Isaac Adongo
THE BANK of Ghana (BoG) has hit out at false claims and unfounded allegations leveled against it by the Member of Parliament (MP) for Bolgatanga Central, Isaac Adongo.
According to the central bank, the MP, on November 8, 2022, during a press briefing, falsely claimed that BoG had “illegally” financed the government to the tune of GH¢70 billion or more since 2021.
In a statement signed by Nana Aba Ashun for the BoG Secretary, the bank said “unfounded allegations” were aimed at “impugning the hard-won credibility” of the central bank and its management.
Claims On Government
The bank explained that claims on the government represent the stock of debt held by the Bank of Ghana and reflect accumulated claims for over 20 years, including legacy assets such as the Telecom Malaysia Bonds issued in relation to the privatization of Ghana Telecom and Tema Oil Refinery Bonds.
“At the end of December 2020, the claims on Government stock position stood at GH¢34.1 billion and included the GH¢10 billion COVID-19 bond purchased by the Bank of Ghana,” the statement indicated.
The statement recalled that in 2020, a request was made by the Government, through the Minister of Finance, to suspend the Fiscal Responsibility Act due to the COVID-19 pandemic.
“This was approved by Parliament together with the trigger of Section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended, and paved the way for the Government to issue a COVID-19 Bond which was purchased by the Bank of Ghana at the policy rate, with a moratorium of two years.
“At the end of December 2021, claims on Government rose to GH¢34.8 billion, and have recently risen further to GH¢40.2 billion at the end of October 2022, reflecting an increase of GH¢5.3 billion in 2022, which was the result of pre-mature unwinding of positions held by some banks,” the statement noted.
On-Lending Claims
It said lending claims are facilities granted by the international Monetary Fund (IMF) for onward lending to the Government by the BoG.
“IMF instruments and resources have been redesigned to provide budget support rather than balance of payments support, including recent resources from the ECF programme with Ghana and the RCF that was provided during the Covid-19 pandemic, and are therefore on-lent to the Government.
“These are denominated in US dollars and revalued in line with exchange rate changes. From the table, these claims have increased by an amount of GH¢17.8 billion from the beginning of the year to October 2022,” the statement read.
It said this reflects a revaluation of these claims in the BoG’s books to account for exchange rate developments, and continued that this figure does not reflect BoG’s lending to the Government, but rather resources from the IMF that were required to be passed on to the Government in line with approvals by the IMF board.
“And the increase in the amount in 2022 does not reflect new cash transactions, but rather merely a book-entry figure, driven in large part, by the depreciation of the currency,” the bank schooled the NDC MP.
Government Overdraft
On the government overdraft, it said this is a short-term bridge financing to the budget, adding. “The devastating after-effects of the pandemic worsened the fiscal position in 2021, as the Government struggled to meet revenue targets to help with budget implementation.”
“Even though there were intermittent short-term liquidity extensions by the Bank, consistent with the Law to enable the Government fund its expenditures, the Government fully paid back its indebtedness to the Bank of Ghana by the end of 2021,” the statement intimated.
It said this is evidenced by the zero-overdraft position at end 31st December 2021, and pointed out that “in the first quarter of 2022, Ghana’s credit rating was downgraded and effectively shut out of the International Capital Markets.”
“Consequently, there were no inflows from external sources to support budget implementation and the government started experiencing unsuccessful auctions on a weekly basis.
“In the process, the Bank of Ghana had to step in and provide financing to keep government machinery running, and in particular, help prevent a domestic debt default situation. This activity is clearly shown in the Overdraft line in the table, which stood at GH¢25.6 billion as at October 2022,” the statement said.
According to the bank, this support is temporary and consistent with crisis management as the country works with the IMF to design a debt operation that will lift the burden of debt servicing off the budget.
“The central bank has been transparent on these issues as spelt out in the September 2022 MPC Press release,” it argued.
Bridge Financing
On Adongo’s allegation that the BoG has illegally borrowed US$7 billion through bridge financing, swaps, repurchase agreements among others, and was, therefore, seeking funds to refinance this amount, the bank said they are legitimate operations conducted by all central banks for effective foreign exchange reserves management.
“Bank of Ghana has deployed these instruments since 2011 for foreign exchange liquidity management purposes. It is an important instrument for foreign exchange management by all central banks, as part of its treasury and reserve management functions.
“The global developments have resulted in tight financing conditions and these swaps have served as a significant source of foreign exchange liquidity for the economy,” the statement indicated.
“The total outstanding Swaps, Repurchase Agreements and sale and buy back transactions stood at US$2.4 billion at end October 2022, of which only US$720 million is expected to mature by the close of the year,” it said.
BY Ernest Kofi Adu