Financing Government expenditure in 2022 was critical to stabilize economy- BoG

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has stated that it was very important for the central bank to finance government expenditure last year.

He argued that Ghana’s economy would have come to a standstill, leading to an economic instability if the central bank had not intervene to support the government.

“This is a government that had access to the capital market for at least $3 billion each year, but we started 2022 with the downgrading of the economy and, therefore, the source of financing was not available”, he said at the SIGA annual stakeholder meeting in Kwahu Abetifi in the Eastern Region yesterday.

“We need to remember where we are coming from at the beginning of 2022 when we lost access to the capital market.In addition to that, the revenue measures were not working, with the revenue projections performing below targets,” he added.

He explained that the move to support government was necessary since “government finances were in trouble, as expenditures needed to be funded, but there was no money,”.

He maintained that one of the critical roles of the central bank is to step in and stabilize the economy when there is danger ahead.

He cited for example that the situation would have been worse if the Bank of Ghana had not taken the strategic move to support government expenditure.

“It is important to recognise that we could have gone into this crisis much earlier than we went; if the BoG hadn’t stepped in, investors in government bonds were not going to be paid the interest,” he said.

Some analyst have criticized the Bank of Ghana for supporting government expenditure in 2022, arguing that the central bank acted irresponsibly.

On a net basis, the BoG last year financed the government to the tune GH¢44.5 billion.

Dr. Addison disclosed that the central bank realized that financing government budget beyond 2022 was not practicable, hence urged government to consider support from the International Monetary Fund (IMF).

He revealed that the IMF applauded the central bank for stepping in on time to stabilize the macro-economic condition to avert a collapse of the economy.

“They admitted that the financing from the central bank was needed until we had a plan. We have been discussing this plan with the IMF over the last three to six months and finally had a staff-level agreement in December,” he said.

Providing more details, Dr Addison said the plan included the fiscal consolidation plan, as a strategic plan, and the debt restructuring,  which was envisaged to be a critical requirement.

“So when people speak as if we have been reckless, I disagree completely,” he stressed.

Plans of the IMF programme

Touching on the plans for an IMF programme, Dr. Addison said the recommendation is to take government off central bank support.

He forecast that such a move will eventually make the Bank of Ghana inflation targeting and interest rate policy targets achievable.

He added that there was also a decision on aligning structural policy, hence the decision to include state-owned enterprises.

“It is important that SOEs are competitive and efficient and it is expected that we will have a policy which will state clearly what the objectives and guiding principles of state ownership will be,” the Governor said.

“It must also state clearly what the roles and responsibilities of the shareholder or the management of SOEs will be.

“The policy should also specify what the fiscal relations between the government and SOEs are, including the financing of SOEs and dividend payments,” he added.

He is of the view that it is important for the policy to also provide a framework for the remuneration of board members and the executive management of SOEs and also a framework for the appointment of board members, as well as executive management, based on their technical competence.

He pointed out that it is long overdue to place a cap on the salary adjustment of SOEs.