The central bank is seeking legal backing to the proposed New Bank of Ghana (Amendment) bill 2015 to enable it implement its zero-financing policy, whereby government would no longer be able to borrow from the Bank.
Governor of the BoG, Dr. Abdul Nasiru Issahaku, is upbeat that passage of the bill will empower the central bank to completely stop lending to government.
The existing law allows government to borrow up to 10% of the previous year’s budget from the central bank, but in some cases in the past government went beyond the cap – borrowing up to 20%.
Under the Extended Credit Facility of the International Monetary Fund (IMF), government, beginning this year cannot borrow from the central bank – and President Mahama has indicated that government has indeed stopped borrowing from the BoG.
Amendment of the Bank of Ghana Act will scrap the 10 percent ceiling and make it impossible, even beyond the IMF arrangement, for government to borrow from the bank.
Responding to questions from members of the Public Accounts Committee of Parliament last Thursday on the Auditor General’s report for 2012, Dr. Issahaku said government borrowing from the bank “is no longer applicable”, except that it must be stated in law.
“Before the amendment is operative we have already started zero-financing, so as we speak now there is no financing to government from BoG – but the Act will soon be brought before Parliament as a bill.”
The BoG governor, who was flanked by deputy-Finance Minister Ato Forson sought to clarify the current status of the new Act.
He said: “The Ministry of Finance and Bank of Ghana signed the Fiscal Agency Agreement, in which some of the provisions include zero-financing starting from this year. We have gone through the year – we are in June now and we are not enjoying any financing from the Bank, just to give you that assurance,” he told the Committee.
The chairman of the PAC, Kweku Agyeman-Manu, enquired from the deputy-Finance Minister whether the amendments include sanctions on some breaches of the Act’s clauses.
Mr. Ato Forson explained that: “It has been addressed by the proposed Public Financial Management (PFM) bill, which will be laid before the House by next week”.
The amendment is intended to significantly strengthen the central bank’s functional autonomy, governance, and ability to respond to banking sector crises.
The bill seeks to plug loopholes identified in the Act. It also seeks to separate the autonomy provisions from other objectives of the Bank, to strengthen the functional autonomy of the Bank of Ghana in the performance of its functions.