- Independent on Paper, Vulnerable in Practice: The Battle to Free Bank of Ghana From Fiscal Dominance
Ghana’s next great economic test may have little to do with another International Monetary Fund disbursement, a debt restructuring agreement or even the level of the cedi. It may instead depend on whether the country can build a central bank strong enough to tell a government, any government, that the answer is no when fiscal pressure collides with monetary stability.
That question sits at the heart of a detailed study on the independence of the Bank of Ghana by Dr Atuahene Richmond Akwasi, which argues that the central bank’s problem is no longer primarily the absence of legal independence. Ghana has spent more than three decades creating laws intended to protect the institution; the deeper problem is whether those protections survive political transitions, fiscal emergencies and moments when government financing needs become overwhelming.
The distinction between independence in law and independence in practice is fundamental. Article 183 of the 1992 Constitution and the Bank of Ghana Act, 2002, as amended, provide the institution with substantial autonomy and establish price stability as its primary objective, yet the historical record examined by the study shows repeated tension between that legal mandate and the demands of fiscal policy.
This is no abstract institutional debate. When the boundary between the Ministry of Finance and the central bank weakens, the consequences eventually appear in inflation, exchange rates, interest rates, government debt, bank balance sheets and household purchasing power. Central bank independence sounds technical until a country discovers what happens when the institution responsible for protecting the value of money becomes the financier of last resort for a government that cannot raise enough money elsewhere.
Ghana came dangerously close to that point in 2022. According to the study, the Bank of Ghana provided GH¢44.50 billion in net financing to the government that year, equivalent to approximately 7.00% of GDP and around 50.80% of the government’s GH¢87.50 billion cash budget deficit. That was far above the statutory financing limit that had been intended to place a barrier between fiscal deficits and central-bank money.
The composition of that intervention reveals why the episode remains consequential. The study records GH¢37.90 billion in direct overdraft extensions to cover auction shortfalls and maturing obligations, alongside other liquidity and on-lending transactions that contributed to net financing of GH¢44.50 billion. Ghana had reached the uncomfortable point where monetary authority and fiscal rescue were becoming increasingly difficult to separate.
That is fiscal dominance in its most recognisable form. Government does not necessarily issue an instruction ordering the central bank to print money; rather, fiscal pressures become so severe that the monetary authority faces a choice between providing financing and allowing potentially destabilising defaults, payment failures or market disruptions to occur.
The danger is that an emergency decision can become the precedent for the next emergency. Once politicians know the central bank can ultimately absorb fiscal stress, incentives for difficult tax, expenditure and debt decisions weaken, while investors begin incorporating the probability of future monetary financing into expectations about inflation and the currency.
Ghana subsequently halted new monetary financing under its IMF-supported programme. The country and IMF also reached staff-level agreement in May 2026 on the sixth and final ECF review and on a proposed 36-month, non-financing Policy Coordination Instrument aimed at preserving the stabilisation gains after the bailout programme. As of August 10, the IMF’s public record still described the sixth review and PCI at staff-level agreement rather than Executive Board completion, with the ECF having previously been extended through August 16 to facilitate the final review.
That distinction is important because the underlying paper describes the ECF as already completed and the PCI as having become Ghana’s post-bailout anchor. The broader argument remains valid, but the official IMF sequence matters: Ghana is at the point of transition from crisis financing towards a framework intended to preserve reforms without new Fund money, rather than simply being able to declare the entire process finished.
This may actually strengthen the central argument. IMF programmes impose external discipline; the real test of institutions begins when governments must preserve discipline because domestic rules demand it, not because a Washington-based lender is checking quarterly performance criteria.
The IMF itself has made the point implicitly. Its May assessment said Ghana had achieved substantial stabilisation gains but warned against returning to recurring cycles of fiscal imbalances, rising debt, weak buffers and reform reversals. It also placed strengthening the Bank of Ghana’s balance sheet, monetary framework, transparency and accountability among the issues requiring attention under the proposed post-ECF framework.
The question Ghana therefore faces is deceptively simple: if another fiscal crisis arrives without an IMF programme imposing zero central-bank financing, what prevents history from repeating itself? The answer cannot simply be “the Bank of Ghana Act”. Ghana already had statutory constraints when the 2022 crisis occurred.
The study traces this contradiction through the central bank’s institutional history. The Bank of Ghana began with statutory and operational independence under its 1957 ordinance, lost much of that autonomy under the 1963 legislation that expanded government influence, and regained stronger legal independence through the 1992 Constitution and particularly the Bank of Ghana Act, 2002.
