On Monday, Ranking Member on the Finance Committee of Parliament, Dr. Cassiel Ato Forson accused the Central Bank of printing new currencies for the government to the tune of GHS22 billion. “Between January and June 2022, the Minister responsible for Finance and the government went to the Central Bank, and they encouraged the BoG to print money worth GH¢22 billion. They have printed GH¢22 billion in fresh money without the knowledge of Parliament and without informing all of us.
“I am saddened, no wonder inflation is galloping, no wonder that our reserves position is dwindling. Because when you create new money out of the thin air, what happens is that inflation will go up and obviously because it is new money, you will end up losing your reserves because there would be new consumption,” Dr. Cassiel Ato Forson told the media.
Countering the allegation today, the Bank of Ghana has explained that the figure of GHS22 billion picked by the Minority from the Mid-Year Budget Review statement represents government claims and not printed new currencies.
“Bank of Ghana deems it necessary to provide clarity on the issue and to set the records straight. The amount of GHC 22.04 billion represents net claims on Government, and not new currency printed to support the Government’s budget,” a BoG release signed by its Secretary Mrs. Sandra Thompson has said.
According to the Central Bank, the net claims of GHS22.04 billion have four components including the government of Ghana stocks and bonds sold by commercial banks to the Bank of Ghana under repurchase agreements, by which banks routinely manage their liquidity positions.
Other components include IMF SDR allocation disbursed to the Government through Bank of Ghana, Draw-down of Government’s deposits held with Bank of Ghana, and Negative balance on the Government’s account with Bank of Ghana at a point in time, and self-liquidated as new Government deposits are credited to the account.
Below is a copy of the Bank of Ghana release:
PRESS RELEASE
Bank of Ghana’s Response to Allegation by Minority
Ranking Member of Finance Committee in Parliament on Printing of Money to Support the Budget
Bank of Ghana’s attention has been drawn to an interview granted by the Minority Ranking Member on the Finance Committee in Parliament, Hon. Cassiel Ato Forson alleges that the Bank of Ghana (BOG) has printed an amount of GHC 22.04 billion to finance the Government’s budget without parliamentary approval. His reaction was in response to the 2022 Mid-Year Fiscal Policy Review which was presented to Parliament by the Minister for Finance on Monday, July 25th, 2022. In Appendix 2A of the Mid-Year Fiscal Policy Review document, under Financing, out of the total financing of GHC28.12 billion, an amount of GHC22.04 billion was captured under BOG. This is the amount being referred to by the Ranking Member as BOG’s printing of currency to support the budget.
Bank of Ghana deems it necessary to provide clarity on the issue and to set the records straight. The amount of GHC 22.04 billion represents net claims on Government, and not new currency printed to support the Government’s budget. The net claims of GHC 22.04 billion have the following four components:
First, there is an amount of GHC1.6 billion which reflects GoG Stocks and bonds sold by commercial banks to the Bank of Ghana under repurchase agreements. These bonds, held by a commercial bank since 2021 were purchased by the Bank of Ghana to provide liquidity to the bank, under a repurchase agreement that required the bank to buy back these bonds at a later date.
Having purchased these bonds on the secondary market as a secondary transaction, the Bank of Ghana’s holdings of GoG bonds increased by GHC 1.6 billion, not because it had lent money to Government, but because it had purchased a GoG bond originally purchased by the bank for investment purposes. As part of its function of providing liquidity to the banking sector, the Bank of Ghana routinely enters into similar agreements (Repos and Reverse Repos) with commercial banks that hold Government bonds and require liquidity to meet short-term obligations. These arrangements do not represent lending to the Government by the Bank of Ghana.
The proceeds of bonds purchased from banks, go to those banks and not to Government. Once the Bank of Ghana purchases such bonds from banks, it holds them until the maturity of the bonds, unless they are repurchased by the banks. Second, GHC6.2 billion of the amount reflects the on-lending of IMF SDR resources to Government, in line with the overall objective of the special SDR operation by the IMF. 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 Covid19 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 GHC6.2 billion.
In addition, an amount of GHC 2.85 billion reflects a drawdown on the Government’s 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 GHC 11.4 billion included in the GHC 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. This guarantee of same-day settlement of maturities and interest payments, which has always been part of the auction system, has underpinned the development of the local currency bond market. With such a guarantee, on occasions when there have been uncovered auctions, maturities are automatically settled and then reconciliation is done with Government. Incoming Government cash deposits are then used automatically to liquidate such overdrawn balances on a rolling and continuous basis. The current gap of GHC11.4 billion reflects the net amount of the gap at the end of June 2022. This balance is cleared regularly. Any outstanding balance has to be cleared by the end of the year.
Bank of Ghana would like to assure the public that in carrying out its functions as a banker to Government, it is committed to complying fully with all relevant legal requirements. Bank of Ghana’s operations is constantly guided by the requirements of the Bank of Ghana Act, 2002 (Act 612) as amended. As indicated in the Minister’s speech, should the need arise for emergency financing by the Bank of Ghana in line with the BoG Act, the Bank of Ghana, as was done in the case of the Covid-19 Bond of 2020, will follow the processes prescribed by the Act?
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