Dr Ernest Addison, Governor of the Bank of Ghana (BoG), says it is important for Ghanaians to recognise the role of Central Banks as institutions of public policy that exist for national welfare and not for profits.
He said even with a negative equity position, the Bank could continue to be policy effective for the administration of the country’s economy.
The Governor said the Central Bank’s credibility should be based on its ability to achieve its core mandate of instituting measures that would have a favourable effect on the balance of payments, the state of public finances and the general development of the national economy.
“It is important that we place the Central Bank’s policy mandate ahead of profits,” he added during a press briefing on Monday in response to a GHS 55 billion losses incurred by the Bank.
He indicated that the losses reported were technical, arising from the haircut and the application of accounting standards to estimate expected credit losses over the tenor of the Government debt held by Bank of Ghana.
“It is not money lost by the Bank of Ghana through its operations in 2022. Rather, one should look at this as 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,” he said.
Dr Addison observed that anytime the economy faced major challenges, the Bank of Ghana balance sheet suffered, with the equity position moving into negative territories.
He noted that during the early years of structural adjustment, very large exchange rate depreciations led to revaluation losses that drove the Bank into negative equity.
“You will recall that in 2017 and 2018, the Bank of Ghana incurred similar negative equity from the impairment of legacy liquidity support loans granted in 2015 and 2016 to insolvent banks, which our external auditors impaired due to the doubtful prospects of recovering from those insolvent banks.
“The Bank of Ghana, however, recovered, and generated profits throughout the period 2019 to 2021, ” he said.
The BoG reported profits of GHS 1.6 billion in 2019, GHS 1.5 billion in 2020 and GHS 1.4 billion in 2021.
During the COVID-19 pandemic, BoG provided additional financing support through the purchase of GHS 10 billion of the Government’s Covid-19 bonds, which helped to close the exceptional financing gap.
Mr Addison noted that the eventual loss of access to the international capital market for new financing triggered a liquidity crisis for Government, which the Bank had to mitigate with critical external payments.
That, he noted, led to the Bank losing US$500 million in external reserves in just two months, with no new inflows of foreign currency from the usual annual Eurobond issuance by Government to replenish its reserves.
He said the Bank also extended additional overdraft to the Government to address auction failures, prevent domestic default and enable the Government to meet domestic debt obligations and other critical payments.
“Throughout the first half of 2022, there was no new foreign financing until July when the Afrexim Bank stepped in to support with US$750 million,” he said.
Dr Addison also noted that an agreement was reached with the IMF for the Bank to continue to provide the necessary support to keep the economy running until a reform programme had been put into place to trigger IMF financing.
As part of corrective measures to restore the economy, he said the Minister for Finance wrote a proposed treatment to BoG of 50 per cent haircut on Bank of Ghana’s holdings of Government’s non-marketable debt.
“The debt included all the legacy debts of the Government of Ghana dating back to 1992 and included the accrued overdraft of 2022, overdraft to Cocobod, the Covid-19 Bond, and even BoG holdings of Telecom Malaysia (Ghana Telecom Bonds) Bonds and Tema Oil Refinery (TOR) bonds issued by Government. As of 2015, the accumulated claims on Government and Cocobod were about GHC13 billion.
“The debt, therefore, is not about recent debt alone. Almost all lending from the IMF, including the Extended Credit Facility and the Rapid Credit Facility during the Covid 19 pandemic, and all financial sector resolution bonds have all been added as Bank of Ghana lending to Government,” he said.
He said the Bank had to accept the proposal following an assessment by the IMF and how critical the measure was to secure a fund from the IMF.