Yet the existence of legislation has not eliminated what economists call de facto dependence. The Bank may be legally empowered to set interest rates, regulate banks and control liquidity without political instruction, while fiscal policy can still constrain the choices realistically available to it.
Imagine a government running very large deficits while the central bank is trying to suppress inflation. The central bank raises interest rates and drains liquidity, but the fiscal authority continues spending, borrowing and injecting demand into the economy; monetary and fiscal policy then begin pulling in opposite directions.
The result can be extraordinarily expensive. One part of the state creates liquidity while another part pays interest to remove it.
That problem now appears directly on the Bank of Ghana’s balance sheet. The study says the cost of open-market operations rose from GH¢8.37 billion in 2023 to GH¢8.60 billion in 2024 and approximately GH¢16.73 billion in 2025, as the central bank used interest-bearing instruments to absorb liquidity and support monetary stability.
These operations are part of normal central banking, and central banks are not commercial institutions that should be judged principally by profitability. But there is a difference between accepting losses as a legitimate consequence of monetary policy and operating with a structurally damaged balance sheet that eventually creates dependence on the fiscal authority for recapitalisation.
That brings Ghana to another uncomfortable number: negative GH¢96.28 billion.
According to the study by Dr Atuahene, the Bank of Ghana recorded a GH¢15.63 billion loss in 2025, compared with GH¢9.49 billion in 2024, while its equity position deteriorated from negative GH¢61.32 billion to negative GH¢96.28 billion. The paper argues that this creates a fundamental question about whether a central bank dependent on government support to restore its own capital can exercise complete financial independence from that same government.
The Bank of Ghana has itself published its 2025 financial statements and accompanying explanations, while the IMF has said strengthening the central bank’s balance sheet is important for effective monetary-policy transmission and credibility. The Fund has also explicitly highlighted losses linked to the Domestic Gold Purchase Programme as another reason to improve transparency and limit quasi-fiscal risks on the Bank’s balance sheet.
Negative equity does not automatically mean a central bank is insolvent in the conventional corporate sense. A central bank issues the domestic currency, does not face the same liquidity constraints as an ordinary company and can continue performing core functions with negative capital in circumstances where confidence remains intact.
But negative equity is not therefore irrelevant. If losses become persistent and the institution needs repeated fiscal recapitalisation, financial dependence can gradually become political leverage, whether or not anybody explicitly uses it.
The study points to a phased recapitalisation programme running through 2032 and says the government issued an initial GH¢5.00 billion bond in March 2026 towards restoration of the Bank’s equity. It argues that recapitalisation should eventually become automatic and rule-based rather than dependent on discretionary negotiations between the central bank and whichever government happens to be in office.
That recommendation deserves serious consideration because financial independence is the neglected dimension of central-bank independence. Debates usually focus on whether a president can remove a governor or influence interest rates, but a central bank that lacks a sufficiently robust balance sheet may be vulnerable even if its governor enjoys perfect security of tenure.
Automatic recapitalisation rules could change that relationship. Instead of the Bank approaching government periodically for support, legislation could establish transparent triggers for capital restoration, permitted instruments, timelines and treatment of retained earnings, reducing the opportunity for recapitalisation to become a bargaining tool.
The study also argues for greater protection of operational profits and clearer profit-distribution rules. Its point is not that the Bank should hoard resources but that fiscal pressure should not strip away buffers in good years and then leave taxpayers rebuilding the institution when losses emerge during crises.
There is another fault line: who appoints the people making these decisions?
The Governor, Deputy Governors and most members of the Bank’s board are appointed through processes in which the executive branch plays the decisive role. Their four-year terms can overlap closely with Ghana’s four-year political cycle, creating the persistent perception that changes in government should also result in changes at the top of the central bank.
That perception is more damaging than it appears. If every incoming administration expects to work with “its” governor, the institution begins to resemble an extension of the political executive even when the law says otherwise.
The study recounts how successive administrations have seen governors appointed under previous governments depart before completing their intended terms, sometimes through resignations rather than formal removals. It argues that this history weakens the distinction between legal tenure protection and the political reality facing office holders.
Its proposed solution is striking: change the constitutional architecture so that central-bank leadership terms do not coincide with electoral cycles. It suggests longer, fixed and potentially non-renewable terms — broadly five to 10 years — for the Governor and relevant board members, specifically designed to span political administrations.
A non-renewable term has particular merit because reappointment creates its own subtle incentive. A governor seeking another term from the same political authority that appointed him or her may face pressure even without receiving a telephone call from the presidency.
Longer tenure alone, however, would not guarantee independence. A poorly chosen governor serving for eight years could be more damaging than a highly competent governor serving for four.
