BoG clarifies government financing amid economic challenges

The Bank of Ghana has vehemently refuted recent claims by the minority in parliament regarding its involvement in financing the government budget with GH¢80billion. The central bank clarified that its interventions were specific to the unique economic circumstances of 2020 and 2022 only.

In 2020, during the unprecedented challenges posed by the COVID-19 pandemic, government initiated the COVID-19 Relief Bond programme amounting to GH¢10billion. This programme aimed to address the exceptional circumstances arising from the pandemic’s impact. Similarly, in 2022 an overdraft extension of approximately GH¢37.9billion was granted to government. This extension was solely intended to address auction shortfalls and cover payments for customers whose bonds had matured – in cases where government’s resources were insufficient.

The emergency financing provisions under the law, outlined in Section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended, were activated in 2020. This allowed for an increased limit on the purchase of Government securities by the Bank of Ghana during emergencies. This measure was undertaken collaboratively by the Minister for Finance, Governor of the Bank of Ghana, and Controller and Accountant-General.

In response to these economic challenges, government introduced a unique COVID-19 Relief Bond programme amounting to GH¢10billion. These bonds were linked to the prevailing monetary policy rate, featuring a 10-year tenor and a 2-year moratorium on principal and interest payments. This initiative mirrored global responses from central banks involving large-scale asset purchases to provide essential pandemic support.

The fiscal landscape of Ghana faced unprecedented difficulties due to the COVID-19 pandemic – leading to revenue shortfalls, increased emergency expenses, and stringent financing conditions. Various factors including plummeting crude oil prices, shortfalls in import duties and other taxes, and decreased non-tax revenues significantly impacted government’s cash flows, hindering effective pandemic management.

In 2020, Parliament suspended the Fiscal Responsibility Act, 2018 (Act, 982), due to the pandemic-induced crisis. The Act has not yet been reinstated.

By December 2022, the Bank of Ghana’s net claims on government had increased by GH¢44.5billion considering all claims and deposit liabilities. The main intervention amounted to GH¢37.9billion, addressing auction shortfalls and matured bond payments where government lacked adequate resources.

The Bank of Ghana’s role in financing government operations during 2022’s challenges was a critical aspect of crisis management. Earlier statements from the bank highlighted the necessity of financing to prevent disorderly defaults and maintain economic stability.

Moreover, the Bank of Ghana’s claims on government included GH¢7.2billion for Treasury bond purchases to boost liquidity for banks, and GH¢8.9billion as on-lending facilities granted by the International Monetary Fund (IMF) for government lending.

Additionally, Government Deposit liabilities at the Bank of Ghana saw a GH¢9.5billion increase during 2022.

The economic context of 2022 saw Ghana grappling with limited access to international capital markets and significantly underperforming domestic revenue. These challenges pushed government finances perilously close to external and domestic defaults, compelling the Bank of Ghana to adopt unconventional macroeconomic policies to address the crisis.