In a recent interview with Dr. Leandro Medina, the IMF Resident Representative in Ghana, he addressed several significant aspects of the country’s economic situation and the ongoing IMF-supported program.
One of the main points of discussion was the controversy surrounding the Bank of Ghana’s financing of the budget in the recent past.
Dr. Medina highlighted that both the Ghanaian authorities and the IMF team share the view that avoiding monetary financing of the budget is crucial.
He mentioned that the authorities, in line with the IMF-supported program, have made the decision to eliminate such financing. Moreover, they plan to reinforce the BoG Act to establish stricter conditions under which this type of financing can be allowed.
Looking at the challenges faced in 2022, Dr. Medina emphasised that the economy confronted unprecedented difficulties. With the government’s loss of access to international and domestic capital markets, the substantial budget deficit became increasingly challenging to fund. In such a scenario, the choice was between the Bank of Ghana providing essential financing to help the government meet its obligations or facing a disruptive and potentially more abrupt crisis.
Discussing the impact of the domestic debt restructuring on the Bank of Ghana’s balance sheet, Dr. Medina underscored that this restructuring is a crucial component of the authorities’ plan to restore macroeconomic stability and public debt sustainability. The Bank of Ghana participated in the restructuring to share some of the burden imposed by the domestic debt exchange on government debt holders, financial institutions, pension funds, and individuals.
Despite the reduction in its net equity, he said the IMF conducted an analysis that indicated the Bank of Ghana’s ability to effectively fulfill its policy mandates, including the vital task of gradually guiding inflation back to its target of 8 percent.
Dr. Medina stated that the Bank of Ghana’s net equity is expected to improve over time, ultimately returning to positive levels.
When asked about his assessment of the economic performance under the IMF-supported program, Dr. Medina mentioned that the Bank of Ghana has appropriately implemented tighter monetary policy measures and has put an end to monetary financing of the budget.