Ghana’s Central Bank Loses $5 Billion in One Year: What Went Wrong?

Why Ghana’s Central Bank Loses $5 Billion

Ghana, previously hailed as a leading example of African economic achievement, is currently experiencing an unheard-of financial crisis.

In Accra, the country’s capital, hundreds of protesters marched to the streets this week to demand the resignation of the Bank of Ghana’s governor and his two top lieutenants due to the loss of around 60 billion Ghanaian cedis ($5.2 billion; £4.3 billion) in the fiscal year 2022.

The opposition National Democratic Congress (NDC) party was in charge of the protest, which went by the hashtag #OccupyBoG. The demonstrators held up banners that read, “Stop the looting, we are suffering,” and chanted while wearing red shirts, scarves, and berets.

The opposition asserts that the bank illegally manufactured money in order to lend to the government, which caused the currency to depreciate and cause debilitating inflation.

It has also criticized the bank for spending $250 million on a new office facility and more than $762,000 on domestic and international travel, an increase of 87% over the previous year. The opposition asserts that an internal audit contains these numbers.

Dr. Ernest Addison, governor of the central bank, has been charged by the NDC with carelessness and poor administration. Although the bank has previously been charged with poor management, a loss of this size is unheard of.

“In all of our history, we have never witnessed anything like this. According to economist Professor Godfred Bokpin from the University of Ghana, it will take the Bank of Ghana more than 45 years to recoup from this deficit.

The bank disputes claims of poor management and asserts that the losses were brought on by fluctuating exchange rates and the failure of governmental agencies to repay loans.

Additionally, it claims that the problem was exacerbated by the government’s decision to borrow $700 million from it and not repay it in full.

The governors of the bank have additionally been charged with encouraging economic hardship and raging inflation through their acts. “The time when they were printing billions for the government, didn’t they know that it will have repercussions?” inquires

“In all of our history, we have never witnessed anything like this. According to economist Professor Godfred Bokpin from the University of Ghana, it will take the Bank of Ghana more than 45 years to recoup from this deficit.

The bank disputes claims of poor management and asserts that the losses were brought on by fluctuating exchange rates and the failure of governmental agencies to repay loans.

Additionally, it claims that the problem was exacerbated by the government’s decision to borrow $700 million from it and not repay it in full.

The governors of the bank have additionally been charged with encouraging economic hardship and raging inflation through their acts. “The time when they were printing billions for the government, didn’t they know that it will have repercussions?” inquires lawyer Martin Kepbu.

Why did this occur?

The current economic crisis in Ghana is the worst it has experienced in a generation. The inflation rate last year reached a record high of 54% and is currently running at more than 40%. The country’s credit rating has been reduced by numerous organizations, making it impossible for it to borrow money abroad.

The overall debt owed by Ghana rose to $55 billion by September 2022. This meant that the government would have to use more than 70% of its revenue to pay down the debt, which it was unable to do. It then missed a large portion of its loan payments.

The International Monetary Fund (IMF) had to be contacted by the government for assistance. The administration had to agree to fulfill a number of conditions in order to receive a $3 billion bailout earlier this year.

The most crucial of these was to bring down the interest on the country’s debt to a reasonable level by 2028. They would still have enough money to maintain the economy after this.

In order to do this, the government of Ghana started the debt restructuring process by renegotiating conditions with its creditors and offering them longer payback dates and lower interest rates on their loans to ease the strain on the public finances.

Some creditors, however, declined to participate in this debt exchange arrangement.

The government informed the Bank of Ghana that it lacked the funds necessary to meet the IMF’s conditions and that it would therefore not pay back half of the $700 million it had borrowed from the bank, according to a statement the bank released on August 9.

Instead, the funds would be used to restructure the debt. Additionally, it stated that it would not pay any interest owed to the bank.

The bank is the lender of last resort, and according to analysts, the government, under the leadership of President Nana Akufo-Addo, has misused this position and disregarded bank laws.

“The Bank of Ghana Act is very clear that printing money or financing the government is limited to 5% of the previous year’s fiscal revenue, which means that in principle supporting the government is not a crime but don’t go beyond 5%,” Professor Bokpin states.

If the 5% threshold is surpassed, bank officials are required by law to report to parliament. Failure to report may result in a fine or a sentence of up to two years in jail.

Consequences for the bank

None of this indicates that the Bank of Ghana is insolvent. Since it is not a commercial bank that must turn a profit, the loss shouldn’t have an impact on its regular business, and as the lender of last resort, it can always issue new debt.

But experts claim that the central bank’s loss has important repercussions.

The bank’s moral power to oversee Ghana’s commercial banks is weakened. Additionally, it erodes public faith in the nation’s financial system.

The difference in Ghana is the quantity of money lost relative to the size of the economy, even though other central banks throughout the world have encountered comparable difficulties.

Over the next ten years, the Bank of England in the UK will incur a net loss of around $180 billion, which will be covered by the national budget. However, the UK economy is very large—in the trillions of dollars.

A social innovator and writer from Ghana named Bright Simons claims that the bank cannot compare its losses to those of other nations. “Given that the magnitude of their losses much exceeds those of other peer banks, their attempt to shift responsibility and point to losses by other central banks is absurd.

“A lot of the mess is down to the bank’s accommodative stance on the government’s loose fiscal policy,” according to him.

In other words, the bank has enabled the government to live beyond its means by printing money.

Human Effects

According to a World Bank report published last month, excessive inflation has caused 850,000 Ghanaians to slid into poverty.

The erosion of Ghanaians’ salaries has a negative impact on their purchasing power. Food, fuel, and utility costs are still high, and many households are finding it difficult to make ends meet.

Additionally, the central bank is currently the subject of IMF and national and international investigation.

If the government requests additional bailouts, the bank will be forced to decline by the terms of the IMF loan.