The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has explained that the Central Bank did not provide funding for the government until 2020 and 2022 during the COVID-19 pandemic and after investors in the capital market declined from lending to the government.

According to him, the Central Bank strictly adhered to the zero financing of government expenditure until the economic difficulties set in last year.

Speaking at a press conference, Dr. Addison said financing of government policies last year was undertaken with prior consultation with the International Monetary Fund (IMF).

“It is not true that the Bank of Ghana has been providing financing for government every year. There has been zero financing in 2017, 2018, 2019 and 2021. The Bank of Ghana has only had to support in the pandemic year of 2020 and in the crises year of 2022”, he stressed.

He pointed out that the BoG Act as amended limits financing of the government to 5% of the previous year’s tax revenue.

“This provision in the law has been adhered to since I took office in April, 2017. Between 2017 and 2019. In addition to the requirement of the Act, the bank signed a Memorandum of Understanding with the Ministry of Finance to even impose the tighter restriction of zero Central Bank financing and this was observed strictly even though the MoU’s were not legally binding”.

We couldn't ignore government during the financial crisis

He stated that the twin challenge of COVID-19 in 2020 and the difficulties in going to the capital market to raise money made it difficult for the Central Bank to ignore the government during the economic crisis.

“Losing access to the international capital market for new financing immediately triggered a liquidity crisis for the government, spilling over into a balance of payments crisis as the country had to continue to honour its debt service obligations, energy payments, and import bill”.

According to Dr. Addison, in keeping up with the critical external payments, the Bank of Ghana lost $500 million in external reserves in just two months, with no new inflows of foreign currency from the usual annual Eurobond issuance by the government to replenish its reserves.

He added that to help address government’s liquidity crisis, the Bank extended additional overdraft to the government to address auction failures and prevent domestic default, and enabled government to meet domestic debt obligations and other critical payments needed to avoid a disorderly halt to economic activity.

“Throughout the first half of 2022, there was no new foreign financing until July 2022 when the Afrexim Bank stepped in to support with $750 million. This is a typical replay of what is referred to in the literature as a first generation macroeconomic and balance of payments crisis”.

Recalling earlier events, Dr. Addison regretted that some people doubted if the economy was in crisis because observers did not hear that interest payments on bonds were not being paid in early 2022.

“They did not see queues at the pump for petrol and diesel; there were no shortages of essential items on the market; and they did not hear that public sector workers, including civil servants, the Police and the Military, were not being paid their salaries. The reason was that the Bank of Ghana had provided the needed support to keep the economy going”, he said.