We had to protect the economy from collapsing – BoG justifies financing

The Bank of Ghana (BoG) has once again justified its financing of the Ghana budget post Covid-19, explaining that failure to step in will have been disastrous for the economy.

Prior to the Covid-19 pandemic, the Central Bank between 2015 and 2020 had a policy of zero financing of the budget.

However, that changed right after Covid-19 when the government was struggling to raise enough revenue.

Speaking at the University of Ghana 75th Anniversary Public Lecture on “Ghana’s Economy; The Need for Paradigm Shift”, the Director of Research at the Bank of Ghana, Dr. Philip Abradu-Otoo said the Bank of Ghana had no choice but to save the economy from collapsing.

“So from the Central Bank’s point of view, we realized we needed an economy to protect. So there were choices that had to be made, should we allow the economy to collapse or we should stick strictly to issues of fiscal dominance and then who picks up the pieces after the economy has collapsed”.

“But that financing that we did in 2022 went mainly to deal with investors; domestic investors whose bonds had matured and government needed to pay these bonds and for which government had no resources”, he explained further.

Dr. Abradu-Otoo added that the Bank of Ghana stepped in as a lender of last resort as it always does to protect the financial sector.

“Hundred percent of that amount [BoG financing] was due to domestic bonds that had matured for which we had to step in to save these domestic investors. And that is where this fiscal dominance issue came in”.

“So yes, it came in but we did that to save domestic investors”, he concluded.