The Governor of the Bank of Ghana (BoG), Dr Ernest Addison has assured that the bank’s operations will not be negatively affected as a result of its losses in 2022.
The Bank of Ghana in its Annual Report and Financial Statements revealed that it recorded a loss of GH¢60.8 billion in 2022.
On the back of this, the minority in parliament has called for the resignation of the BoG Governor alongside his two deputies, over the bank’s ‘insolvency’ and ‘mismanagement’.
But addressing the press on Monday, August 21, 2023, he explained that his assertion that the loss will not affect the bank’s operation was validated by the International Monetary Fund’s Technical Assistance mission before granting the bailout.
“It is worth noting that Central Banks are not commercial banks. Bank of Ghana’s current financial condition will not impact negatively on the operations of the Bank,” he stated.
According to him, the IMF declared the bank “was policy solvent and would remain so, as it had enough income to cover monetary policy operational costs.”
He added that at that time, the bank had sufficient capital amounting to about 15 per cent of its total liabilities, therefore the IMF recommendation was for the Bank to retain all profits and a reassessment should be made in the year 2027.
According to Dr Addison, BoG will also manage to reduce its operational costs during this period – 2023.
He further explained that the loss the bank recorded last year were technical losses arising from the “haircut and the application of accounting standard (in particular IFRS 9) to estimate credit losses over the tenure of the government dealt by Bank of Ghana.”
According to him, the financial loss was not money lost by the bank through its operations in 2022.
“Rather, one should look at this as the reflection of the total cost of the economic and social crises that the country has faced over the years and an attempt to resolve a major structural problem of the Ghanaian economy,” he added.
He added that the loss recorded by the bank is not the first time since the bank has gone into negative equity, according to historical financial statements.
According to Dr Addison, in the period of 2017, and 2018, BoG incurred similar negative equity from the impairment of legacy liquidity support loans granted in 2015 and 2016 to insolvent banks.
He stated that the external auditors were impaired due to the uncertain prospects of recovering from those insolvent banks. However, the bank recovered and generated profits from 2019 to 2021.
“During the early years of structural adjustment, very large exchange rate depreciations led to revaluation losses that drove the Bank into negative Equity. Indeed, anytime the economy faces major challenges, the Bank of Ghana’s balance sheet suffers, and the equity position moves into negative territories,” he said.
The BoG Governor noted that in all its dealings, the Bank acted within the applicable laws, adding that it is not true that the Bank of Ghana has been providing financing for the government every year.
“There has been zero financing in 2017, 2018, 2019 and 2021. The Bank of Ghana has only had to support in the pandemic year of 2020 and the crisis year of 2022.”
“The Bank of Ghana Act (612), as amended, limits financing of Government to 5 percent of previous year’s tax revenue. This provision in the law has been adhered to since I took office in April 2017. Between 2017 and 2019, in addition to the requirements of the Bank of Ghana Act (612), as amended, the Bank signed a Memorandum of Understanding (MOU) with the Ministry of Finance to even impose a tighter restriction of zero central bank financing, and this was observed strictly, even though MOUs are not legally binding. Between 2012 and 2015, the Bank of Ghana provided overdraft to finance government and Cocobod every year. And there was neither a pandemic nor a global economic crisis,” he explained.
“When Ghana was hit with Covid-19 in 2020, Section 30(6) of the Bank of Ghana Act (612), as amended, was triggered, and as indicated earlier, the Bank purchased GHC10 billion worth of Covid19 bonds to support the economy through the pandemic. This was done within the applicable laws governing the Bank of Ghana. When section 30 (6) of the Bank of Ghana Act (612), as amended, is triggered, it, allows the Governor, the Minister for Finance and the Controller and Accountant General to agree on a new limit of central bank financing.
The law further says that the Minister of Finance would then have to inform parliament, and the Minister has since informed parliament as part of his briefing to update Parliament on the IMF programme and status of the Domestic Debt Exchange,” he stressed.
