Ghana, once lauded as an economic success story in Africa, is now facing an unparalleled financial crisis. Recent protests erupted in the capital, Accra, as hundreds of demonstrators called for the resignation of the Bank of Ghana's governor and his two deputies. The reason for their anger is the staggering loss of approximately 60 billion Ghanaian cedis, equivalent to $5.2 billion or £4.3 billion, during the 2022 fiscal year.
The opposition National Democratic Congress (NDC) led the demonstration, which was aptly named #OccupyBoG. Protesters donned red shirts, scarves, and berets as they voiced their concerns, holding banners with messages like "stop the looting, we are suffering." The NDC alleges that the central bank printed money unlawfully to lend to the government, resulting in currency depreciation and crippling inflation.
Furthermore, the bank has come under scrutiny for its substantial expenditure, including over $762,000 on domestic and foreign travel, marking an 87% increase from the previous year. Additionally, $250 million was allocated for a new office building, as reported by the opposition based on internal audit data. The NDC accuses Dr. Ernest Addison, the governor of the central bank, of recklessness and mismanagement, with this level of loss being unprecedented.
Economist Professor Godfred Bokpin from the University of Ghana commented on the situation, saying, "We have never seen anything like this in our history. If the Bank of Ghana wants to recover from this loss... it will take them more than 45 years."
The bank, however, refutes allegations of mismanagement, attributing the losses to currency fluctuations and non-payment of loans by state institutions. They also claim that the government's borrowing of $700 million from the bank, without repaying it in full, has contributed to the financial crisis. The central bank governors have been accused of exacerbating inflation and economic hardship with their actions.
Ghana is currently grappling with its most severe economic crisis in a generation. In 2022, the inflation rate reached a record high of 54%, and it still stands at over 40%. Several credit rating agencies have downgraded the country, making it difficult to secure international loans. By September 2022, Ghana's total debt had surged to $55 billion, causing the government to default on a significant portion of its debt payments.
To tackle this economic challenge, the government sought assistance from the International Monetary Fund (IMF) and secured a $3 billion bailout. This agreement required Ghana to meet certain obligations, primarily reducing debt interest payments to a manageable level by 2028. The government initiated debt restructuring by renegotiating terms with creditors, proposing lower interest rates and extended repayment periods to ease the strain on public finances.
However, some creditors declined to participate in the debt exchange program. On August 9, the Bank of Ghana disclosed that the government had informed them of its inability to fulfill the IMF's requirements, announcing that it would not repay half of the $700 million it had borrowed from the bank, diverting the funds towards debt restructuring. Additionally, no interest payments would be made to the bank.
Experts assert that the government has exploited the central bank's role as the lender of last resort, and the bank's rules have been violated. The Bank of Ghana Act explicitly limits financing the government to 5% of the prior year's fiscal revenue. Failure to adhere to this threshold should lead to reporting to parliament and potential fines or imprisonment.
This situation does not imply that the Bank of Ghana is insolvent, as it is not a profit-driven commercial bank and can generate money as needed. However, the magnitude of the central bank's loss carries significant consequences. It erodes the bank's moral authority to supervise Ghana's commercial banks and undermines confidence in the nation's financial system. In contrast to other central banks worldwide facing comparable challenges, the uniqueness in Ghana is the scale of the loss concerning the country's economy.
Bright Simons, a Ghanaian social innovator and writer, emphasized that the bank's losses cannot be compared with those of other countries. He believes the bank's accommodating stance towards the government's loose fiscal policy has been a significant contributor to the crisis. Essentially, by creating money, the bank allowed the government to exceed its financial means.
The impact on the populace has been substantial, with a World Bank report estimating that 850,000 Ghanaians have fallen into poverty due to high inflation. Incomes have dwindled, affecting purchasing power, and essential commodities like food, fuel, and utilities remain costly, straining households.
The Bank of Ghana now faces scrutiny both domestically and from the IMF. Under the IMF loan agreement, should the government request additional bailouts, the bank may have no alternative but to decline.