Ghana’s central bank, the Bank of Ghana (BoG), has faced criticism for various reasons contributing to economic challenges.
Here are 10 reasons often cited for why it is perceived to have failed the economy:
- High Inflation Rates:
The BoG has struggled to control inflation, which has remained persistently high. This erodes purchasing power and savings, leading to reduced consumer confidence and economic instability.
In January 2023, Ghana’s inflation rate surged more than expected in December, driven by steep increases in food, transport, and housing costs in the West African country.
Annual inflation quickened to 54.1% in the world’s second-largest cocoa producer, from 50.3% a month prior, government statistician Samuel Kobina Annim told reporters.
As of April 2024, the country’s inflation stood at 25%.
2. Currency Depreciation:
The Ghanaian cedi has experienced significant depreciation against major currencies. This instability affects import costs, increases inflationary pressures, and undermines investor confidence.
In 2022, Ghana’s cedi slumped to become the world’s worst-performing currency as investors continued to squeeze foreign capital into the West African country before a deal with the International Monetary Fund.
The cedi continues to depreciate faster against the dollar and other international currencies. In the first four months of 2024, the cedi has depreciated by 14% against the dollar.
3. High Interest Rates:
In attempts to curb inflation and stabilize the currency, the BoG has maintained high interest rates. This makes borrowing costly for businesses and individuals, stifling economic growth and investment.
Ghana’s central bank in July 2023, called for tighter fiscal policy to help bring down stubbornly high inflation as it hiked its main interest rate by another 50 basis points to 30.0%
As of May 27, 2024, the central bank held its main interest rate steady at 29% for the second meeting in a row, as a slide in the local cedi currency has slowed inflation’s decline.
4. Poor Monetary Policy Implementation:
Critics argue that the BoG’s monetary policies have been ineffective or poorly timed, failing to address underlying economic issues or exacerbating existing problems.
In a recent announcement, the Bank of Ghana (BoG) has decided to maintain its Monetary Policy Rate at a significant 29 percent. This decision comes after a prior 100-basis-point cut in the policy rate took it to the current 29 percent back in January.
There have been several calls by stakeholders for a reduction in the monetary policy rate. Economist and Director of Research at the Institute of Economic Affairs (IEA), Dr John Kwakye, wants the policy rate slashed by at least 200 basis points.
5. Weak Financial Sector Oversight:
The BoG has been criticized for inadequate regulation and oversight of the banking sector, leading to a banking crisis with the collapse of several banks and microfinance institutions, which shook public confidence.
In 2017, the BoG Director, Dr Ernest Addison admitted that “the poor banking practices, coupled with weak supervision and regulation by the Bank of Ghana has significantly undermined the stability of the banking and other non-bank financial institutions and we all know some of the consequences by now—revocation of licenses of two banks while other banks were placed under comprehensive capital restoration plans.”
6. Lack of Transparency and Accountability:
There have been concerns about the transparency and accountability of the BoG’s operations, including its handling of monetary policy decisions and financial sector interventions.
In 2022, the Minority noted that the money said to have been injected into the economy by the central bank was done illegally, “hence the 33.8% growth in BoG’s balance sheet as at June 2022.”
In its defence, the Bank of Ghana said the amount of GH¢22.04 claimed to have been printed represented net claims on Government, and not new currency printed to support the Government’s budget.
7. Debt Management Issues:
The BoG has struggled with managing the country’s debt levels, contributing to high public debt. This impacts the economy by diverting resources from development projects to debt servicing.
Ghana’s public debt increased by GH¢46.4 billion in the first two months of 2024, reaching GH¢658.6 billion ($53.1 billion), according to data from the Bank of Ghana.
This total public debt stock is equivalent to 62.7% of the country’s Gross Domestic Product (GDP).
The Central Bank’s May 2024 Summary of Economic and Financial Data revealed that the country’s debt, which ended 2023 at GH¢611.2 billion, increased to GH¢626.0 billion in January 2024 and further to GH¢658.6 billion in February 2024.
With a public debt of GHC 658.6 billion and a population of 33.48 million, the average Ghanaian owes approximately GHC19,671.45.
8. Ineffective Communication:
The central bank’s communication strategies have often been deemed insufficient, leading to a lack of clear guidance for the market and the public on policy intentions and economic outlook.
9. Outrageous $250m new Headquarters
The Governor of the Bank of Ghana, Ernest Addison is seeing to the use over $250 million dollars, an equivalent of GH¢2.8 billion to build a new central bank headquarters despite seeing to losses totalling GHS60 billion cedis.
These factors collectively highlight the challenges the BoG faces in stabilizing and growing Ghana’s economy effectively.
BoG has strongly defended its decision to construct a new headquarters, stating that its current office is no longer suitable due to safety concerns. The Central Bank stressed a new head office is a necessary investment to ensure the operational efficiency of the bank and to position Ghana as a financial hub in the sub-region.
10. Printing of money without discretion
The Bank of Ghana (BoG) has engaged in an alarming spree of money printing over the past three years.
The Central Bank printed a staggering GHS35 billion in 2021 and GHS42 billion in 2022 to support the Akufo-Addo-led government.