Set limits on BoG financing to government to stem higher inflation, others – ISSER

The Institute of Statistical, Social and Economic Research (ISSER) has called for the reduction of Bank of Ghana’s financing of the government budget, saying, the BoG deficit financing has implications on money supply, inflation & the exchange rate.

According to ISSER, there is a need to set limits on the financing of government and enshrined in the country’s laws.

In its review of the government’s Mid-Year Budget, ISSER said an important facet of formal monetary policy independence is the extent of legal constraint on central bank funding of the government.

It cited Chile as an example, saying, it has the tightest legal restrictions as there is no public expenditure financed directly or indirectly by credit from the central bank (except under wartime conditions).

Again in Germany, Switzerland, and the Netherlands, the legislation sets strict limits on direct central bank credit to government, but allows government paper to be acquired in the course of open market operations.

The Bank of Ghana lost about ¢65 billion in 2022 due to the Domestic Debt Exchange Programme.

“BoG haircut on DDEP was necessary at the time but what brought us here should not be repeated. Deficit financing of ¢53,150 million out of a total financing of ¢65.156 billion”.

“Clear limits on government financing should be set and enshrined in our Laws”.

It furthered that fiscal and monetary policy should work towards achieving price stability.

It called for improvement in some of the tax handles and by extension revenue mobilization to be sustained but with strict expenditure controls, value for money expenditures and a review of the size of government.

Fiscal outlook

Total Revenue and Grants is estimated at ¢98.080 billion (15.9% of GDP), ¢1.238 million higher than the 2022 Mid-Year Fiscal Policy Review estimate of ¢96.842 billion (16.4% of GDP).

These projections, ISSER said, align with trend of revenue inflows as well as the impact of the exchange rate depreciation on forex-related inflows such as Oil and Gas receipts.

Expenditure (on commitment basis), was estimated at ¢159.012 billion. This includes expenditure claims amounting to ¢22.091 billion. Of this amount, ¢11.050 billion relates to energy sector shortfalls due for 2022, while the remaining ¢11.041 billion has been committed under Goods and Services and Domestic Capital Expenditure.