BoG cannot justify scale of lending to government – IEA Director of Research

Director of Research at the Institute of Economic Af­fairs (IEA), Dr John Kwakye, has stated that the Bank of Ghana’s justification of its financing of the government’s budget in 2022 cannot justi­fy the scale of lending to the government.

According to him, the Central Bank could provide temporary advances to the government but should be repaid within three months per the BoG’s Act.

The Bank of Ghana, in a statement issued last week, justified the financing of the government’s 2022 budget with about GH¢44.5 billion.

It said financing the govern­ment was part of a crisis man­agement tool used in dealing with the difficulties of 2022.

“It must be recognised that the ongoing debt operations are part of the corrective measures designed to address the financing problem of the budget. Bank of Ghana financing was part of a crisis management tool used in dealing with the difficulties of 2022,” it said.

Against this backdrop, the details of the Bank of Ghana’s claims on government as of December 2022 were GH¢7.2 billion, representing its purchase of treasury bonds from banks to provide them with liquidity to en­able them to meet their obligation to customers and GH¢8.9 billion, representing on-lending facili­ties granted by the International Monetary Fund (IMF) for onward lending to government.

“It will be important to recall the circumstances under which the Government of Ghana decid­ed to seek IMF support. Ghana has lost access to the Internation­al Capital Market, and domestic revenue was significantly un­derperforming and not realised, pushing the state of government finances into near external and domestic default. With the above, the policy choices were not that of business as usual but rather a more challenged con­duct of macroeconomic policy in the context of crisis”.

But in a tweet, Dr Kwakye said lending GH¢44 billion far exceeded the GH¢3.5 billion ceiling.

“Lending ¢44 billion in 2022 far exceeded the GH¢3.5 billion ceilings”.

“BoG’s rejoinder cannot jus­tify the scale of their lending to the government. The Bank can provide temporary advances to the government. But they should be limited and repayable within three months per the Bank’s Act”, it added.