That is why the study also proposes separating nomination and confirmation functions, introducing greater institutional balance into the appointment process. Parliament or another independent mechanism could scrutinise qualifications and conflicts of interest while the executive retains an appropriate constitutional role in nomination.
Such a reform would change the political psychology surrounding the position. A governor confirmed through a broader institutional process and serving a term deliberately extending beyond a government’s electoral mandate would be harder to portray as the monetary-policy representative of one political party.
This is perhaps the most important qualification to the entire debate. A central bank with powerful control over interest rates, bank licences, financial-sector regulation, foreign-exchange policy and billions of cedis in monetary operations cannot simply demand insulation from politicians while refusing rigorous accountability to the public.
The paper acknowledges this explicitly. It says legal independence is insufficient without transparency, structured policy evaluation, communication and accountability, adding that independence does not mean operating in isolation from government or public debate.
That distinction matters in Ghana because central-bank independence can otherwise become politically caricatured. One side may interpret it as freedom from government interference; another may portray it as unelected technocrats exercising economic power without democratic control.
Both concerns can be legitimate. The solution is not less independence but stronger accountability around an independent mandate.
An independent Bank of Ghana should be able to tell government it will not finance an excessive deficit. It should also have to explain to Parliament and the public why it raises interest rates, what its open-market operations cost, how foreign-exchange interventions are conducted, why its balance sheet has changed, what risks it is carrying and how major quasi-fiscal programmes fit its statutory mandate.
Independence without disclosure can breed unaccountable technocracy. Accountability without independence can produce political monetary policy.
The same principle applies to financial-sector supervision. The Bank of Ghana possesses significant powers to license institutions, conduct examinations, impose corrective actions and revoke licences, powers that become politically explosive whenever they affect banks with powerful owners or state connections.
The study revisits weaknesses exposed before the 2017–2019 financial-sector clean-up, including regulatory forbearance, delayed interventions, governance failures and supervisory deficiencies. It argues that independence is compromised when supervisors hesitate to act because regulated institutions are politically connected, commercially influential or state-owned.
This is where central-bank independence becomes relevant to an ordinary depositor. If a regulator cannot close or discipline a weak institution because its owners have political connections, the eventual losses do not disappear; they migrate to depositors, taxpayers or the broader financial system.
The IMF’s more recent work on Ghana continues to emphasise this supervisory dimension. Its fifth-review report called for stronger governance and risk management in state-owned banks, contingency plans for institutions that fail to recapitalise, reduction of non-performing loans and the gradual removal of regulatory forbearance created after the domestic debt exchange.
This means Ghana’s central-bank independence debate cannot be reduced to government borrowing. It must also ask whether Bank of Ghana supervisors can apply the same prudential rules to a politically connected bank, a state-owned bank and a privately owned institution without fear or favour.
The study goes further by questioning Ghana’s wider regulatory architecture. Banking, insurance, pensions and securities operate under different regulators even as modern financial groups increasingly cross traditional sectoral boundaries, creating opportunities for regulatory gaps, overlapping responsibilities and arbitrage.
That is an important future debate, but the more urgent issue remains fiscal dominance.
Ghana’s 2022 crisis demonstrated what happens when public finances deteriorate far enough to invade the monetary sphere. By the time a central bank is deciding whether to finance a government because market funding has become unreliable, independence has already become secondary to crisis management.
The best protection for Bank of Ghana independence may therefore be something that sits outside the central bank entirely: a government that lives within credible fiscal rules.
The study makes this argument forcefully. It traces the weakening of the fiscal framework after suspension of the Fiscal Responsibility Act during the Covid-19 period, followed by deficits, debt accumulation and eventual recourse to IMF support, arguing that monetary independence becomes extraordinarily difficult when fiscal policy itself becomes unsustainable.
Its most controversial recommendation is to move key restraints beyond ordinary legislation and into the Constitution. The paper argues for an entrenched fiscal or debt brake and for stronger constitutional protection against central-bank financing, on the grounds that ordinary laws can be amended, suspended or circumvented by governments commanding parliamentary majorities.
The principle deserves debate even if the exact design requires care. Constitutional fiscal rules can constrain opportunistic governments, but rules that are too rigid can also create difficulties during wars, pandemics, natural disasters or severe recessions when temporary fiscal expansion is economically justified.
The challenge is to design escape clauses that are genuinely exceptional rather than politically convenient. Emergency provisions should define the trigger, cap the amount, require transparent parliamentary approval, impose clear repayment timelines and automatically terminate once the emergency has passed.
Otherwise, every fiscal problem eventually becomes an emergency and every emergency becomes a loophole.
