BoG to end budget deficit financing
The Governor of the Bank of Ghana, Ernest Addison, announced that the financing of budget deficits by the Bank of Ghana is set to come to an end with the introduction of the International Monetary Fund (IMF) programme.
The Bank faced criticism for its loans to the government, which reached nearly GH¢42 billion by the end of 2022, raising concerns about the growing public debt stock and potential inflationary pressures.
IMF to Require Zero-Financing MoU
As a condition for its US$3 billion facility agreement, the IMF is expected to require the signing and enforcement of a Memorandum of Understanding (MoU) between the central bank and fiscal authority, pledging zero financing from the former.
Dr. Addison stated that even without external pressure, proper implementation of the IMF’s framework would make the Bank’s financing activities unnecessary.
Bank of Ghana Stepped in to Support the Economy
In June 2022, the central bank had to directly finance the government as the economy was in a difficult position with no access to international capital markets and low revenue. The central bank had to ensure that the payments for holders of government instruments were made and the system was kept stable.
Deficit Financing Contributed to Dwindling Reserves
The deficit financing was a major contributor to the nation’s declining stock of reserves as it became inflationary through the exchange rate channel.
The Gross International Reserves at the end of 2022 totaled US$6.2 billion, down from US$9.7 billion at the comparable period in 2021. The Net International Reserve also dropped from US$6.1 billion to US$2.4 billion during the same period.
Broad Fiscal Deficit Overrun in 2022
Provisional data on budget execution for the period January to November 2022 indicate an overrun on the broad fiscal deficit, on a cash basis, from the intended target of 6.7 percent of Gross Domestic Product (GDP) to 9.8 percent of GDP. The 2023 budget has a deficit target of 7.7 percent of GDP, equivalent to GH¢61.47 billion.
