Ghana’s apex bank loses $5bn

Ghana, once heralded as a leading African economic success story, is currently grappling with an unprecedented financial crisis. This week, the capital city, Accra, witnessed hundreds of protesters taking to the streets, demanding the resignation of the governor of the Bank of Ghana and his two deputies due to a reported loss of approximately 60 billion Ghanaian cedis ($5.2 billion) in the 2022 fiscal year. The demonstration, known as #OccupyBoG, was organised by the opposition National Democratic Congress (NDC), with protesters donning red shirts, scarves, and berets, chanting slogans and displaying banners with messages like “stop the looting, we are suffering.”

The opposition alleges that the central bank engaged in unauthorised money printing to lend to the government, resulting in currency depreciation and crippling inflation. Additionally, the bank has come under scrutiny for its increased spending on domestic and foreign travel, which saw an 87% surge compared to the previous year, and a $250 million expenditure on a new office building, according to figures disclosed in an internal audit. The NDC has accused Dr. Ernest Addison, the central bank governor, of reckless management. While the bank has faced mismanagement allegations before, the scale of this loss is unprecedented. Economist Professor Godfred Bokpin of the University of Ghana remarked that recovering from this loss would take the Bank of Ghana more than 45 years.

The bank, however, denies allegations of mismanagement and attributes the losses to fluctuations in the exchange rate and non-payment of loans by state institutions. It also highlights the government’s borrowing of $700 million from the bank, not repaying it in full, and contributing to the crisis. The bank’s actions have been criticised for fuelling inflation and economic hardship. Lawyer Martin Kepbu questions, “When they were printing billions for the government, didn’t they realise it would have consequences?”

Root Causes of the Crisis

Ghana is currently facing its most severe economic crisis in a generation. In the previous year, the inflation rate in the country soared to a record high of 54% and remains above 40%. This led to multiple credit rating agencies downgrading Ghana, making it challenging for the nation to secure international loans. By September 2022, Ghana’s total debt had surged to $55 billion, demanding over 70% of the government’s income for servicing. Consequently, the government defaulted on a substantial portion of its debt payments.

To address the crisis, Ghana sought assistance from the International Monetary Fund (IMF) and secured a $3 billion bailout. However, this came with conditions, including reducing debt interest payments to a sustainable level by 2028. To achieve this, the government initiated debt restructuring by renegotiating terms with creditors, proposing lower interest rates and extended repayment periods to ease the burden on public finances. Nevertheless, some creditors resisted participating in this program.

On August 9, the Bank of Ghana revealed that the government had informed it of its inability to meet the IMF’s requirements and would not repay half of the $700 million borrowed from the bank. Instead, the funds would be directed towards debt restructuring, with no interest payments to the bank. This has raised concerns about the government’s compliance with the Bank of Ghana Act, which sets limits on money printing and financing government operations.

Implications for the Bank

While the Bank of Ghana itself is not at risk of insolvency since it is not a commercial bank driven by profit, the substantial loss it incurred carries significant repercussions. It erodes the bank’s moral authority to oversee the country’s commercial banks and undermines confidence in Ghana’s financial system. The difference in scale between Ghana’s losses and those of other central banks worldwide is noteworthy, making comparisons problematic.

Bright Simons, a Ghanaian social innovator and writer, attributes much of the crisis to the central bank’s permissive stance on the government’s fiscal policy, allowing the government to spend beyond its means. The crisis also has profound human impacts, as a World Bank report suggests that 850,000 Ghanaians have fallen into poverty due to high inflation. Rising prices for essentials like food, fuel, and utilities have squeezed household budgets, making it challenging for many to make ends meet.

Furthermore, the Bank of Ghana now faces scrutiny both domestically and from the IMF. Under the terms of the IMF loan, if the government seeks additional bailouts, the bank may have no choice but to refuse.