The Director of Research at the Institute of Economic Affairs, Dr John Kwakye is calling for a review of the Bank of Ghana (BoG) law especially the aspect where it provides emergency support to the government.
He wants the law amended to limit the emergency support to the government to 10 percent, up from the current five percent of the previous year’s revenue.
To him, this is the only way to stop a Finance Minister from “raiding” the central bank’s vault.
“Bank of Ghana’s law must be reviewed to limit emergency support to Gov’t to 10% of the previous year’s revenue, just 5% above the 5% normal support limit. That’s the only way to avoid the Minister from raiding the Bank’s vault as happened in 2022,” he wrote on X.
Dr Kwakye earlier stated that it is not the fact that the Bank of Ghana advanced money to the government during the economic crisis that was the issue because the Bank’s Act provided for such advances up to 5% of the previous year’s revenue.
It was rather the magnitude of the advance— over 50% of the previous year’s revenue—that was disturbing, he said.
His comments was after Vice President Dr. Mahamudu Bawumia strongly defended the BoG during his address at the University of Professional Studies, Accra (UPSA) on Wednesday, February 7, 2024.
Dr. Bawumia commended the central bank for saving the economy from collapse at a time when Ghana had lost access to international capital markets.
He indicated BoG’s action was responsible and that it was temporary as the Bank had advanced money to Government in only two of the past seven years.
“The Bank of Ghana provided needed financing to the government at a critical moment. What the BoG did was very responsible in putting the interest iof the citizens first,” he said.
Dr Kwakye noted that the Minister of Finance had expressed similar sentiments in the past, which was not surprising because Government was the direct beneficiary of the monetary financing.
“However, as central bankers, we know that the most inflationary source of financing the budget is high-powered money coming directly from the central bank vault. It is not the fact that BoG advanced money to Government that is the issue, for the Bank’s Act provides for such advances up to 5% of the previous year’s revenue.
“It is the magnitude of the advance— over 50% of the previous year’s revenue—that is disturbing. It is no wonder inflation peaked at 54.1% in 2022—and depreciation ballooned to 54.2% in November 2022, before falling bank to 30.0% in December 2022,” he said.
