BoG violating its own law with plans to absorb GH¢10bn coronavirus shock – Gatsi

Professor John Gatsi, an economist at the University of Cape Coast, has said the Bank of Ghana (BoG) is violating its own regulation regarding its plan to absorb the GH¢10bn COVID-19 shock.

According to him, the BoG’s decision is worrying because it is likely to influence future governments to also go the central bank for such supports even when there is no need for it.

The central bank has decided to support the budget of the government with GH¢10 billion against the economic shocks caused by the COVID-19 pandemic.

At its Monetary Policy Committee (MPC) meeting at which it announced the maintenance of the policy rate at 14.5 per cent, the regulator said: “The COVID-19 pandemic has put a severe strain on the budget, manifesting in petroleum revenue shortfalls as a result of plunging crude oil prices, shortfalls in import duties, other tax revenues, and non-tax revenues”.

“Preliminary assessments”, Governor Dr Ernest Addison noted, “show that the financing gap that was estimated at the time of applying for the IMF RCF in March has widened significantly, resulting in a large residual financing gap”.

Dr Addison said: “Current market conditions in the wake of the pandemic, will not allow the financing of the gap from the domestic debt capital markets without significantly increasing interest rates”.

“Under the circumstances and in line with section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended, the Bank of Ghana has triggered the emergency financing provisions, which permits the Bank to increase the limit of BoG’s purchases of government securities in the event of any emergency to help finance the residual financing gap.

“Today, under the Bank of Ghana’s Asset Purchase Programme, the Bank has purchased a Government of Ghana COVID-19 relief bond with a face value of GH¢5.5 billion at the Monetary Policy Rate with a 10-year tenure and a 7 moratorium of two (2) years (principal and interest).

“The Bank stands ready to continue with its Asset Purchase Programme up to GH¢10 billion in line with the current estimates of the financing gap from the COVID-19 pandemic," Dr Addison said.

Concerns are that future governments are likely to abuse such a precedence set by the BoG.

Speaking in an interview with TV3’s Alfred Ocansey on the Business Focus programme Monday May 18, Professor Gatsi said: “I think there is that fear in the sense that already the government of Ghana has though parliament been able to raise some money and the Bank of Ghana previously has also made available some GH¢3billion through the commercial bank to the business sector.

“So coming back to the same Bank of Ghana for about GH¢10billuon of which over GH¢5 billion has been raised already goes against the Bank of Ghana’s own Act that requires 5 per cent of previous year’s tax revenue which will be amounting to GH¢6 billion.

“This means the Bank of Ghana has gone beyond the requirement of its own law and that is where we need to be worried.”