By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU
Authorities should leverage the nation’s abundant natural resources base and growing inward remittance sector to recapitalise the Bank of Ghana (BoG) without unduly straining the national budget, according to financial expert Dr. Richmond Atuahene.
This recommendation comes as the central bank continues to grapple with a negative equity position following the domestic debt exchange programme (DDEP) in 2022 and 2023, when it was heavily exposed to government instruments.
In a paper titled ‘Bank of Ghana’s sustained negative capital and its implications on economy and potential solutions’, Dr. Atuahene suggested that despite attempts to minimise the losses as ‘technical’, which would not impact the BoG’s ‘core duties’, government, through the Ministry of Finance must prioritise recapitalising the BoG – which is estimated at GH¢53billion (approximately US$3.4billion).
He advocated innovative measures, including revising fiscal frameworks governing the natural resource sector and strengthening inward remittance regulations to bolster foreign exchange reserves.
“Government has limited fiscal space due to the country’s debt overhang and blocked access to both international and domestic markets,” he said.
“Leveraging Ghana’s natural resource wealth and the remittance market offers a viable method to recapitalise the Bank of Ghana without exacerbating budgetary pressures,” he added.
The banking consultant argued that relying solely on traditional options like asset transfers and profit suspensions may not be sufficient.
Dr. Atuahene’s recommendations align with broader guidance from the International Monetary Fund (IMF). In its latest report, the IMF outlined options for recapitalising the BoG in line with its programme parameters, including asset transfers and the use of programme-generated buffers.
“The urgency cannot be overstated. A well-capitalised central bank is essential for maintaining monetary policy independence and ensuring financial stability,” Dr. Atuahene cautioned.
Revising natural resource fiscal regimes
A critical component of Dr. Atuahene’s proposal involves overhauling the prevailing natural resource fiscal regimes. He reasoned that existing legislation, including the Petroleum (Exploration and Production) Act, 2016 (Act 919) and Minerals and Mining Act, 2019 (Act 995), should be revised to enable the state to capture greater value from its resource wealth.
He suggested adopting production-sharing or service-contract agreements, which would increase government’s share of resource revenues. This approach could allow the nation to leverage its gold and hydrocarbon reserves as collateral for raising capital.
“By pledging or collateralising natural resource deposits, government can attract the necessary capital without direct budgetary allocations,” Dr. Atuahene explained.
Additionally, he recommended engaging stakeholders in closed-door negotiations to explore options like sale-and-purchase agreements, debt-equity swaps and new ownership structures.
These measures, he noted, could provide the financial flexibility needed to stabilise the BoG’s balance sheet.
Strengthening inward remittance framework
Beyond resource mobilisation, Dr. Atuahene highlighted the importance of harnessing growing remittance inflows to support recapitalisation efforts.
He called for a comprehensive review of the regulatory framework governing inward remittances to ensure compliance with the Foreign Exchange Act, 2006 (Act 723).
According to him, greater oversight of money transfer operators and fintech firms could help prevent the externalisation of remittance inflows, thereby increasing foreign exchange availability.
“A robust regulatory environment will not only capture more foreign currency but also reduce the risk of balance of payment crises,” he noted.
To streamline oversight, he proposes establishing a dedicated Inward Remittances Department at the Bank of Ghana. This department would be tasked with tracking and capturing all foreign exchange from remittances and ensuring compliance with relevant laws.
Dr. Atuahene pointed to Bangladesh as a model, where 90 percent to 95 percent of remittances are processed through formal banking channels.
“The Bank of Ghana could significantly improve its foreign exchange position by adopting a similar approach to Bangladesh,” he stated.
This, he suggested, would strengthen the country’s exchange rate management while enhancing the central bank’s financial position.
Exploring diaspora bonds
Given the limited fiscal space, Dr. Atuahene advocated innovative financing mechanisms such as diaspora bonds. These instruments, widely used by countries with significant overseas populations, could tap into Ghana’s global diaspora community to raise capital for BoG recapitalisation.
“Diaspora bonds present a unique opportunity to mobilise foreign currency from Ghanaians abroad while fostering national investment,” the banking veteran remarked.
Such an approach could complement other measures, providing a diversified funding base for the central bank’s recapitalisation.
While traditional methods – such as budgetary transfers, asset transfers and suspending profit distributions – are often the go-to solutions for central bank recapitalisation, Dr. Atuahene argued that these approaches alone will not suffice under the current fiscal constraints.
He suggested issuing interest-bearing government securities to the apex bank could provide an immediate capital boost. However, this approach effectively internalises the fiscal burden – further tightening the already constrained national budget.
“With government’s debt obligations and limited access to financial markets, innovative solutions are not just advisable – they are imperative,” he stressed.
