$333 million of IMF’s $1 billion Covid-19 SDR funds to be used to support government’s budget – BoG
The Central Bank has said that it has come into an agreement with the central government to make available one-third ($333 million) of the $1 billion IMF Special Drawing Reserves (SDR) for Covid-19 related expenses to support the budget.
The remaining two-thirds of the interest free loan facility provided by the IMF, the Governor of the Bank of Ghana (BoG), Dr Ernest Addison noted at the 102nd Monetary Policy Committee (MPC) press briefing on Monday, September 27, will be used to support the country’s balance of payments (BoP).
The use of the IMF SDR funds to support the budget is to help bridge the fiscal deficit which currently stands at 6.1 percent on a cash basis as at the end of July this year.
According to the Governor, the support of government’s budget with one-third of the SDR funds cannot be classified as a financing support from the BoG, given that its source is from the IMF and not the BoG itself.
“The SDR funds are not Central Bank resources, we are only passing it on to help support the budget and so because of that it cannot be regarded as the kind of Central Bank financing which comes from our own resources.
“These are resources that we are passing on in the sense that they are from the IMF and I have asked our research department to adjust and not classify it as BoG financing because of the source of the resources,” he stated.
The Governor’s assertion is in relation to the fact that the BoG last year during the peak of the Covid-19 pandemic financed government’s budget with some Ghs 10 billion through the purchase of government assets.
The reason for the financing of the budget, the BoG noted was due to the fact that government during the pandemic could not borrow both on the international and domestic debt markets and that even if it was able to borrow, it will be at costly interest rates hence its financing to help government obtain the needed fiscal resources to fight the Covid pandemic.
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Ghana’s $1 billion SDR allocation follows the approval of the historic $650 billion SDR allocation by the Board of Governors of the IMF at the start of August 2020, to member countries to continue their fight against the Covid-19 pandemic.
According to the IMF, the new SDR allocation will provide additional liquidity to the global economic system by supplementing the reserve assets of the Fund’s 190 member countries.
Additionally, it will help support global recovery from the COVID-19 crisis.
The provision of the $1 billion SDR allocation to Ghana, follows an earlier allocation of $1 billion by the IMF in 2020.
The additional SDR allocation therefore imply more fiscal resources at the disposal of Ghana to fight the Covid-19 pandemic. It however, also imply an increase in the country’s total debt stock which currently stands at 76.4 percent of Gross Domestic Product (GDP).
Special Drawing Rights (SDRs) can be described as an international reserve asset created by the IMF to supplement the official reserves of its member countries.