The recent amendment to the Bank of Ghana framework is intended to strengthen restrictions on central-bank financing, including tighter conditions around government access to monetary financing. The study welcomes stronger statutory controls but questions whether another Act of Parliament is enough given Ghana’s history of fiscal-rule breaches, arguing that durable safeguards may require constitutional entrenchment.
Its challenge to policymakers is uncomfortable but legitimate: if a rule was ignored when pressure became overwhelming before, what makes the next rule different? The answer has to include sanctions.
A prohibition without consequences can become little more than guidance. Ghana must decide what happens institutionally when a finance minister requests prohibited financing, when central-bank officials authorise it, or when emergency powers are invoked outside clearly defined conditions.
Would Parliament investigate? Would officials face statutory penalties? Would the Auditor-General automatically report the breach? Would the courts have expedited jurisdiction? Would the Bank be required to publish the request and its response?
Until those questions have answers, “zero financing” remains partly dependent on the willingness of individuals to resist pressure.
There is also a deeper democratic problem. Governments are elected to fulfil promises roads, schools, hospitals, jobs and social programmes, while central bankers are appointed partly to impose constraints when political ambitions exceed available resources.
That tension is not a defect in the system. It is the reason independent central banks exist.
Politicians naturally have shorter horizons because they face elections every four years. Monetary stability requires a longer horizon because inflation created today can destroy purchasing power, savings and investment long after an election campaign has ended.
A credible central bank therefore performs an unpopular democratic service: it removes one powerful temptation from elected governments the temptation to finance politically attractive expenditure by creating money.
But the Bank of Ghana’s history shows that legal language alone cannot remove that temptation. When public debt becomes unsustainable, auctions fail and obligations fall due, the theoretical distinction between fiscal authority and monetary authority can collapse under the weight of immediate necessity.
That is why the proposed PCI era matters. A non-financing IMF instrument is designed to support policy discipline without providing the government with new programme money, making it something of a bridge between external conditionality and domestic institutional responsibility. The May staff-level agreement identified fiscal credibility, debt sustainability, transparency, the monetary framework and financial stability as core elements of that transition.
If Ghana succeeds, the most important achievement will not be completing another IMF programme. It will be demonstrating that the institutions built during a crisis remain binding when the crisis fades.
That means resisting another election-cycle deterioration in public finances. The IMF itself noted that programme performance deteriorated markedly at end-2024 because of pre-election fiscal slippages, before corrective measures were subsequently introduced.
That historical repetition should worry policymakers more than any individual inflation print.
Ghana has repeatedly stabilised after crises. The more difficult problem has been preventing stability from becoming the foundation of the next cycle of fiscal expansion, debt accumulation, currency pressure and eventual adjustment.
Central-bank independence is therefore not primarily about protecting the Bank of Ghana from politicians. It is about protecting the Ghanaian economy from a recurring institutional incentive that encourages fiscal authorities to spend today while shifting part of tomorrow’s adjustment onto the monetary system.
The Bank itself also has obligations in this bargain. It must demonstrate that independence produces better governance, disciplined operations and transparent decisions, rather than using institutional autonomy as protection from legitimate scrutiny.
The paper’s emphasis on integrity within supervisory departments is therefore important. It recommends strong conflict-of-interest rules, ethical standards, internal investigative capacity and greater disclosure because an independent regulator that is internally compromised can be just as dangerous as a politically controlled one.
The same applies to quasi-fiscal operations. If the central bank becomes involved in activities whose primary purpose resembles industrial, commodity or fiscal policy rather than monetary policy, the boundary between institutions once again starts to blur. The IMF’s specific warning about losses associated with the Domestic Gold Purchase Programme shows that this is no theoretical concern.
The debate over which gold-related functions should sit at the Bank of Ghana and which should migrate to GoldBod therefore belongs inside the independence discussion. The guiding test should be simple: does an activity directly support the Bank’s monetary, reserve-management or financial-stability mandate, or is the central bank being asked to carry risks that properly belong on the government budget?
If a policy produces a public benefit but also a fiscal cost, transparency is enhanced when that cost appears explicitly in the national budget rather than being hidden inside the central bank’s balance sheet.
That principle is especially important after the Bank’s enormous losses. The lesson of negative equity should not be that central banks must never lose money; it should be that the public needs to distinguish clearly between losses incurred in pursuit of monetary stability and losses arising from responsibilities that should perhaps have belonged elsewhere.
The Bank of Ghana now stands at an unusual point in its history. Inflation has fallen sharply from crisis levels, external buffers have strengthened and the country has made substantial progress in restructuring debt, yet the institution charged with defending that stability is still carrying the financial scars of the crisis that preceded it.
