It is better for the Bank of Ghana (BoG) to release funds to support the local economy following the impact of the coronavirus than the country going to the International Monetary Fund (IMF) for such a support, Dr Charles Ackah, an economist at the Institute of Statistical Social and Economic Research (ISSER) has said.
The central bank is supporting the budget of the government with GH¢10 billion against the economic shocks caused by the COVID-19 pandemic.
At its recent Monetary Policy Committee (MPC) meeting at which it announced the maintenance of the policy rate at 14.5 per cent, the regulator said: “The COVID-19 pandemic has put a severe strain on the budget, manifesting in petroleum revenue shortfalls as a result of plunging crude oil prices, shortfalls in import duties, other tax revenues, and non-tax revenues”.
“Preliminary assessments”, Governor Dr Ernest Addison noted, “show that the financing gap that was estimated at the time of applying for the IMF RCF in March has widened significantly, resulting in a large residual financing gap”.
Dr Addison said: “Current market conditions in the wake of the pandemic, will not allow the financing of the gap from the domestic debt capital markets without significantly increasing interest rates”.
“Under the circumstances and in line with section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended, the Bank of Ghana has triggered the emergency financing provisions, which permits the Bank to increase the limit of BoG’s purchases of government securities in the event of any emergency to help finance the residual financing gap.
“Today, under the Bank of Ghana’s Asset Purchase Programme, the Bank has purchased a Government of Ghana COVID-19 relief bond with a face value of GH¢5.5 billion at the Monetary Policy Rate with a 10-year tenure and a 7 moratorium of two (2) years (principal and interest).
“The Bank stands ready to continue with its Asset Purchase Programme up to GH¢10 billion in line with the current estimates of the financing gap from the COVID-19 pandemic,” Dr Addison said.
Speaking at a National Economic Webinar discussing how to bring back the economy post the pandemic, Dr. Ackah said the support is a step in the right direction.
He said “I’m happy that the central bank had to step in with the ¢10 billion support. That’s about $2 million. It’s better for us to fund the money from the central bank than to go to IMF to borrow and then we have conditionalities that also will worsen the recession.”
He further called for a thorough assessment of the various economic theories to find which will best fit the situation the country is facing.
“We need to sit down and also look at the economic theories that we have been following for all these years and question them, whether they are sustainable and sensible given the situation that we find ourselves in.”
He noted that fund is a debt that the government will pay.
“still you are indebted, it’s still not the best because it is still foreign dominated. So which means that we need to repay, it is not free and we need to look for dollars to repay.
“After the crisis we’ll be faced with a debt situation and then our debt to GDP will go up and then we’ll need to look for cedis to turn them into dollars and pay to have impact on our currency going forward,” he said.
Recently, Professor John Gatsi, an economist at the University of Cape Coast, said the BoG is violating its own regulation regarding its decision.
According to him, the BoG’s decision is worrying because it is likely to influence future governments to also go the central bank for such supports even when there is no need for it.
Speaking in an interview with TV3’s Alfred Ocansey on the Business Focus programme Monday May 18, Professor Gatsi said: “I think there is that fear in the sense that already the government of Ghana has though parliament been able to raise some money and the Bank of Ghana previously has also made available some GH¢3billion through the commercial bank to the business sector.
“So coming back to the same Bank of Ghana for about GH¢10billuon of which over GH¢5 billion has been raised already goes against the Bank of Ghana’s own Act that requires 5 per cent of previous year’s tax revenue which will be amounting to GH¢6 billion.
“This means the Bank of Ghana has gone beyond the requirement of its own law and that is where we need to be worried.”
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