Director of Research at the Institute of Economic Affairs (IEA) Dr John Kwakye has welcomed the Memorandum of Understanding (MoU) signed by the Governor of the Bank of Ghana (BoG) Dr Ernest Addison on the zero financing of the government’s budget.
He said this should go a long way in helping reduce inflation further.
Dr Ernest Addison told centralbanking.com after signing the MoU that it was signed by both parties, the BoG and the Finance Ministry, on May 2, 2023.
“The MoU has been finalized and signed,” Governor Ernest Addison said.
He is also reported to have told the Financial Times that the MoU took effect on May 1, 2023 and would come into force should the International Monetary Fund approve Ghana’s request for a $3 billion loan facility.
Commenting on this and also on the drop in the inflation rate, Dr Kwakye tweeted that “We should welcome the declining inflation but not celebrate it.
“At 41.2% in April, inflation far exceeds the BoG target of 8+/- 2% as well as our peers’ inflation. Recent MOU to freeze BoG lending to Gov’t should go a long way in stemming inflation.”
We should welcome the declining inflation but not celebrate it. At 41.2% in April, inflation far exceeds the BoG target of 8+/- 2% as well as our peers' inflation. Recent MOU to freeze BoG lending to Gov't should go a long way in stemming inflation.
— J. K. Kwakye (@JohnKwabenaKwa1) May 11, 2023
Meanwhile, Dean of the Business School of the University of Cape Coast Professor John Gatsi has said that although the BoG has signed MoU there should be some level of support for the activities of the government by the central bank.
Prof Gatsi however, said that form of support should be situated within the fiscal laws of the country and those laws respected by all players.
Reacting to the signing of the MoU on News 360 on TV3 Monday, May 8, Prof Gatsi said “in the first place, we don’t actually need an MoU, we only need respect for the law. We have a law that states that the lending to the central government by the Bank of Ghana should not exceed five percent of the previous year’s revenue.
“That is to be respected. It is because we are not respecting that, we need to show the IMF proof that we are going to commit to zero financing of government activities. That is why this MoU was occasioned. It is just a sign that we are not adhering to our fiscal laws in the country.”
He added “Also in the earlier IMF agreement that the government inherited, the IMF was asking for zero financing. But in the overall interest of the of government Parliament felt that there should be some level of Bank of Ghana support for the budget if need be, that should not go beyond five percent.
“Really, I do believe that there should be some level of financing of government activities by the central bank but that level of support that the central bank should give to government activities should be respected, and should not go beyond what has been stated.”