16 June 2014

Ghana: Bank of Ghana Reacts to Fitch Report On Country Rating

press release

The Bank of Ghana (BoG) prints currency once a year, usually in the fourth quarter, when demand for cash is highest, to cover cocoa purchases and Christmas activities, Dr Benjamin Amoah, Head, Financial Stability Department, BoG, has stated.

Dr Amoah explained that the issuing of currency by BoG was not to finance the government deficit, but to support general economic activity.

Addressing a news conference in Accra on Friday in reaction to a recent report on Ghana by Fitch that BoG was printing money to finance the government's budget deficit with implications for fuelling inflation and weakening the currency, Dr Amoah rejected the impression created by the Fitch Report that the BoG was literally 'printing money' to finance the government budget deficit.

He said there were seasonalities in government revenue flows, such that usually, in the first and second quarters, government receipts fell short of expenditures as happened in the first quarter of this year.

He said data showed that government receipts picked up in the second half of the year and thus enabled government to reduce its borrowings from the domestic sector.

Dr Amoah said the Bank of Ghana Act, 2002 (Act 612) permitted the financing of government deficits from both domestic and international sources in circumstances when government receipts fell short of expenditures, adding that the Law specifically provided a framework within which the Bank could make advances to government which, he said, was technically known as 'money printing' and not literally printing money.

Section 30(1)(a) of Act (612) states that, "the Bank can make advances and loans to Government on overdraft or in any other form that the Board may determine."

Section 30 (2) further states that, "the total of the loans, advances, purchases of treasury bills and securities together with money borrowed by the Government from other banking institutions and the public at the close of a financial year under subsection (1) shall not exceed 10 percent of the total revenue of the fiscal year in which the advances were made".

Dr Amoah said it was true that the Bank of Ghana had lent to government to finance the budget deficit during the first quarter of the year as mentioned in the Fitch report, but added that it was consistent with the provisions in the Act to do so.

He gave the assurance that BoG would continue to monitor performance and ensure compliance of the relevant provisions of the Act.

Source: ISD (G.D. Zaney)

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