Governor of the Bank of Ghana (BoG), Dr Ernest Addison has said that the crisis that hit the Ghanaian economy in 2022 which affected the local currency and also inflation, was like what pertained in many other frontier and emerging market economies, including Egypt, Argentina, Turkey, Kenya, Sri Lanka, and Pakistan, just to mention a few.
These countries, except for Sri Lanka, had built policy buffers and resilience of their key institutions provided the needed anchor to hold their economies until reform packages were introduced, he said.
In the case of Ghana, he added, the strong policy buffers built over time, allowed the BoG to step in to support the economy until the International Monetary Fund (IMF) programme was concluded, because of the policy buffers built, following years of prudent management.
The Bank of Ghana, Dr Addison said, played a critical role to support the economy during the crisis period with distinction.
“It is very clear the bank’s role in supporting the economy through this crisis has not been fully understood and in some cases deliberately misinterpreted. The Bank came under severe attack across the media space, culminating in an organised demonstration against the institution,” he said.
Dr Addison further stated that central banks all over the world have had to re-evaluate their mandate since the global financial crisis of 2007/2008 and have supported fiscal policy to play a countercyclical role in stabilizing economies. Consequently, central banking has never been the same.
Before the financial crisis, he said, the “quintessential task of central banks was straightforward, keeping inflation within a tight range through the control of short-term interest rates. In a world of polycrisis, central banks have found themselves broadening monetary policy formulation beyond interest rates to include the deployment of balance sheets in a variety of unconventional monetary policies. Thus, the crisis exposed a chasm between theory and practice.”
Indeed, he added, all that Bank of Ghana did as various shocks hit the economy was consistent with prudent crisis management. In 2020 pandemic, the Central Bank supported the financing of the budget to protect lives and livelihoods.
“Again, in the 2022 economic and liquidity crisis, the Central Bank would not have acted differently but played its role as an automatic stabilizer to avoid pushing the economy to a tipping point which possibly could have spilled into social upheavals as was the case in Sri Lanka.
“It is very clear that only a Central Bank that has been prudently ran, built buffers, and well positioned, that can step in to support an economy from collapse. It is therefore most appropriate, I believe, to state that Ghanaians should rather applaud and commend the resilience of the Bank of Ghana,” Dr Addison said at the Chartered Institue of Bankers 2023 Governor’s Day in Accra.