Dr John Kwabena Kwakye, Director of Research at the Institute of Economic Affairs The Institute of Economic Affairs (IEA) has urged the Bank of Ghana to amend its Act which requires zero financing of government budget to enable it to temporarily support the budget of government in these difficult times.
The institute believes the central bank must exercise its mandate as banker and financial adviser to government by lending to the government.
A press release issued by the institute said: “This will require amendment of the Bank’s (Amendment) Act, which reduced the previous ceiling on lending to government from 10 per cent of previous year’s revenue to zero per cent.
“It has to be emphasised that in a developing country, the central bank should be able to offer some financing to government at a much cheaper rate than is available elsewhere, albeit subject to caps.
“The government’s lack of access to central bank money will compel it to borrow at much higher rates from the domestic bond market, where it will crowd out the private sector, or from international markets, leading to undesirable escalation of the public debt and erosion of long-term fiscal and debt sustainability,” it noted.
Adequate foreign reserves
The institute, however, pointed out that for the BoG to provide the needed support to the economy and government in a less inflationary way, the bank must have adequate foreign exchange reserves to back the domestic currency.
“It is important, therefore, for the bank to build up its reserves substantially above the current US$7-8 billion dollars level. And, to that end, one important low-hanging-fruit is for Ghana to increase its share of the world chocolate market, which is worth US$100 billion, rather than continuing, 63 years after independence, to share only the raw-beans market that is worth a paltry US10 billion.
“To be able to do this, the BoG should spearhead concrete, beyond-lip-service policies to add value to our cocoa beans through scaled-up local processing and refinement, which will have the additional benefit of creating jobs here in Ghana.
“It is for this reason that we support our President’s recent polite rejection of the suggestion by the President of Switzerland that Ghana should increase its cocoa exports to that country,” the institute explained.
Enforcing policiesThe IEA also urged the BoG to ensure that the measures it has rolled out to combat the COVID 19 pandemic do not remain mere paper directives, but strictly enforced and observed by banks […]
