BoG denies printing GH¢22 billion fresh notes without parliamentary approval

Ato Forson had already claimed that the governor of the Bank of Ghana (BoG) had produced money without parliamentary authorization to fund the government’s budget.

He claims that the Central Bank has supported criminal activity that has to be addressed.

He spoke “The Minister of Finance and the government went to the Central Bank and urged the BoG to produce GH22 billion in currency between January and June 2022. Without the consent of the Parliament and without informing any of us, they have created GH22 billion in new currency.”

Speaking to the media after Finance Minister Ken Ofori-Atta delivered the government’s mid-year budget and economic strategy to Parliament, Ato Forson said the introduction of the new currency was the cause of the high inflation being seen in the country.

However, the Central Bank stated that Dr. Ato Forson’s assertion was wholly untrue in a statement on Tuesday, July 26, 2022.

It clarified that “Out of the entire funding of GHC28.12 billion, which is listed under Financing in Appendix 2A of the Mid-Year Fiscal Policy Review document, GHC22.04 billion was recorded under BoG.

The Ranking Member is referring to this sum when she says that the BoG printed money to support the budget.”

According to the Bank of Ghana, it was necessary to clarify the situation and correct the record.

Here is the statement from the BoG:

In contrast to additional money printed to finance the government’s budget, the amount of GH22.04 billion represents net claims against the government.

The four parts of the GH22.04 billion in net claims are as follows:

  1. GoG Stocks and bonds sold by commercial banks to Bank of Ghana under repurchase agreements, by which banks routinely manage their liquidity positions;

  2. IMF SDR allocation disbursed to Government through the Bank of Ghana;

  3. Draw-down of Government’s own deposits held with the Bank of Ghana;

  4. Negative balance on Government’s account with Bank of Ghana at a point in time, and self-liquidated as new Government deposits are credited to the account.

The first figure, GHC 1.6 billion, represents the GoG Stocks and Bonds that commercial banks have sold to the Bank of Ghana under buyback agreements.

Under a buyback agreement that required the bank to buy back these bonds at a later time, the Bank of Ghana purchased these bonds, which have been held by a commercial bank since 2021, to provide liquidity to the bank.

The Bank of Ghana increased its holdings of GoG bonds by GH1.6 billion as a result of buying these bonds on the secondary market in a secondary transaction, not because it had lent money to the government but rather because it had bought a GoG bond that the bank had initially bought for investment purposes.

The Bank of Ghana often enters into similar agreements (Repos and Reverse Repos) with commercial banks that hold Government bonds and need cash to meet short-term obligations as part of its duty to provide liquidity to the banking sector.

These agreements don’t amount to a loan from the Bank of Ghana to the government. Bond purchase earnings go to the issuing banks rather than the government. When the Bank of Ghana buys such bonds from banks, it holds onto them until the bonds mature, unless the banks decide to buy them back.

In keeping with the overarching goal of the IMF’s special SDR operation, GH6.2 billion of the total reflects the on-lending of IMF SDR resources to the government. IMF resources are usually meant for Balance of Payments support, and it goes directly to the central banks.

However, in this particular instance, the special SDR allocation by the IMF was designed to provide budget support to countries to help address issues related to the COVID-19 pandemic. Last year, the Bank of Ghana received an additional SDR allocation of SDR 707.3 million (US$1.001 billion). In line with the broader objectives of the special SDR allocations, the Bank of Ghana on-lent the additional resources to the Government.

This was approved by Parliament in the 2022 Budget presentation. The amount of SDRs so far extended to the budget amounts to GH¢6.2 billion. In addition, an amount of GH¢2.85 billion reflects a drawdown on the Government’s own deposits held with the Bank of Ghana.

These include statutory funds such as the GET FUND, National Health insurance, District Assembly Common Fund, and the Sinking Fund. Also included are donor-related funds as well as the Ministries, Departments, and Agencies (MDAs) operational accounts with the Bank of Ghana.

The residual amount of GH¢11.4 billion included in the GH¢22.04 billion represents an overdrawn balance on the Government’s treasury main account held with the Bank of Ghana as of the reporting date. Overdrafts of this nature occur from time to time, as the auction system has been designed to ensure same-day settlement of maturities and interest payments, once the auction is concluded.

The development of the local currency bond market has been supported by the auction system’s promise of same-day settlement of maturities and interest payments. When there have been uncovered auctions, maturities are immediately resolved with such a guarantee, and a reconciliation with the government is subsequently conducted.

Then, on a rolling and continuing basis, such overdrawn accounts are automatically liquidated using incoming Government cash deposits.

The current gap, which is $11.4 billion in Ghana, represents the net shortfall at the end of June 2022. This balance is regularly paid off. Any remaining balance must be paid off by the end of the calendar year.

Bank of Ghana would like to reassure the public that it is committed to fully complying with all pertinent legal requirements in performing its duties as a lender to the government. The Bank of Ghana Act, 2002 (Act 612) as revised regulations serve as a continual guide for all Bank of Ghana operations. As stated in the Minister’s address, should the Bank of Ghana be required to provide emergency financing in accordance with the BoG Act, will it follow the procedures laid out by the Act as it did in the case of the COVID-19 Bond of 2020?

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