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30 July 2016

Government must commit to zero BoG financing – IMF

File Photo

File Photo

The International Monetary Fund has told Citi Business News it is closely observing the current parliamentary debate on the reduction of government budget support by the Bank of Ghana from 10 percent to zero.

Indications gathered by Citi Business News show that most parliamentarians on the floor of the House were not enthused about reducing the figure to zero percent, stating that it could be maintained at 5 percent to allow government some space to borrow from the central bank.

Responding to a questionnaire sent to the IMF, it reminded that “under the IMF-supported programme, the government committed to eliminate regular financing from the BoG”.

The statement further explained that “this is an important feature to support the credibility and effectiveness of the inflation-targeting framework for monetary policy”.

The statement warned that “fiscal dominance of monetary policy through central bank financing of government on a large scale has been a key contributor to elevated inflation in the recent past in Ghana.”

It however said that it has deferred comments on the ongoing discussions of the Amended Central Bank Act to the government of Ghana.

The statement acknowledged that there has been significant progress to achieve the objective as government has not received any new financing from Bank of Ghana since the beginning of 2016.

Economist advises government

Meanwhile, a senior lecturer at the University of Ghana Business School, Dr. Lord Mensah has advised government to work at attaining the zero percent financing gradually over a period of time.

According to him, even though it will be difficult to attain zero financing from the central bank now, government must however work hard at achieving it since the agreement is now binding.

“For now government can do little about the programme. They should have realized it earlier and negotiated it. They should have foreseen it. They accepted the package and the package has being rolling. I think it’s too late,” he told Citi Business News.

Dr. Mensah warned that it will be difficult to renegotiate the terms since the conditions are strictly set to compel countries to achieve fiscal discipline. He suggested that parliament can be allowed to peg the figure from 10 percent financing to 5 percent while government assures the IMF that it will work gradually to achieve zero percent despite the law.

“If I were to be the Fin

ance Minster and I am to go to the IMF, this will be my proposal, that it could be 5 percent now. The next year looking at how the government stays discipline it can reduce to 4 and then gradually to zero,” he stressed.

He maintained that the condition has a negative and positive outcome on the economy with the former out weighing the latter.

“Without external financing governments cannot grow. The central bank acts as a mediator in terms of all government transactions. So when a government is expecting funds the central bank can pre-finance,” he said.

He pointed out that situation gets bad only when the central bank is unable to control the level at which it finances government’s budget.

Mona Quartey hints of renegotiation

Speaking to Citi Business News’ editor Vivian Kai Lokko after the presentation of the 2016 supplementary budget in parliament, Deputy Minister of Finance, Madam Mona Quartey hinted that government may have to renegotiate the provision if parliament reduces the figure from 10 percent to five.

Terkper rules out renegotiation

However, Finance Minister Seth Terkper later announced that government will not renegotiate the terms under the programme. His assertion contradicted Madam Quartey’s assertion.

Mr. Terkper stated that, “let’s be patient till when parliament takes the decision but if even in the event that parliament comes out with the number above five, does it warrant a renegotiation of the IMF agreement?. I will say no”.

He stated that government is considering many factors to protect critical sectors of the economy. He pointed out for example that, because of the ECOWAS convergence criteria and some emergencies, government was critically assessing the practicality of the zero financing.

IMF programme with Ghana

On Friday, 3rd April, 2015, the Executive Board of the International Monetary Fund (IMF) approved a 3-year Extended Credit Facility (ECF) Programme for Ghana.

A total amount of SDR664.20 million (US$918 million) will be given to Ghana as balance of payments support over the 3-year period. The total amount will be disbursed in eight equal tranches.

The first disbursement was made immediately after the Executive Board approval of the programme.

Government is currently waiting the third tranche after an IMF team visited Ghana to undertake an assessment.

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