The Ghana International Trade and Finance Conference (GITFiC) has made key recommendations to central banks around the world including the Bank of Ghana (BoG) on how to minimize the losses they incurred last year.
The Bank of Ghana also recorded losses of GHS 60.81 billion, in contrast with the GHS 1.23 billion profit recorded in 2021. The financing of Ghana’s fiscal debt was the major contributor to the BOG’s high expenses and overruns.
It was also partly attributed to the COVID-19 pandemic and the Russia-Ukraine war, which resulted in persistent and broadening inflation pressures, volatile commodity prices, and an economic slowdown in China, causing a series of negative supply shocks and tight financial conditions, GITFIC said.
The concerns against BoG are about its low rating on its core functions related to dwindling import cover and reductions in foreign reserves.
Furthermore, there was a sum of GH¢6.12 billion marked as losses on loans and advances to quasi-government and financial entities, along with a net exchange deficit of GH¢5.27 billion resulting from the depreciation of the domestic currency.
The Bank of Ghana effectively offered fiscal assistance to the government by absorbing a significant percentage of the losses incurred through the debt exchange program. This was to enable the government to better control its debt burden, which is especially important in times of economic difficulty.
“The willingness of the Bank of Ghana to shoulder losses demonstrates a commitment to stabilizing the financial system and assisting the government in addressing economic issues. This can have a favorable impact on market confidence and investor sentiment, both of which are critical for preserving macroeconomic stability. This, we at the Ghana International Trade and Finance Conference believe, will bring short-term relief to the government and contribute to broader economic stability.
“Concrete measures aimed at recuperating and establishing favorable equity involve the preservation of earnings to facilitate capital recovery and abstaining from funding the fiscal budget of the Ghanaian government. Substantive progress has already been initiated, evident through the endorsement of a Memorandum of Understanding between the Bank of Ghana and the Ministry of Finance on April 26, 2023, outlining a commitment to cease budgetary financing,” GITFIC said.
In its recommendations, GITFIC stated that as inflation and interest rates rise, central banks must deal with the economic and financial consequences of their policies, as well as problems concerning cost distribution and potential long-term sustainability.
“Per our research and analysis, undoubtedly, there are trends in all the countries understudied by the Ghana International Trade & Finance Conference – GITFiC for the purpose of this paper, namely: 1. the Russia-Ukraine war; 2. the COVID-19 pandemic; 3. central banks borrowing from their various governments; 4. central banks coming to aid their various governments; 5. central banks, through their various finance or Treasury ministries, taking austerity measures to remedy the effects of the global situation, etcetera.
“These and a few other factors and indices accounted for mass losses by these central banks globally, of which Ghana was not exempted. Global economic shocks such as the aftermath of the pandemic and the Russia-Ukraine war, which led to outrageous increases in energy prices, inflation, and exchange rates, led the Ghanaian government to opt for a domestic debt restructuring.
“The Bank of Ghana, in their mandate to ensure the stability of the financial sector, absorbed 50% of this DDEP program which has led to the bank recording negatives on their balance sheets. Hence, the losses recorded are not indicative of mismanagement but rather a testament to the profound impact of worldwide challenges. The loss incurred by the country’s central bank was not an isolated incident but rather a reflection of a greater world economic situation. In addition, central banks’ principal goal is to fulfil their policy responsibilities, which include ensuring price and financial stability.
“Central banks are not typically profit-oriented in the same way as commercial banks or businesses; hence, in their process of fulfilling their mandate, they can incur losses. The Bank of Ghana served as the loss absorber for the entire debt exchange program, a key requirement that allowed the Government of Ghana to meet the threshold for the approval of the IMF program. It is important to note that the current trend of most central banks’ recorded losses is not a new phenomenon to receive backlash from citizens.
“A recorded loss in the books of the Central Bank of Ghana does not mean it is in a state of insolvency. Ultimately, losses and negative equity do not directly affect the ability of central banks to operate effectively. In normal times and in crises, central banks should be judged exclusively on whether they fulfill their mandates or not.”