There can be no doubt, that, this country is in need of constructive administration as never before, with what we have had to go through over these recent years. There has been no time in our recent political history when sound judgment and doing good to all manner of persons has become so necessary.
Today, what the Ghanaian so badly is in need of, is quality leadership to impel development and growth. There is a stirring confirmation of mediocrity in leadership that will require men from the International Monetary Fund (IMF) to tell us what we should and shouldn’t be apprehensive about.
To this end, are we right to call for the head of the Governor of Bank of Ghana (BoG) and the entire Board of Directors? Or simply assume its normal? We have no right to complain when our affairs are abysmally managed; if we do nothing to obtain better managers.
Probably the Ghanaian deserve what we are being served; the only reason IMF will tell us “There is no cause for alarm” I will state here, and now, there is every cause for the Ghanaian to be alarmed and will support this with facts and figures. Every decision taken by BoG and Government have had consequences on the average Ghanaian and made him/her poorer.
All I am about to demonstrate was gleaned from BoG, Statistical Service and Ministry of Finance (MoF). Let’s go on this journey to learn how and why we need better leadership at BoG and Ministry of Finance.
The graph immediately-above shows a sharp upward trend in the blue-line, indicating an increase in the rate money was supplied into the economy from 18.2% in 2013 to 33% in 2014 which, occurred under President John Mahama and Henry Kofi Wampah as Governor of BoG. You will realize a similar upward trend in the orange line representing inflation which, had peaked in 2016 with an inflation rate of 17.5%.
In 2019, a similar upward trend occurred with regards to the blue-line from 16.1% in 2019 to 35% in 2020. Again, two (2) years from that occurrence another sharp upward slide in inflation from 7.1% in 2019 to 54.1% in 2022 under President Akuffo Addo and Dr. Ernest Addison. Between 2015 to 2019 is a period that saw a downward slide in the rate of money supply from 33% in 2014 to 16.1% in 2019 and within that period inflation slump to its lowest rate, peaking at 7.8% in 2018.
The point must be made clearly, the activities of BoG directly affect the Ghanaian. The Printing House (BoG), who owns the printing machine and the power to print money are the cause of the persistent inflation coupled with a dominating Finance Minister with failed fiscal policies that had to be financed by Dr. Ernest Addison’s incompetence and therefore, Ghanaians had to go through such pain. The above picture painted is alarming.
Using the US Dollar monthly exchange rates to represent the major foreign currencies for the purposes of this analysis and December 2020 as base-year; it is imperative to bring clarity to the activities of BoG and why they were given the mandate to manage this country’s macro-economic stability. The Blue-line representing Foreign Currencies Deposit (FCD), which had seen an upward surge from February 2022 and similar trend in the Orange-line representing the rate of exchange. The gap between the Blue and Orange lines indicates the lack of confidence the market has in our national currency. We can all vividly understand what drives the exchange rate changes over the period and the one with the tools to manage such adverse occurrence is BoG. The red arrow indicated the average lack of confidence for the period January 2022 to April 2022 of 28%. The question one will ask from the immediate graph above is what necessitated the sharp rise in the Blue-line which, drove the Orange-line upwards creating lack of confidence in our national currency. The answer to this is below:
When we talk about money supply in an economy, it is basically to do with the foundation of that economy. There has never been a situation of a good economy with adverse money supply rate or a bad economy with good money supply rate. It is also true that trade disruptions, natural disasters and wars can cause inflation but, there is never evidence to show, that, those factors have ever caused a persistent inflation. Persistent inflation has always been caused by the Printing House (BoG); those that have the power to print money, have always been the reason for persistent inflation.
Ghana under this government and the current leadership of BoG stands tall as the most reckless ever. When you carefully analyze the chat above you will notice, that, from January 2021 to September 2021 all the various lines on the graph were all flat until October 2021 when demand deposit shot up from GHS43,921.14 million to GHS50,331.40 million in January 2022. An increase of GHS6,410.20million in Demand Deposit which, must flow-out from the other lines; but none of the other lines dropped in equal magnitude, indicating elevated supply of money through fiscal operations, financed by BoG, the beginning of our persistent inflation.
Again, from January 2022 to April 2022 had a drop in the demand deposit line from GHS50,331.40 million to GHS44,714.31 million. As earlier stated, a drop in a particular line must affect another line in the opposite manner and therefore, I implore all to observe the upward slide of the foreign currency deposit line on the graph within the period mentioned. From GHS29,242.98 million to GHS36,678.24 million between January 2022 to April 2022, an increase in foreign currency deposit of GHS7,432.26million. In that same period savings and time deposit and currency outside the bank saw a marginal upward slide.
If you recklessly print money to finance a weak Government fiscal policy then, you will end up collapsing the economy and eroding all gains made in the past. BoG had only suffered the sin they perpetuated on the people of Ghana and we have every right to be alarmed. Now let us shift our attention to the BoG’s audited financial statements released on 28th July 2023.
On 28th July 2023, BoG issued a press released with regards to 2022 Financial Statements and the following are key take-aways from the statements issued.
- “There was a clear mismatch between revenue inflows and expenditure financed in 2020 by exceptional support from the IMF and World Bank resources, and in addition to financing from the Bank of Ghana through the issuance of the GHS10 billion Covid-19 bond”.
- “The Budget for 2022, which was read in 2021, failed to address fiscal concerns as the Budget was even more expansionary by about 23% with raft of revenue measures to raise financing”.
- “The Bank informed the Minister of the developments in its finances. The Minister reported this to Parliament as part of his briefing to Parliament on the IMF programme and the Domestic Debt Exchange”.
- “Despite the losses inflicted on households and banks, the threshold of 55% of GDP was not met”. In relation to DDEP 5. “This means the Bank of Ghana had to absorb a 50% haircut on its nonmarketable holdings of Government debt instruments”.
A Central Bank should almost, at all times make profit due to their monopolistic nature of providing a commodity (currency) and determining the price of capital. Such an enterprise should not make losses. It is possible for every business enterprise to record profits as well as losses but, for a Central Bank and the fact that demand for the currency is inelastic, reporting losses only means the financial system of an economy has broken down; there is a huge financial indiscipline; and lastly, they are financing huge fiscal deficit of a failed fiscal policy. It is therefore not true, that Central Bank’s losses do not matter; as we are being made to believe by the authorities.
The loss reported by BoG is not business as usual and it matters. The losses of a Central Banks have a direct effect on economic aggregates (inflation), monetary policy and its management that affect me and you by hurting our pockets. Points 2 and 3 above are an admission by BoG that;
- There was a fiscal policy failure and
- The DDEP failed to meet the targeted 55% debt to GDP. This is the first time a government institution and one that is part of Ghana’s financial architecture have admitted failure of the DDEP.
- Because of the said failure BoG needed to take up Government failure of achieving 55% Debt to GDP.
It is therefore appropriate to ask BoG these two questions: - Whether their additional intervention did achieve the intended purpose of reducing Government debt to 55% Debt to GDP?
- Would BoG have made profit without absorbing 50% haircut of Government nonmarketable debt instruments?
The fight to get the Governor of BoG out is ever alive and it is not ending!
The writer Michael Nii Yarboi Annan (The Don) is a Financial Analyst
Email: niiyarboiannan@gmail.com
