Stop the complacency; economy could collapse faster – Terkper tells BoG
Former Minister for Finance, Seth Terkper, has told the Central Bank to stop being complacent by comparing itself to Central Banks in advanced countries that have in one way or the other recorded losses and negative equity.
According to him, the Central Bank being complacent and not taking immediate steps to quickly return to positive equity and resolve its policy solvency issues, could result in a faster collapse of the Ghanaian economy.
“I read the BoG statement, and I think we should stop the complacency by comparing ourselves to other Central Banks and saying that after all these banks in the advanced countries are surviving, we could collapse faster,” he noted.
“If all the income is depleted and losses are recorded, how is it (BoG) going to do effective banking supervision,” quipped Mr Terkper speaking during an interview on Joy News.
In a statement issued by the Central Bank explaining the reasons behind its record GHS 60.81bn losses in the 2022 fiscal year for which it now has negative equity and faces policy solvency issues, the BoG noted that historically, some central banks have operated with negative equity yet fully met their monetary policy objectives.
For example, the Central Banks of Chile, Czech Republic, Israel, Germany and Mexico experienced years of negative capital.
Here are a few facts:
- The Czech National Bank reported negative equity from 2002 through 2013 due to valuation write-downs on its sizable foreign currency reserves.
- German Bundesbank, was technically overleveraged in the early 1970s because its losses exceeded its equity.
- Between 2002 and 2021, some 10 out of 32 Emerging Market Economies and Small Open Economies (EME/SOE) central banks had negative equity, only briefly in many cases, but for more than 30 percent of the time for three of them.
“But throughout these periods of negative equity positions, price and financial stability were maintained,” the apex bank noted.
Further stating that, in 2022, several central banks run losses and, in some cases, the losses pushed them into negative equity. Some examples being;
- The Reserve Bank of Australia (RBA) recorded a 2022 book loss of 37 billion Australian dollars, which more than wiped out the central bank’s equity.
- The UK Government faces £150 billion bill to cover Bank of England’s losses (According to the Financial Times of July 25, 2023).
- The Swiss National Bank (SNB) in early January reported a record preliminary loss of 132 billion francs for 2022.
- In September 2022, the central bank of the Netherlands notified the country’s government in a letter that it projects net interest losses amounting to a potential EUR 9 billion for the years 2023 through 2026.
- The US Federal Reserve has no longer been able to remit weekly billion-dollar transfers to the US Treasury since autumn 2022. Instead, a debt obligation to the US Treasury (a liability that the Fed recognizes as a deferred asset) has been growing on the Fed’s balance sheet since then. The Fed eventually will have to pay this liability sometime in the future (when it resumes generating profits).
- For the financial year ended 31 March 2023, the Monetary Authority of Singapore recorded a net loss of $30.8 billion.
According to the Central Bank, its recent decision to slash government debt by 50 percent has been hailed as a decisive action that saved the country from potential economic collapse.
Dr. Philip Abradu-Otoo, Director of Research at BoG, emphasized that the central bank’s bold move has sent a positive signal to international observers, who were closely scrutinizing the situation before embarking on their own debt management strategies.
“By taking the lead in absorbing losses, the Bank of Ghana has set an example for external partners. Their eagerness to witness the outcome has been answered, and this will undoubtedly expedite their own debt treatments,” stated Dr. Abradu-Otoo.
The BoG’s proactive stance in shouldering the burden of losses is expected to expedite the process of resolving the nation’s debt situation, potentially easing concerns among investors and financial institutions.
