- cites averting ‘disorderly’ defaults, ensuring critical imports
Amid public criticism for what is seen as an “excessive” level of government borrowing – which stood at GH¢44.5 billion at the end of December 2022 – the Bank of Ghana (BoG) has defended its actions, saying that the financing of the budget deficit was necessary to prevent the economy from coming to a standstill, as the country found itself in a precarious financial situation which required such measures.
According to the monetary authority, since the government had lost access to the International Capital Market at the beginning of 2022 and domestic revenue was underperforming, there was the danger of both external and domestic default.
To avoid a ‘disorderly’ default in servicing debt as well as financing critical imports, such as crude oil, the Bank said, it stepped in to provide the necessary funding to keep the economy stable.
“The government needed to finance critical expenditures for which Bank of Ghana needed to provide the necessary financing to avert a disorderly default of both servicing for domestic and external debt including financing critical imports to keep the economy on the stable path,” the BoG said in a statement on the matter.
IMF-backing
The BoG added that the assessment conducted by the International Monetary Fund (IMF) team confirmed that the temporary financing was essential as a component of a comprehensive resolution, which would be addressed through the government’s economic policies and programs backed by the IMF.
The Bank described the notion that the IMF came and uncovered the extent of the overdraft is “wholly inaccurate.”
“In fact, while the team from the International Monetary Fund (IMF), who assessed the situation of the economy, noted that this outcome is sub-optimal, it was agreed that this temporary arrangement was needed as part of a comprehensive solution to be addressed in the Government’s economic policies and programmes to be supported by the IMF. And so, the indication in the media that the IMF came and uncovered the extent of the overdraft is wholly inaccurate,” the statement added.
The central bank explained that the current debt initiatives are a component of the remedial actions taken to tackle the budget’s financing issues.
Its financing was utilised as a method of crisis management during the challenges faced in 2022. In light of the COVID-19 crisis, the Parliament of Ghana suspended the Fiscal Responsibility Act in 2020, and it has yet to be reinstated by the Parliament.
Breakdown
The bank revealed that the GH¢ 37.9 billion overdraft was extended solely for the purpose of addressing auction shortfalls, paying matured bonds and financing critical imports.
This was in addition to GH¢7.2 billion, which represented the bank’s purchase of treasury bonds from banks to provide them with liquidity as well as GH¢8.9 billion, “representing on-lending facilities granted by the International Monetary Fund (IMF) for onward lending to the Government.”
The BoG also highlighted the increase in the government’s deposit liabilities at the bank, which recorded an increase of GH¢9.5 billion in the course of 2022.
“On a net basis, therefore, putting together all claims and netting off all deposit liabilities, these transactions resulted in an increase in Bank of Ghana’s net claims to the Government by GH¢ 44.5 billion,” the BoG said.
This comes as the Minister of Finance, Ken Ofori-Atta, is scheduled to present to Parliament on Thursday, February 16, to furnish the House with information regarding the DDEP.
