2022 budget failed to address fiscal policy concern – BoG on losses

The Bank of Ghana (BoG) has attributed its 60 billion Ghana cedis loss to a series of factors.

According to the BoG, one of the factors is the government’s 2022 budget, which it argues failed to address fiscal concerns resulting in the country’s blockage from the capital market.

In a press statement that sought “to put the Bank of Ghana’s 2022 financial results in proper context”, the bank of Ghana attributes the root cause to mismatch in revenues and expenditure since 2020."

“It is important to put the Bank of Ghana’s 2022 financial results in proper context with a clear statement of the problem that Ghana faced and the chronology of events in Ghana since 2019. There was a clear mismatch between revenue inflows and expenditure financed in 2020 by exceptional support from the IMF and World Bank resources, and in addition to financing from the Bank of Ghana through the issuance of the GHS10 billion Covid-19 bond. As a result, sovereign spreads on Ghana bonds widened, signaling investor dissatisfaction with the stance of fiscal policy”, a portion of the statement reads.

The central bank further argues the 2022 budget's failure to address these dissatisfactions, unfortunately, aggravated the situation

“The Budget for 2022, which was read in 2021, failed to address fiscal concerns as the Budget was even more expansionary by about 23% with a raft of revenue measures to raise financing. As a result, the Credit Rating Agencies further downgraded Ghana’s sovereign debt rating, which blocked Ghana’s access to international capital market borrowing.”

“This triggered a liquidity crisis, spilling over into a balance of payments crisis. External and domestic payments needed to be made, the domestic auction was failing, and the Bank of Ghana had to step in to arrest a major economic and social crisis. In 2 months, the Bank of Ghana lost US$500 million in reserves and built a significant overdraft with the government as a result of the auction failures”, it added.

The central bank has however defended its acceptance of a 50% haircut of government debt insisting it had to act as a shock absorber to reduce the countries Debt to GDP target set by the IMF.

“A major plank of the corrective action required for the IMF programme was the Domestic Debt Exchange, where the stock of Government of Ghana debt was to be halved from 105% of GDP to 55% of GDP by 2028. Despite the losses inflicted on households and banks, the threshold of 55% of GDP was not met. The Bank of Ghana was used to close the gap to enable Ghana meet the debt threshold that qualified Ghana for the IMF programme (Bank of Ghana therefore, acted as a loss absorber). This means the Bank of Ghana had to absorb a 50% haircut on its non- marketable holdings of Government debt instruments,” the bank argued.