Bank of Ghana addresses 2022 financial results amidst political contention
The Bank of Ghana (BoG) has issued a statement regarding its audited financial statements for the year 2022, released on July 28, 2023. The financial report indicates a total loss of GHS60 billion which the Central Bank notes, has garnered unfortunate political attention particularly from the opposition party, the National Democratic Congress (NDC). Of this sum, GHS53.1 billion is attributed to the direct consequences of the Government’s domestic debt restructuring initiatives, encompassing phases I and II.
According to the BoG in the statement, in order to accurately comprehend the Bank’s financial performance for 2022, it is imperative to contextualize the challenges Ghana faced and trace the events since 2019. The Bank notes that, a conspicuous imbalance between revenue inflows and expenditures marked 2020, mitigated by extraordinary support from IMF and World Bank resources, alongside the issuance of a GHS10 billion Covid-19 bond. Despite these measures, sovereign spreads on Ghana’s bonds widened, signifying investor dissatisfaction with fiscal policies.
The BoG further noted that the budgetary proposal for 2022 presented in 2021 failed to alleviate fiscal concerns, instead expanding by approximately 23% and introducing various revenue measures to secure funding. Consequently, Credit Rating Agencies downgraded Ghana’s sovereign debt rating, thereby limiting international capital market borrowing access. The ensuing liquidity crisis cascaded into a balance of payments crisis, necessitating swift intervention from the Bank of Ghana.
Within two months, the Bank of Ghana encountered a USD 500 million depletion in reserves and accumulated substantial overdraft with the government due to auction failures. The recognition of an unsustainable trajectory led the Government to seek IMF support in July 2022. The IMF-backed reform program was instituted, culminating in a restructuring of the government debt for sustainability. Until a Staff Level Agreement was reached with the IMF in December 2022, the Bank of Ghana continued to provide essential economic support.
Pursuant to the Bank of Ghana Act (Act 612), the Bank duly informed the Minister of the financial developments, which were relayed to Parliament in conjunction with the briefing on the IMF program and Domestic Debt Exchange.
A core element of the IMF program was the Domestic Debt Exchange, aimed at reducing Government of Ghana’s debt from 105% of GDP to 55% by 2028. Despite inflicting losses on households and banks, the targeted threshold wasn’t met. As a result, the Bank of Ghana absorbed a 50% reduction on its non-marketable government debt holdings, reflecting a loss absorption role. This action generated substantial impairment losses of GHS32.3 billion. Further impairment losses on marketable instruments amounted to GHS16.1 billion, culminating in total impairments of GHS48.4 billion.
Price and exchange rate fluctuations, alongside impairments of Cocobod loans, contributed to the GHS5.2 billion and GHS4.7 billion losses, respectively. This amalgamation of factors underscores the GHS60 billion loss reported for 2022.
According to the BoG, it is crucial to recognize that central banks by nature, diverge from commercial banks. Consequently, this financial outcome bears minimal implications for the operational integrity of the Bank of Ghana, aligning with the precedent set by other central banks, adding that Central banks cannot technically, become insolvent or bankrupt.
Reiterating commitment to prudent management, governance, transparent accounting, and robust audit practices, the Bank of Ghana assures its stakeholders and the general public of its dedication to the highest standards.
