The Governor of the Bank of Ghana (BoG) Dr. Johnson Pandit Asiama has endorsed the Ghana Cocoa Board's (COCOBOD) decision to replace its traditional syndicated loan with local market financing, describing the new approach as a positive reform that will strengthen the country's cocoa financing framework.

Speaking after the Monetary Policy Committee (MPC) meeting, Dr. Asiama said mobilising funds from the domestic capital market to finance cocoa purchases is a more sustainable approach than relying heavily on bank loans.

"They've now moved from the syndicated loans to local market financing. I think it's rather a good one. What it means is they are mobilising money locally to fund the purchases of cocoa for export, which we believe is a good thing," he said.

According to the Governor, Ghana should have adopted the financing model much earlier because commercial banks face limits on how much they can lend to COCOBOD due to regulatory capital requirements.

"It's one thing we should have done long ago. The reliance on banks to fund COCOBOD—there's a limit to how much the banks can fund because of their capital base. So moving to the capital markets to raise some commercial paper to fund COCOBOD purchases, I believe, is the right way to go," Dr. Asiama stated.

He explained that the shift would also eliminate the large liquidity injections that previously occurred under the syndicated loan arrangement, easing pressure on the Bank of Ghana's balance sheet.

"We used to have the pre-financing regime where, in the fourth quarter, we had that huge liquidity injection on the balance sheet of the central bank. That will no longer be the case, given that this is going to be money that's mobilised within the system," he noted.

The Governor's comments come after COCOBOD announced it would no longer rely on its annual syndicated loan to finance cocoa purchases, opting instead to raise funds from the domestic market.

Dr. Asiama said the new financing model aligns with broader reforms aimed at strengthening the financial system while ensuring adequate funding for Ghana's cocoa sector without placing undue pressure on the central bank or the banking industry. He added that the Bank of Ghana expects the new approach to contribute to a more efficient and sustainable financing framework for cocoa purchases going forward.