the law as it doesn’t have Parliamentary approval.

But responding in a statement signed by Secretary of the bank, Sandra Thompson, it gave details of the said amount, saying it includes four main items, namely: GH¢1.6billion of government bonds sold by commercial banks; GH¢6.2billion cash from the Special Drawing Rights from the International Monetary Fund; GH¢2.85billion of government’s own funds held with the bank; and GH¢11.4billion of overdraft to government.

“First, there is an amount of GH¢1.6billion which reflects GoG Stocks and bonds sold by commercial banks to Bank of Ghana under repurchase agreements. These bonds, held by a commercial bank since 2021, were purchased by Bank of Ghana to provide liquidity to the bank under a repurchase agreement that required the bank to buy back these bonds at a later date.

“Having purchased these bonds on the secondary market as a secondary transaction, Bank of Ghana’s holdings of GoG bonds increased by GH¢1.6billion, not because it had lent money to government, but because it had purchased a GoG bond originally purchased by the bank for investment purposes. As part of its function of providing liquidity to the banking sector, Bank of Ghana routinely enters into similar agreements (Repos and Reverse Repos) with commercial banks that hold government bonds and require liquidity to meet short-term obligations.

“These arrangements do not represent lending to government by Bank of Ghana. The proceeds of bonds purchased from banks go to those banks and not to government. Once Bank of Ghana purchases such bonds from banks, it holds them until maturity of the bonds, unless they are repurchased by the banks,” the statement said.

Next on the list is the GH¢6.2billion cash from the Special Drawing Rights from the International Monetary Fund.

“GH¢6.2billion of the amount reflects on-lending of IMF SDR resources to government in line with the overall objective of the special SDR operation by the IMF. IMF resources are usually meant for Balance of Payments support, and it goes directly to the central banks. However, in this particular instance, the special SDR allocation by the IMF was designed to provide budget support to countries to help address issues related to the COVID-19 pandemic.

Last year, Bank of Ghana received additional SDR allocation of SDR 707.3 million (US$1.001billion). In line with the broader objectives of the special SDR allocations, the Bank of Ghana on-lent the additional resources to the government. This was approved by Parliament in the 2022 Budget presentation. The amount of SDRs so far extended to the budget amounts to GH¢6.2billion.

The third item is the GH¢2.85billion of government’s own funds held with the bank.

“In addition, an amount of GHC 2.85billion reflects a drawdown on government’s own deposits held with the Bank of Ghana. These include statutory funds such as the GET FUND, National Health insurance, District Assembly Common Fund and the Sinking Fund. Also included are donor-related funds, as well as the Ministries, Departments and Agencies (MDAs) operational accounts with Bank of Ghana.”

Then, lastly, an overdraft of GH¢11.4billion given to government, which the statement says has been a normal and legal transaction between governments and the bank for many years.

“The residual amount of GH¢11.4billion included in the GH¢22.04billion represents an overdrawn balance on the government’s treasury main account held with Bank of Ghana as of the reporting date. Overdrafts of this nature occur from time to time, as the auction system has been designed to ensure same day settlement of maturities and interest payments, once the auction is concluded.

“This guarantee of same-day settlement of maturities and interest payments, which has always been part of the auction system, has underpinned the development of the local currency bond market. With such a guarantee, on occasions when there have been uncovered auctions, maturities are automatically settled and then a reconciliation is done with government.

“Incoming government cash deposits are then used automatically to liquidate such overdrawn balances on a rolling and continuous basis. The current gap of GH¢11.4billion reflects the net amount of the gap at the end of June 2022. This balance is cleared regularly. Any outstanding balance has to be cleared by the end of the year.”

The bank further assured the public of its commitment to discharging its duties within the remits of the law.

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