The Resident Representative of the International Monetary Fund (IMF) in Ghana, Dr. Leandro Medina, has expressed his approval of the Bank of Ghana’s (BoG) decision to adopt a stricter monetary policy stance and eliminate the practice of financing the budget through monetary means.
He noted that both the government and the IMF team have reached a consensus on the importance of prioritizing the avoidance of monetary financing for the budget.
“In fact, the authorities, under the IMF-supported programme, have decided to eliminate such financing; and they intend to strengthen the BoG Act to tighten the conditions under which such financing is allowed. That said, looking at 2022, we need to remember that the economy faced unprecedented challenges”, he told an Accra based newspaper.
“The large budget deficit could not be financed anymore as the government had lost access to both international and domestic capital markets. Under these circumstances, the choice was between BoG providing crucial financing to enable the government to meet its obligations or a very disruptive and possibly much more abrupt crisis”, he explained.
In reference to the impact of the Domestic Debt Restructuring on the balance sheet of the Bank of Ghana (BoG), Dr. Medina emphasized that the restructuring of the nation’s debt constitutes a crucial component of the government’s strategy to reestablish macroeconomic stability and ensure the sustainability of public debt.
“And BoG participated in the restructuring to share some of the burden the domestic debt exchange places on government debt holders, along with banks, other financial institutions, pension funds and individuals. Indeed, this contributed to reducing its net equity to a negative value, but crucially, we conducted analysis that indicated that this situation does not hinder the BoG from effectively executing its policy mandates, including the vital task of guiding inflation back to its 8-percent target in a gradual manner”.
In essence, his conclusion points towards an anticipated improvement in the net equity of the Bank of Ghana (BoG) over the course of time, leading to an eventual return to a positive financial position.