Dr. John Kwakye criticises Bawumia for downplaying BoG's GHC60.81bn loss
Dr. John Kwakye
Dr. John Kwakye, the Director of Research at the Institute of Economic Affairs (IEA), has voiced criticism against Dr. Mahamudu Bawumia, for characterizing the GHC60.81 billion losses reported by the Bank of Ghana in 2022 as mere technical losses.
Read full articleDr. Kwakye contends that these losses will inevitably prompt the Bank to make cuts in crucial operations as a cost-saving measure.
In his analysis titled "Dr. Bawumia’s Speech: Turning an Impossibility into the Possibility?" Dr. Kwakye expressed concern about the immediate effects of the significant loss, particularly citing the fluctuating inflation figures experienced by the country.
Dr. Bawumia's assertion that the Bank of Ghana's actions were responsible and temporary, given its history of advancing money to the government, was challenged by Dr. Kwakye.
He highlighted that while the Bank's Act allows for such advances up to 5% of the previous year’s revenue, the magnitude of the advance in 2022, exceeding 50% of the previous year’s revenue, is worrisome. Dr. Kwakye argued that this substantial advance was a major contributor to the peak inflation of 54.1% in 2022 and a depreciation rate of 54.2% in November 2022.
“Dr. Bawumia said BoG’s action was responsible and that it was temporary, as the Bank had advanced money to Government in only two of the past seven years. The Minister of Finance had expressed similar sentiments in the past, which was not surprising because Government was the direct beneficiary of the monetary financing.
“However, as central bankers, we know that the most inflationary source of financing the budget is high-powered money coming directly from the central bank vault. It is not the fact that BoG advanced money to Government that is the issue, for the Bank’s Act provides for such advances up to 5% of the previous year’s revenue,” Dr. Kwakye said.
“It is the magnitude of the advance—over 50% of the previous year’s revenue—that is disturbing. It is no wonder inflation peaked at 54.1% in 2022—and depreciation ballooned to 54.2% in November 2022, before falling bank to 30.0% in December 2022. Meanwhile, as Government debt to BoG was also discounted under the DDEP, the Bank made a whopping loss of GHS61 billion and a record negative equity of GHS54 billion in 2022.”
“Both the Minister and the Governor seem to have played down the loss as only a technical loss. However, the fact is that the Bank’s balance sheet has been severely impacted, and this would force it to cut back on some of its important operations so as to save costs,” he added.
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