In a shocking turn of events, Ghana’s central bank incurred a staggering loss of $5.2 billion in the 2022 financial year.
This unexpected development has thrown the country into a deep financial crisis, prompting widespread protests and calls for the resignation of the Bank of Ghana’s governor and his deputies.
The protests, organised by the opposition National Democratic Congress party, saw hundreds of demonstrators taking to the streets of Accra, the capital city. Clad in red shirts, scarves, and berets, they passionately chanted slogans and brandished banners voicing their frustration. One such banner starkly read, “stop the looting, we are suffering,” encapsulating the sentiment of the aggrieved citizens.
At the heart of the opposition’s grievances is the allegation that the central bank engaged in illegal money printing, which it then illicitly lent to the government. This dubious practice, they argue, has resulted in the devaluation of the national currency and soaring inflation rates, exacerbating the economic woes faced by the Ghanaian people.
Furthermore, the NDC has criticised the bank’s extravagant expenditure, particularly in relation to travel expenses and the construction of a new office building. According to an internal audit, it was revealed that the bank spent an astounding $762,000 on domestic and foreign travel, marking an 87% increase from the previous year. The revelation of a $250 million expenditure on a new office building has further ignited the public’s anger.
The central figure in these allegations is Dr. Ernest Addison, the governor of the Bank of Ghana. The NDC accuses him of reckless financial management and misallocation of resources. While the bank has faced accusations of mismanagement in the past, the colossal loss incurred in the 2022 financial year represents an unprecedented blow to its credibility.
Economists, such as Professor Godfred Bokpin from the University of Ghana, have expressed their shock and disbelief at the magnitude of this loss. In his own words, “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.” This grim assessment highlights the arduous road ahead for the central bank as it grapples with the repercussions of this financial debacle.
The bank refutes allegations of mismanagement and asserts that the losses incurred were primarily due to the volatility of the exchange rate and the non-payment of loans by state institutions. Additionally, the bank highlights that the government’s decision to borrow $700 million and not fully repay it has contributed to the current crisis.
Critics have accused the bank’s governors of exacerbating rampant inflation and economic hardship through their actions. Lawyer Martin Kepbu questions whether they were aware of the potential repercussions when they printed substantial amounts of money for the government.
The current economic situation in Ghana is undeniably challenging, representing the most severe crisis the country has faced in recent memory. Inflation reached a record high of 54% last year and remains above 40%. Multiple credit rating agencies have downgraded Ghana, impeding its ability to secure international loans.
As of September 2022, Ghana’s total debt has surged to $55 billion, resulting in the government needing over 70% of its income to service this debt, which has proven unfeasible. Consequently, the government defaulted on a significant portion of its debt payments.
In order to address this crisis, the government sought assistance from the International Monetary Fund. To secure a $3 billion bailout earlier this year, the government agreed to fulfil various requirements. The most crucial of these obligations is to reduce the nation’s debt interest payments to a manageable level by 2028, thereby ensuring sufficient funds for the functioning of the economy.
In order to address financial pressures on the public sector, the government of Ghana has undertaken debt restructuring efforts by engaging in negotiations with creditors to propose lower interest rates and longer repayment terms. While some creditors have declined to participate in this program, the government has taken steps to prioritise debt restructuring by reallocating funds originally intended for repayment of a loan from the Bank of Ghana. While this decision has raised concerns about adherence to the Bank of Ghana Act, it is important to note that the bank remains financially stable and able to fulfil its role as lender of last resort. Nonetheless, it is crucial for the bank to maintain its moral authority and ensure confidence in Ghana’s financial system.
In the United Kingdom, the Bank of England is projected to experience a net loss of approximately $180 billion over the next decade, which will be supported by the UK government. It is important to note, however, that the UK economy is valued in the trillions of dollars.
According to Ghanaian social innovator and writer, Bright Simons, it is not appropriate to compare the Bank of England’s losses with those of other countries. The scale of their losses far exceeds those of other peer banks, and their attempt to deflect blame onto other central banks is not a valid argument.
Simons suggests that the bank’s accommodating stance on the government’s loose fiscal policy has contributed to the current situation. By creating money, the bank has allowed the government to live beyond its means.
The impact of this situation on the people of Ghana has been significant. A recent World Bank report estimates that 850,000 Ghanaians have fallen into poverty due to high inflation. This has resulted in a decrease in purchasing power, making it difficult for households to make ends meet.
The central bank is now facing scrutiny from both within the country and the IMF. Under the terms of the IMF loan, the bank will be unable to provide further bailouts if the government demands them.
The BBC contributed to this report