Seth Terkper raises concerns over BoG’s financing of government’s deficit

October 26, 2022

Former Finance Minister, Seth Terkper, has stated that the Bank of Ghana’s continuous financing of government will weaken the central bank’s financing position.

According to him, this will also be very detrimental to the recovery efforts of the bank.

Mr. Terkper’s concerns come on the back of the BoG’s financing of government budget to the tune of GH¢22 billion as of the middle of 2022.

Speaking at the 11th edition of the Ghana Economic Forum, the former finance minister, opined that the Bank of Ghana (BoG) has attempted to manage the issue in the short term by financing the budget deficit, but it needs some significant inflows because it has been hemorrhaging.

“What BoG has tried to do, and this is what we have always done, is to manage the crisis in the short term, but they need some inflows because they’ve been haemorrhaging by financing the fiscal deficit. GH¢22 billion out of about GH¢37 billion deficit, that is two-thirds of the whole deficit is on BoG and this is a country that has come from a zero financing in 2016 to now be financing two-thirds of the deficit which was even as at mid-year,” he said.

“The central bank is hugely financing government expenditure, but something has to be done about this in the short-term,” Mr. Terkper said.

Since the emergence of the Covid-19 pandemic, the Bank of Ghana shelved its zero-financing policy to lend to government to help mitigate the impact of the pandemic as well as deterioration of the country’s public finances.

This resulted in rating agencies downgrades, which in turn, contributed to a protracted lack of access to the Eurobond markets, led to a significant decline in external liquidity and access to the American greenback, thereby, having a significant impact on the local currency’s strength relative to the US dollar.

Meanwhile, according to the BoG, the budget implementation, using banking sector data, for the first 9-months of the year recorded an elevated overall cash deficit of 6.4 percent of GDP, against the revised programmed target of 5 percent of GDP.

Total receipts of GH¢51.49 billion (8.7 percent of GDP) over the review period, fell short of projected target of GH¢60.08 billion (10.2 percent of GDP) and represented 85.7 percent of the budgeted estimate.

Total payments of GH¢89.04 billion (15 percent of GDP) was almost on target, representing 99.5 percent of GH¢89.46 billion (15.1 percent of GDP).

The deficit of GH¢37.56 billion, together with net foreign loan repayments of GH¢3.54 billion, created a resource gap of GH¢41.1 billion, which was financed from domestic sources and the use of resources from the stabilisation fund.

Other experts at Ghana Economic Forum have also alluded that the best time to transform Ghana’s economy into a robust and resilient one it is now.
Evans Effah

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