Ghana - once touted as a trailblazing African economic success story - is facing an unprecedented financial crisis.This week, hundreds of protestors took to the streets in the capital Accra, calling on the governor of the Bank of Ghana and his two deputies to resign over the loss of about 60bn Ghanaian cedis ($5.2bn; £4.3bn) in the 2022 financial year.The demonstration, dubbed #OccupyBoG, was led by the opposition National Democratic Congress (NDC) party.
This would leave them with enough funds to run the economy.To achieve this, Ghana's government began debt restructuring by renegotiating terms with its creditors, proposing lower interest rates on their loans and longer repayment terms to relieve pressure on public finances.However, some creditors refused to take part in this debt exchange programme.On 9 August the Bank of Ghana issued a statement saying the government had told it that it didn't have enough money to meet the IMF's requirements and consequently would not repay half of the $700m it had borrowed from the bank.Instead the money would go towards the debt restructuring.
It also said it would not pay any interest due to the bank.The bank is the lender of last resort and experts say its status has been abused by the government, led by President Nana Akufo-Addo, and the rules of the bank have been broken."The Bank of Ghana Act is very clear that printing money or financing the government is limited to 5% of the previous year's fiscal revenue, which means that in principle supporting the government is not a crime but don't go beyond 5%," says Professor Bokpin.The bank's officials are mandated by law to report to parliament if the 5% threshold is exceeded.
It is not a commercial bank that has to make a profit, so the loss should not affect its routine operations and as the lender of last resort it can always create its own money.But according to experts, the central bank's loss has significant ramifications.It undermines the moral authority of the bank to supervise Ghana's commercial banks.
It also damages confidence in the country's financial system.Although other central banks around the world have faced similar challenges, the difference in Ghana is the amount of money lost compared with the size of the economy.In the UK, the Bank of England will be making a net loss of about $180bn over the next 10 years which will be funded by the UK government.
"Their attempt to deflect blame and point to losses by other central banks doesn't make sense as the scale of their losses far outstrips those of other peer banks."A lot of the mess is down to the bank's accommodative stance on the government's loose fiscal policy," he says.In other words, by creating money the bank has allowed the government to live beyond its means.Human ImpactA World Bank report last month estimated that 850,000 Ghanaians have drifted into poverty because of high inflation.Ghanaians' incomes have been eroded, affecting their purchasing power.
The prices of food, fuels and utilities remain high, and many households are struggling to make ends meet.And on top of all that, the central bank is now under scrutiny from both within the country and the IMF.Under the terms of the IMF loan, if the government demands more bailouts, the bank will have no choice but to refuse.