BoG Governor
The Bank of Ghana has dismissed claims by the Minority in Parliament that it has printed money to the tune of ¢22.04 billion to support government expenditure.
According to the central bank, amount of ¢22.04 billion cited by the Ranking Member on the Finance Committee, Dr Ato Forson, represents net claims on government, and not new currency printed to support the government’s budget.
The net claims of ¢22.04 billion, BoG said, has the following four components:
“They are Government of Ghana stocks and bonds sold by commercial banks to Bank of Ghana under repurchase agreements, by which banks routinely manage their liquidity positions; the International Monetary Fund SDR allocation disbursed to government through Bank of Ghana; Draw-down of government’s own deposits held with Bank of Ghana and negative balance on government’s account with Bank of Ghana at a point in time, and self-liquidated as new Government deposits credited to the account,” BoG explained in a statement yesterday.
According to BoG, there is an amount of ¢1.6 billion which had reflected GoG stocks and bonds sold by commercial banks to Bank of Ghana under repurchase agreements.
“These bonds, held by a commercial bank since 2021, were purchased by Bank of Ghana to provide liquidity to the bank, under a repurchase agreement that required the bank to buy back these bonds at a later date,” the statement said.
Clarification
The statement clarified that, having purchased these bonds on the secondary market as a secondary transaction, Bank of Ghana’s holdings of GoG bonds had increased by ¢1.6 billion, not because it had lent money to Government, but because it had purchased a GoG bond originally purchased by the bank for investment purposes.
“As part of its function of providing liquidity to the banking sector, Bank of Ghana routinely enters into similar agreements (Repos and Reverse Repos) with commercial banks that hold Government bonds and require liquidity to meet short-term obligations. These arrangements do not represent lending to Government by Bank of Ghana,” it clarified.
The central bank said the proceeds of bonds purchased from banks had gone to those banks and not to government, adding “once Bank of Ghana purchases such bonds from banks, it holds them until maturity of the bonds, unless they are repurchased by the banks”.
“Second, the Bank of Ghana said 6.2 billion of the amount reflects on-lending of IMF SDR resources to government, in line with the overall objective of the special SDR operation by the IMF, adding “IMF resources are usually meant for Balance of Payments support, and it goes directly to the central banks”.
SDR allocation
However, in this particular instance, the central bank said the special SDR allocation by the IMF was designed to provide budget support to countries to help address issues related to the Covid-19 pandemic.
“Last year, Bank of Ghana received additional SDR allocation of SDR 707.3 million ($1.001 billion). In line with the broader objectives of the special SDR allocations, the Bank of Ghana on-lent the additional resources to the government.
“This was approved by Parliament in the 2022 Budget presentation. The amount of SDRs so far extended to the budget amounts to 6.2 billion. The residual amount of 11.4 billion included in the 22.04 billion, represents an overdrawn balance on the Government’s treasury main account held with Bank of Ghana as of the reporting date,” BoG said.
It added: “Overdrafts of this nature occur from time to time, as the auction system had been designed to ensure same day settlement of maturities and interest payments, once the auction is concluded. This guarantee of same-day settlement of maturities and interest payments, which has always been part of the auction system, has underpinned the development of the local currency bond market.”
The statement said on occasions like that when there had been uncovered auctions, maturities were automatically settled and then a reconciliation was done with Government.
It further noted that incoming government cash deposits are then used automatically to liquidate such overdrawn balances on a rolling and continuous basis.
“The current gap of GHC11.4 billion reflects the net amount of the gap at the end of June 2022. This balance is cleared regularly. Any outstanding balance has to be cleared by the end of the year,” it added
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