The Dean of the Business School at the University of Cape Coast has said loans, treasury bills and other securities must not exceed the 5 percent interest cap in the wake of the Bank of Ghana's (BoG) bailout to support government's coronavirus related activities.
In a statement issued on the GH¢10 billion lending by the BoG to government, Prof. John Gatsi said any borrowing more than this requirement is illegal, and the explanation that we are not in normal times does not make it legal.
“According to Act 918 which amended Act 612 by introducing subsection 7, total loans, advances, Treasury bills and other securities must not be more than 5 percent of previous year’s revenue. Any borrowing more than this requirement is illegal, and the explanation that we are not in normal times does not make it legal,” he stated.
Prof. Gatsi explains that in 2019, the total revenue was approximately GH¢52bn; and 5 percent of this is equal to GH¢2.6bn.
“Therefore, the BoG has already provided GH¢4.5bn to government, which is a violation,” he indicated.
He however suggests that any form of government borrowing must be short-term and not long-term prior to an approval by Parliament.
“There should be prior approval of any amount determined by parliament. Also, this arrangement is not an ordinary support: it is a loan. The interest rate on the loan is the BoG policy rate, and is a floating interest rate – meaning if the policy rate goes up, the repayment burden goes up.”