Force gov’t to finance the budget outside the banking sector – Kwakye tells BoG

The Director of Research at the Institute of Economic Affairs (IEA) Dr John Kwakye has asked the Bank of Ghana (BoG) to compel the government to finance its budget outside of the banking sector.

He questioned why the central bank will continue to finance the government’s budget.

“Why should the central bank continue to finance the budget? Doesn’t that further fuel inflation and cedi depreciation. Why doesn’t the central bank force Gov’t to pay the right price and finance the budget outside the bank.

“So this is what we had to wait for IMF input for?” Dr Kwakye tweeted after the Governor Dr Ernest Addison said that financing of the government’s budget so far has predominantly been from the banking sector.

The the central bank, he said is absorbing a larger share.

Dr Addison said these at the 108th Monetary Policy Committee (MPC) press conference in Accra on Thursday October 6.

Dr Addison told the press that on the fiscal situation, while expenditures have been broadly on target, revenue performance has been below expectations, complicating fiscal policy implementation.

“Financing of the budget so far has predominantly been from the banking sector with
the central bank absorbing a larger share. Persistent uncovered auctions and portfolio
reversals by non-resident investors continue to pose risks to financing of the budget,
resulting in monetization of the budget deficit by the central bank.

“The Monetary Policy Committee recognizes the fact that the current condition is sub-optimal and will be interim until agreements are reached on an IMF-supported programme.

“The Committee assesses that the engagement with IMF has been positive and early
conclusion of the programme discussions will help re-anchor stability,” he said.

He stressed “The outlook for the Ghana Cedi has improved, aided by the recent disbursement of the loan from Afreximbank of US$750 million, the signing of the syndicated Cocoa Loan of US$1.13 billion, and the agreement with gold and oil companies to purchase the repatriated foreign exchange earnings of about US$83.9 million so far, will help stabilise the exchange rate.”

Inflation, he said, remains elevated and the balance of risks is on the upside. Although the
forecasts are for monthly inflation to continue to slow down, the risks are on the
upside, emanating largely from pass-through effects of the currency depreciation, the
recent upward adjustment in utility tariffs, and rising inflation expectations. The
Committee remains committed to re-anchoring inflation expectations and returning to
a disinflation path.

READ ALSO:Tariff hike will certainly affect workers; increase salaries – NAGRAT tells govt

He further announced an increment in the Policy Rate from the previous 22. per cent to 24.5 per cent.

“Under the circumstances, the MPC decided to increase the Monetary Policy Rate by
250 basis points to 24.5 percent,” he said.

Source: 3news