In an effort to finance government at all costs, the minority in parliament has warned the central bank that implementing a fiscal dominance regime is risky for the economy in the short and medium term.
This follows the Minority’s charge that the Bank of Ghana erroneously printed GH22 billion in order to finance the government’s budget deficit.
“Despite subsection (4) of the Bank of Ghana Act, 2002 (Act 612), BoG is aware that the large-scale injection of base money will have a negative impact on inflation; as a result, such a decision should not be made lightly.
“Unfortunately, the Bank of Ghana is acting like a god unto itself and isn’t taking into account the detrimental effects of fiscal supremacy on its monetary policy. The fiscal dominance regime that BoG is overseeing must terminate immediately. In a response to the BoG emergency MPC press release dated August 17, 2022, the caucus stated that the situation was dangerous for the future and undermined the fight against inflation in the short- and medium-term.
Although the central bank had previously said that it would not print money for the government, it acknowledged in the aforementioned emergency MPC release that: “In the absence of access to the international capital markets and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. In order to reach an overdraft cap, the Bank of Ghana is collaborating with the Ministry of Finance.
The NDC Caucus claims that the act surprises and incriminates them because, according to the law, the BoG is not required to decide whether to finance the government if there is no access to the foreign capital market.
“First, the caucus wishes to stress that, technically speaking, a central bank overdraft is the same as monetary printing, contrary to what the BoG had previously attempted to claim in its statement from July 26, 2022.
Second, BoG is operating blatantly in violation of the Bank of Ghana Act, 2002 (Act 612) and the Bank of Ghana (Amendment) Act, 2016 given that it is now negotiating an overdraft cap with the Ministry of Finance (Act 918).
When there is a lack of access to the international capital markets and limited domestic funding, the BoG is not required by Act 612 or Act 918 to arbitrarily provide central bank overdrafts.
The statement went on to say that Parliament has oversight and must authorize such unusual central bank financing of the government prior to implementation.
However, it also noted that the Bank of Ghana reserved the right to defy orders from the government or any other authority. As a result, it has full ability to restrict the bank’s financing of the government in the event of excessive monetary expansion.
“Consequently, the NDC caucus in Parliament hereby wishes to remind BOG again that it has all the independence and powers to engineer and move away from the current fiscal dominance that we are experiencing. Most of its actions in recent times are surprisingly schemed to accommodate financing of government without regard to the negative impacts of such dominance. This is undermining the credibility of its policy decisions, and needs to be curtailed.”
The caucus also wants BoG to conduct a complete overhaul of its monetary policy framework to improve transparency and credibility, which they say must include publication of its minutes and clarity on its forecasting and policy analysis model.