Ghana Economic Forum 2022: Terkper raises concerns over BoG’s financing of deficit

Seth Terkper, former Finance Minister of Ghana

Former Finance Minister, Seth Terkper, has reignited conversations on Bank of Ghana’s continuous financing of government, saying, it will weaken the bank’s financing position which will be detrimental to the recovery efforts.

His concerns come on the back of the central bank’s financing of government budget to the tune of GH¢22 billion as of the middle of the year.

Since the emergence of the Covid-19 pandemic, the Bank of Ghana shelved its zero-financing policy to lend to government to help mitigate the impact of the pandemic as well as deterioration of the country’s public finances.

This resulted in rating agencies downgrades, which in turn, contributed to a protracted lack of access to the Eurobond markets, led to a significant decline in external liquidity and access to the American greenback, thereby, having a significant impact on the local currency’s strength relative to the US dollar.

Mr. Terkper, at the 11th Ghana Economic Forum, said the Bank of Ghana (BoG) has attempted to manage the issue in the short term by financing the budget deficit, but it needs some significant inflows because it has been hemorrhaging.

“What BoG has tried to do, and this is what we have always done, is to manage the crisis in the short term, but they need some inflows because they’ve been haemorrhaging by financing the fiscal deficit. GH¢22 billion out of about GH¢37 billion deficit, that is two-thirds of the whole deficit is on BoG and this is a country that has come from a zero financing in 2016 to now be financing two-thirds of the deficit which was even as at mid-year,” he said.

“The central bank is hugely financing government expenditure, but something has to be done about this in the short-term,” Mr. Terkper said.

According to the BoG, the budget implementation, using banking sector data, for the first 9-months of the year recorded an elevated overall cash deficit of 6.4 percent of GDP, against the revised programmed target of 5 percent of GDP.

Total receipts of GH¢51.49 billion (8.7 percent of GDP) over the review period, fell short of projected target of GH¢60.08 billion (10.2 percent of GDP) and represented 85.7 percent of the budgeted estimate.

Total payments of GH¢89.04 billion (15 percent of GDP) was almost on target, representing 99.5 percent of GH¢89.46 billion (15.1 percent of GDP). The deficit of GH¢37.56 billion, together with net foreign loan repayments of GH¢3.54 billion, created a resource gap of GH¢41.1 billion, which was financed from domestic sources and the use of resources from the stabilisation fund.

IMF projections

Ghana’s fiscal deficit is expected to be 9.2 percent of GDP in 2022, according to the International Monetary Fund’s Fiscal Monitor Report from October 2022. It surpasses the government’s revised 6.6 percent estimate from the Mid-Year Budget Review.

The Fund predicted that the deficit would be marginally smaller in 2023, 2024, and 2025, at 8.6 percent, 8.9 percent, and 8.7 percent, respectively. However, it will begin to rise in 2026 and 2027, reaching 9.7 percent and 9.6 percent, respectively.

The primary deficit is anticipated to be 2.1 percent of GDP in 2022. On the other hand, it will decline to 1.1 percent of GDP in 2023 and even lower to 0.0 percent in 2024. This will show that the nation’s ability to raise revenue may be increasing.



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