The Institute of Statistical, Social and Economic Research (ISSER) is promoting the establishment of financial constraints on the Bank of Ghana’s involvement in supporting the government’s budget.
In its evaluation of the government’s 2023 Mid-Year Budget, presented by the Finance Minister on July 31, Professor Peter Quartey, the Director of Research at the Institute, elucidated that the deficit financing conducted by the Bank of Ghana has unfavorable repercussions on national inflation, cash flow dynamics, and the stability of the exchange rate.
Dr. Quartey highlighted the example of Chile, where strict legal limitations have been implemented to prevent any form of direct or indirect financial backing of public expenditures by the Central Bank, except under wartime circumstances.
“Similar practices are observed in countries like Germany, Switzerland, and the Netherlands, where legislation enforces strict boundaries on direct central bank credit to the government, while permitting the acquisition of government paper through open market operations,” he added.
Regarding the GH65 billion impairment loss attributed to the governmental Domestic Debt Exchange Program that the Bank of Ghana recorded in 2022, the ISSER Director stated, “BoG haircut on DDEP was necessary at the time but what brought us here should not be repeated. Deficit financing of GH¢53,150 million out of a total financing of GH¢65.156 billion”.
“Clear limits on government financing should be set and enshrined in our Laws,” Prof. Quartey added.
ISSER also urged the government to increase tax mobilization efforts and impose rigorous spending constraints in order to achieve debt sustainability and price stability, particularly in the domestic economy.