Ghana’s Central Bank put a stop to lending government more money
Bank of Ghana said it will not provide the government credit facility to bridge its budgetary gap because of the implication of such on the country’s exchange rate stability.
The bank Governor Ernest Addison said providing ways and means for the government would put the Cedi exchange-rate stability at risk.
The central bank shelved its zero-financing policy this year to lend the government 10 billion cedis ($1.7 billion) to help mitigate the impact of the coronavirus pandemic on the West African economy.
Ghana’s budget deficit is projected to reach 11.4 percent of gross domestic product by the end of December, against an initial target of 4.7 percent of GDP.
“The wide fiscal gap raises important financing issues,” Addison said in a speech late Thursday, in the capital, Accra.
“Its financing should not be by recourse to central bank funds, as this will weaken the central bank’s ability to serve as the anchor of monetary- and exchange-rate stability.”
The cedi has had its most stable spell in more than a decade this year, weakening 2.6 percent to the U.S. dollar. That’s even as the global health crisis drove Ghana’s ratio of debt to gross domestic product to 71 percent in September, the highest in four years.
“Going forward, difficult decisions will have to be taken to reorganize public finances and expenditure priorities, while exploring more sustainable revenue sources,” Addison said.