Ghana, once heralded as a pioneering African economic success story, now finds itself grappling with an unparalleled financial crisis.

In recent days, the streets of the capital city, Accra, have witnessed hundreds of protestors demanding the resignation of the governor of the Bank of Ghana and his two deputies due to a staggering loss of approximately 60 billion Ghanaian cedis ($5.2 billion; £4.3 billion) during the 2022 financial year.

This demonstration, known as #OccupyBoG, was spearheaded by the opposition National Democratic Congress (NDC) party. The protesters, adorned in red attire, including shirts, scarves, and berets, voiced their grievances through songs and displayed banners bearing messages such as "stop the looting, we are suffering."

The opposition alleges that the central bank engaged in unlawful money printing to extend loans to the government, resulting in the devaluation of the currency and severe inflationary pressures.

Furthermore, the NDC has voiced criticism against the bank for its expenditure, including over $762,000 on both domestic and international travel, marking an 87% increase compared to the previous year, and $250 million on a new office complex. These financial details, according to the opposition, are documented in an internal audit.

The NDC has accused Dr. Ernest Addison, the governor of the central bank, of acting recklessly and mismanaging the financial situation. While the bank has faced mismanagement allegations in the past, the magnitude of this particular loss is unparalleled.

"We have never seen anything like this in our history. If the Bank of Ghana wants to recover from this loss... it will take them more than 45 years," says economist Professor Godfred Bokpin, from the University of Ghana.

The bank refutes allegations of mismanagement and asserts that the losses were primarily attributable to exchange rate fluctuations and the failure of state institutions to repay their loans. Additionally, it points to the government's decision to borrow $700 million from the bank and not fully repay it as a contributing factor to the ongoing crisis.

Critics have also accused the bank's leadership of exacerbating rampant inflation and economic hardship through their actions. Lawyer Martin Kepbu questions, "During the period when they were printing billions for the government, did they not anticipate the potential repercussions?"

Why has this happened?

Ghana is currently grappling with its most severe economic crisis in a generation. In the previous year, the inflation rate soared to a historic high of 54%, and it continues to hover above 40%. Multiple credit rating agencies have downgraded the country, making it challenging to secure international borrowing.

As of September 2022, Ghana's total debt had surged to $55 billion, necessitating that over 70% of the government's income be allocated to service this debt—an unsustainable situation that led to defaults on a significant portion of its debt payments.

In response, the government sought assistance from the International Monetary Fund (IMF) and secured a $3 billion bailout earlier this year, contingent upon meeting specific requirements. Chief among these was the need to reduce the nation's debt interest payments to a manageable level by 2028, thereby ensuring sufficient resources for economic governance.

To fulfill this commitment, Ghana's government initiated a debt restructuring process by renegotiating terms with creditors, proposing reduced interest rates and extended repayment periods to alleviate the strain on public finances. However, some creditors declined to participate in this debt exchange program.

On August 9th, the Bank of Ghana released a statement indicating that the government had informed it of its inability to meet the IMF's requirement, and, as a result, would not repay half of the $700 million borrowed from the bank. Instead, these funds would be allocated to the debt restructuring process, with no interest payment to the bank.

The Bank of Ghana, as the lender of last resort, has been accused of having its status misused by the government, led by President Nana Akufo-Addo, and of violations of the bank's regulations.

"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.

If the 5% threshold is exceeded, the bank's officials are required by law to report to parliament. Failure to report could result in a fine or a term of jail of up to two years.

Implications for the bank

However, it's important to note that the Bank of Ghana's financial situation doesn't imply insolvency.

Unlike commercial banks, it doesn't operate with the primary goal of generating profits, and thus, this loss shouldn't disrupt its regular operations. Furthermore, as the lender of last resort, it possesses the capability to create its own currency as needed.

Nonetheless, experts argue that the central bank's loss carries significant consequences. It erodes the moral authority of the bank in its role of overseeing Ghana's commercial banks and erodes confidence in the nation's financial system.

While central banks worldwide have encountered similar challenges, what sets Ghana apart is the scale of the loss relative to the size of its economy.

In contrast, the Bank of England, for example, anticipates a net loss of approximately $180 billion over the next decade, which will be covered by the UK government. However, the UK's economy is measured in trillions of dollars, making the loss proportionally less impactful.

Inflation in Ghana is still running at more than 40%

According to Bright Simons, a Ghanaian social innovator and writer, the bank's losses cannot be compared to those of other countries. "Their attempt to deflect blame by pointing to losses by other central banks makes no sense because the magnitude of their losses far outweighs 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 Impact

According to a recent report by the World Bank, as of last month, an estimated 850,000 Ghanaians have been pushed into poverty due to soaring inflation.

The income levels of Ghanaians have been steadily eroded, significantly impacting their purchasing power. The persistently high prices of essential commodities such as food, fuel, and utilities have placed a heavy burden on many households, making it increasingly challenging to make ends meet.

Adding to the country's woes, the central bank is now facing scrutiny both domestically and from the IMF. As per the terms of the IMF loan agreement, should the government seek additional bailouts, the central bank's hands will be tied, forcing it to decline such requests.