Support for govt in 2020, 2022 due to crisis — BoG

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has denied that the central bank has been providing financing for the government since 2017.

He said the only time the central bank had to step in to provide financing for the government was when the COVID-19 pandemic hit the country in 2020 and in 2022, when the international capital market was closed to the country.

Addressing the media at a press conference in Accra, he said there was zero financing in 2017, 2018, 2019 and 2021.

“The Bank of Ghana has only had to support in the pandemic year of 2020 and the crisis year of 2022,” he stated.

He said in doing so, the BoG adhered to the Bank of Ghana Act (612), as amended, which limits financing of government to five per cent of the previous year’s tax revenue.

Financial statement

Commenting on the BoG’s 2022 financial statement, the Governor said the results were a reflection of the crisis that hit the economy in that year.

He noted that the BoG reported profits of GH¢1.6 billion in 2019, GH¢1.5 billion in 2020 and GH¢1.4 billion in 2021 and the policy objective then, was to consolidate the gains made between 2017 to 2019.

“Then came the COVID-19 pandemic at the turn of 2020 and as expected, Ghana’s public health policy response to the pandemic came at a high fiscal cost to the economy, leading into 2021, which was amplified by the spillover effects of the Russia-Ukraine war that started in early 2022.

“As a result, sovereign spreads on Ghana’s Eurobonds widened and credit rating agencies further downgraded Ghana’s sovereign debt rating,” he said.

Dr Addison said that effectively blocked Ghana’s access to the international capital market in 2022, an avenue which the budget had relied on to borrow about US$3 billion annually to help close the financing gap.

He said losing access to the international capital market for new financing immediately triggered a liquidity challenge for the government, spilling over into a balance of payments crisis as the country had to continue to honour its debt service obligations, energy payments and import bill.

To keep up with those critical external payments, Dr Addison said the central bank lost $500 million in external reserves in just two months, with no new inflows of foreign currency from the usual annual Eurobond issuance.

“You would recall that many people doubted if the economy was in crisis because they did not hear that interest payments on bonds were not being paid in early 2022; they did not see queues at the pump for petrol and diesel; there were no shortages of essential items on the market; and they did not hear that public sector workers, including civil servants, the Police and the Military, were not being paid their salaries.

“The reason was that the Bank of Ghana had provided the needed support to keep the economy going,” he said.

2022 Losses

The Governor noted that the GH¢60.81 billion losses reported in 2022 were technical losses arising from the haircut it took during the Domestic Debt Exchange Programme (DDEP) and not money lost through the central bank’s operations.

Dr Addison said the losses were a reflection of the total cost of the economic and social crisis the country faced over the years and an attempt to resolve a major structural problem of the Ghanaian economy.

“It is worth noting that central banks are not commercial banks and as such BoG’s current financial condition will not impact negatively on the operations of the bank.

The IMF Technical Assistance mission validated this conclusion, before the necessary decisions were taken,” he stated.

New head office

Dr Addison also pointed out that the decision to commence construction of its new head office was taken in 2019 when the bank generated profits.

He said appropriations for the head office building were made each year from profits in 2019, 2020 and 2021.

The Governor stated that the project had been going on for over three years and about 50 per cent complete.

“If we were to be taking the decision today, building a legacy head office would not have been a priority.

However, this is a project that has been running for three years now,” Dr Addison said.

He said the BoG was fully aware of its responsibilities to ensure that the costs did not escalate beyond reasonable levels and that many of the original design features, including data centre, currency processing centre, information and communications technology (ICT) equipment and specialised security features had been deferred and only grey boxes provided for future use to manage cost.

The Governor also emphasised that the BoG followed all the necessary public procurement processes in the project, stating that no procurement laws were breached.