Accra, Ghana, May 15, 2020//-The Bank of Ghana (BoG) has announced that it is going to support the government’s budget with GHC10 billion to enable it weather the storm of the COVID-19 crisis in the country.
According to the Governor of BoG, Dr Ernest Addison, the support would in an initial amount of GHC5.5 billion of the COVID-19 Relief Bond.
He told journalists via an online press conference in Accra that; “Today, under the Bank of Ghana’s Asset Purchase Programme, the Bank has purchased a Government of Ghana COVID-19 relief bond with a face value of GH¢5.5 billion at the Monetary Policy Rate with a 10-year tenor and a moratorium of two (2) years (principal and interest).
The Bank stands ready to continue with its Asset Purchase Programme up to GH¢10 billion in line with the current estimates of the financing gap from the COVID-19 pandemic”.
This implies that the BoG set aside a Memorandum of Understanding with the International Monetary Fund (IMF) which bars it from government budget financing since 2016.
But Dr Addison said: “Under the circumstances and in line with section 30 of the Bank of Ghana Act (2002) Act 612 as amended, the Bank of Ghana has triggered the emergency financing provisions which permits the bank to increase the limit of Bank of Ghana’s purchases of government securities in the event of any emergencies to help finance the residual financing gap”.
In a bid to control budget overruns, the government passed the Fiscal Responsibility Act in 2018 which among others, sets a cap of 5% for Ghana’s budget deficit. It is the difference between the revenue and expenditure for any given year.
Any Finance Minister who flouts this directive is likely to face prosecution which could culminate in a jail sentence, per the sanctions outlined in the law.
The World Bank’s Chief Economist for Africa, Dr Albert Zeufack, always advised Ghana and other African countries to be worried about their rising debt levels.
The COVID-19 pandemic has put a severe strain on the budget, manifesting in petroleum revenue shortfalls as a result of plunging crude oil prices, shortfalls in import duties, other tax revenues, and non-tax revenues.
Preliminary assessments show that the financing gap that was estimated at the time of applying for the IMF Rapid Credit Facility (RCF) in March have widened significantly, resulting in a large residual financing gap, according to documment from the BoG.
Current market conditions in the wake of the pandemic, will not allow the financing of the gap from the domestic debt capital markets without significantly increasing interest rates.
At time of this publication, Ghana has recorded over 5,000 COVID-19 cases with 24 deaths.
African Eye Report
