The governor of BoG, Dr. Abdul Nasiru Issahaku, last week told Parliament’s Public Accounts Committee that the central bank has stopped financing government.
The Institute for Fiscal Studies (IFS) says Bank of Ghana’s decision to enact a bill to back its
“The proposal in the new Act to eliminate completely Bank of Ghana lending to government starting from 2016, except extreme emergency cases, may be premature,” Executive Director of IFS Prof. Newman Kusi said at press conference Wednesday.
He continued: “When we say it’s premature we mean that the drastic cut is not in the interest of the country. Because whether BoG finances government or not, if the government intends running a deficit, it will do it via the issuance of treasury bills to pay for the deficit – when government does that interest on the T-bills goes up, undermining the inflation targeting merchanism.”
According to Prof. Kusi, it does not make sense to ask the BoG not to finance government.
He said: "You cannot say that the central bank should not support government. It doesn’t make sense. You can’t compare Ghana to UK, or US where their central banks do not finance deficit; those are strong and tried and tested institutions. How can you say that central bank should not finance government? We oppose that.”
In addition, he said his outfit is set to present a bill to parliament to back its zero-financing policy where government will no longer be able to borrow from the central bank.
The new law aims to cement the central banks functional autonomy and its ability to respond to crisis in the financial sector.
"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,” Issahaku said.
As part of a three year $918 million Extended Credit Facility deal with the International Monetary Fund (IMF), Ghana agreed to pass a legislation to stop BoG from financing government.
Under existing law, government is allowed to borrow from the central bank up to 10 percent to finance the nation's budget.
However, due to the Extended Credit Facility of the IMF, government can no longer borrow from the central bank.
Over the years, successive governments have been accused of borrowing more than the stipulated 10 percent from the central bank.