BoG supported government to prevent economy from collapse - Governor

The Bank of Ghana (BoG) has explained that its decision to financially support the government in the year 2020 and 2022 was to avert liquidity crisis and save the economy from collapse.

Addressing a special press briefing in Accra on Monday to respond to issues raised in the 2022 Annual Report and Financial Statements of the Bank and the construction of the new head office building, the Governor of the BoG, Dr Ernest Addison, said at the end of 2019, through prudent economic management, macroeconomic fundamentals had been well anchored.

He said the Bank of Ghana reported profits of GH¢1.6 billion in 2019, GH¢1.5 billion in 2020 and GH¢1.4 billion in 2021.

Dr Addison said the gains made by the BoG was, however, eroded as a result of the outbreak of the COVID-19 pandemic at the turn of 2020, which placed significant financing burden on the government.

He said through the swift intervention of the international financial institutions, the International Monetary Fund (IMF) through the Rapid Credit Facility and the World Bank, a significant portion of the government’s financing obligation was met.

“The BoG, following prudent management, had built enough buffers and policy space, which enabled it to trigger the emergency financing exception under Section 30 (6) of the Bank of Ghana Act, Act 612 as amended, to provide the needed additional financing support through the purchase of GH¢10 billion of the Government’s COVID-19 bonds, which helped to close the exceptional financing gap,” he said.

The Governor said to address looming debt crisis and balance of payment challenges, the government approached the IMF in July 2022 for support, and as part of the policy reforms of the programme, which included a Domestic Debt Exchange, the BoG had to suffer a 50 percent haircut on Bank of Ghana’s holdings of government’s non-marketable debt, accounting for the losses the BoG incurred in 2022.

“The debt included all the legacy debts of the government of Ghana dating back to 1992 and included the accrued overdraft of 2022, overdraft to COCOBOD, the Covid-19 Bond, and even BoG holdings of Telecom Malaysia (Ghana Telecom Bonds) Bonds and Tema Oil Refinery (TOR) bonds issued by government,” Dr Addison, stated.

On the negative equity of the BoG, the Governor explained it was not the first time the bank had suffered that, indicating, “During the early years of structural adjustment, very large exchange rate depreciations led to revaluation losses that drove the bank into negative equity. Indeed, anytime the economy faces major challenges, the Bank of Ghana balance sheet suffers, and the equity position moves into negative territories.”

He said in 2017 and 2018, the Bank of Ghana incurred similar negative equity from the impairment of legacy liquidity support loans granted in 2015 and 2016 to insolvent banks.

“It is worth noting that Central Banks are not commercial banks. Bank of Ghana’s current financial condition will not impact negatively on the operations of the bank. The Bank of Ghana has sufficient capital amounting to about 15 per cent of its total liabilities and the bank will also manage to reduce its operational costs during this period,” Dr Addison stated.