Bank of Ghana and Ministry of Finance to sign recapitalization MoU by Q3 2024
The Bank of Ghana (BoG) is set to sign a Memorandum of Understanding (MoU) with the Ministry of Finance by the end of the third quarter, aiming for early recapitalization following significant losses in two consecutive years.
This MoU is a strategic initiative to restore the financial health of the central bank, which reported a GHS 10.5 billion loss in 2023, primarily due to high expenditure on monetary interventions. This follows an even larger GHS 60.9 billion loss in 2022, attributed to impairments during the domestic debt exchange program (DDEP).
The Ministry of Finance and the BoG will formalize the recapitalization plan, ensuring the central bank can maintain its critical role in managing monetary policy and ensuring price stability. The plan will outline the necessary capital, the timeline for recapitalization, and, crucially, the sources of funding.
The early recapitalization is expected to bolster the central bank’s operational capacity both domestically and internationally. This will be executed alongside strict adherence to the BoG’s zero financing of the government’s budget, an agreement signed in April 2023.
The recapitalization discussions involved the BoG, the Ministry of Finance, and the International Monetary Fund (IMF) after assessing the DDEP’s impact on the bank’s balance sheet. Unlike the previous year’s impairments, the recent GHS 10.5 billion loss resulted from the BoG’s open market operations aimed at controlling inflation.
These operations, which include issuing BoG bills to mop up excess liquidity, were necessary to prevent a surge in demand for foreign exchange and subsequent inflationary pressures.
By issuing BoG bills, commercial banks purchase these securities, and the BoG pays its monetary policy rate as interest upon maturity. The central bank asserts that without these measures, inflation would have risen more than anticipated. Despite the substantial loss, the Bank of Ghana maintains that it remains policy solvent and committed to its mandate.
This strategic recapitalization effort underscores the central bank’s commitment to financial stability and its proactive measures to navigate economic challenges.