That creates an opportunity Ghana should not waste. Governments usually reform institutions when memories of crisis are fresh. As conditions improve, the political appetite for restraints tends to fade.
The strongest time to construct a barrier against future monetary financing is therefore before anybody urgently wants to cross it.
That barrier should contain several layers: statutory zero-financing rules with narrowly defined exceptions; automatic and transparent recapitalisation arrangements; leadership terms that cut across electoral cycles; credible confirmation procedures; strong parliamentary accountability; transparent reporting of monetary and quasi-fiscal operations; clear sanctions for breaches; and fiscal rules capable of preventing government finances from deteriorating to the point where the Bank is asked to rescue them.
None of those reforms alone will guarantee independence. Together, however, they could change the incentives facing both government and central-bank officials.
The deeper objective is not to create a Bank of Ghana powerful enough to defy government for its own sake. It is to create an institution sufficiently protected to pursue price and financial stability when doing so is politically inconvenient, while remaining sufficiently accountable that such power cannot be exercised arbitrarily.
The study captures that balance when it argues that independence must not mean isolation. Monetary and fiscal authorities have legitimate reasons to coordinate, particularly during crises, but coordination means two institutions working together within clearly defined mandates, not one institution becoming the financing arm of the other.
Ghana’s experience in 2022 demonstrated what is at stake when that boundary breaks down.
The GH¢44.50 billion of net central-bank financing was not merely an accounting entry. It was evidence of a fiscal system that had reached a point where ordinary financing mechanisms were no longer sufficient, leaving the central bank to absorb pressures that eventually contributed to inflation, balance-sheet damage and difficult questions about institutional autonomy.
The GH¢60.80 billion loss recorded in 2022 and the subsequent deterioration in equity likewise represent more than historical numbers. They are reminders that governments can transfer fiscal risks onto the central bank, but they cannot make those risks disappear.
Eventually somebody pays. Sometimes it is the taxpayer through recapitalisation. Sometimes it is the saver through inflation. Sometimes it is the business borrowing at high interest rates because the central bank must aggressively tighten monetary conditions. Sometimes it is the economy through weaker investment and lost confidence.
That is why central-bank independence, stripped of its technical vocabulary, ultimately concerns ordinary people.
A shop owner does not need to understand instrument independence to feel the consequences of inflation. A pensioner does not need to understand fiscal dominance to know what happens when savings lose purchasing power.
A manufacturer does not need to study central-bank balance sheets to understand the cost of interest rates required to contain inflation generated elsewhere in the economy. And a young worker does not need to know the wording of the Bank of Ghana Act to experience the consequences when repeated macroeconomic instability suppresses investment and jobs.
The real purpose of institutional independence is therefore not to protect central bankers. It is to protect the value of money and the stability of the financial system from short-term political incentives.
Ghana has already written much of that principle into law. Its next task is considerably harder: writing it into political behaviour.
The proposed post-ECF framework may provide external encouragement, but the IMF cannot permanently police Ghana’s fiscal and monetary relationship. Eventually, the restraint has to come from Ghana’s Constitution, Parliament, public institutions, market discipline and political culture.
That is why the success of the country’s current stabilisation should not ultimately be measured by whether Ghana exits an IMF programme, receives a final disbursement or records another month of low inflation.
The more consequential question is what happens five years from now should fiscal pressures rise again.
- Will the Finance Ministry automatically look towards the central bank?
- Will Bank of Ghana leadership feel politically able to refuse?
- Will Parliament enforce the rules?
- Will emergency clauses remain exceptional?
- Will the central bank have enough financial strength to act independently without waiting for government recapitalisation?
- And will Ghana finally accept that fiscal discipline cannot be outsourced to the monetary authority after the budget has already gone wrong?
Those questions determine whether today’s recovery becomes durable or merely another interval between crises.
Ghana has experienced enough economic adjustments to understand the cost of waiting until markets impose discipline. The opportunity now is to institutionalise that discipline while stability makes reform politically possible.
The most important reform may therefore be one that does not produce a new road, tax or social programme and may never generate an applause line at a political rally.
It is the construction of a Bank of Ghana that no governing party can casually bend to its financing needs, no incoming administration automatically regards as politically captured by its predecessor and no central-bank leadership can use independence as an excuse to escape public accountability.
Such an institution would sometimes frustrate governments.
Because the real test of an independent central bank is not whether it can operate freely when government and monetary policy agree. It is whether it can maintain its mandate when the government desperately wants something different.
For Ghana, that moment has arrived before.
The GH¢44.50 billion figure tells us what happened.
The question the country must answer before the next crisis is whether it has built institutions strong enough to ensure that it does not happen again.
