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Barely two months after parliament passed the Bank of Ghana (BoG) Amendment Bill, the International Monetary Fund (IMF) has punched holes into the Act and is demanding fresh amendments to introduce a number of new provisions.
It said the provision allowing central bank financing of up to five percent of previous years’ revenue, as well as continued government influence on the Board and the Monetary Policy Committee (MPC) undermine the credibility of the inflation targeting framework.
The Fund expects the fresh amendments to be passed latest by September 2017, to significantly strengthen the Central Bank’s functional autonomy, governance and ability to respond to banking sector crises.
The Fund noted that while the amendments passed in August 2016 improved procedures for appointment and dismissal of Board members, a key amendment proposed to reduce central bank financing of government to zero, did not muster sufficient parliamentary support.
Instead, BoG financing of government of up to 5 percent of the previous year’s revenues is still possible under the amended Act, which weakens the credibility of the inflation targeting framework, it added.
According to the IMF, this would make Ghana an outlier among inflation targeting countries, undermining its monetary policy framework.
“Staff supports the authorities’ commitment to seek after the elections further amendments to the BoG Act through additional consultations with the new Parliament to remove these provisions”, a report posted on IMF website said.
According to the report, BoG and MoFEP have extended their existing Memorandum of Understanding to maintain zero-financing until the end of 2017.
Areas recommended by the safeguards assessment but not covered by the Act, include: the implementation of collateral requirements for all forms of lending, development of an Emergency Liquidity Assistance (ELA) framework, improving controls over the data compilation process, implementing a process for systematically recording guarantees, and conducting a risk assessment of the BoG’s holdings and involvement with the Ghana International Bank (GIB).
Other weaknesses of concern to the IMF include: the BoG’s continuing legal basis for the provision of guarantees covering foreign borrowing by the government and government agencies.
The report cited the lack of a provision requiring government to recapitalize the BoG.
According to the Fund, there is no distinction between the Board’s executive and non-executive roles.
It also listed the continuing membership of a representative of the Ministry of Finance in the Board with a right to vote, unclear eligibility criteria for the appointment of the Board members, particularly, the Monetary Policy Committee (MPC’s) external members - thereby allowing for the appointment of civil servants as well as the continuing ownership by BoG of shares in non-core financial institutions as other issues the new act should address.
The authorities are committed to introducing further amendments to the Act next year to address these weaknesses structural benchmark by September 2017.
Conventional wisdom favours the notion that limited central bank lending to the government is conducive to lower inflation, and this, if sustained over the long run, promotes higher rates of economic growth.
