The Bank of Ghana (BoG), the country’s central bank, needs to clarify some aspects of its current Act, according to its Governor Dr Ernest Addison.
He said that some terms and procedures in the Act are vague and need to be defined more clearly.
For instance, he raised the question of what constitutes an emergency situation that would allow the central bank to breach its rules.
He made these remarks while answering a question at the 112th Monetary Policy Committee (MPC) press conference in Accra on Monday, May 22.
He explained that the current Act was amended in 2016 but still had some inconsistencies and difficulties with implementation.
“One of the issues is how to measure the 5 percent limit on the central bank’s claims on the government. Is it based on the stock or the flow of claims? How do we compare it with the previous year’s revenue? These are measurement issues that need to be clarified,” he said.
He added that another issue was how to define an emergency situation that would justify breaching the rules.
“We need to be very careful and make clear the conditions under which the rules can be breached. And then there are also procedural issues that are not very clear. Who reports to Parliament? Is it the Governor or the Minister of Finance? These issues have to be clarified in the law,” he said.
He stressed that clarifying these issues in the Act would improve its implementation and effectiveness.
He also noted that even with a perfect law, the central bank would still have to act differently in an economic crisis, as it did in 2022.
“The choice would have been either to grind the entire economy to a halt, or to allow government operations to come to a standstill, which is worse than the problem itself. So the issue of the law is fine, but in an economic crisis things have to be done differently,” he said.
He reiterated that the Bank’s position was to improve the Act and make it clearer.
The International Monetary Fund (IMF) had earlier indicated that the Bank of Ghana Act would be revised to strengthen its independence and mitigate fiscal dominance by the government.
The Fund said that the amendments would include mechanisms to monitor and enforce compliance, and a clear definition of emergency situations under which the limit can be temporarily lifted.
“Pending legislative changes, the BoG and the Ministry of Finance signed an MoU (prior action) to eliminate monetary financing during the programme. An ongoing updated Safeguards Assessment will provide additional support for designing changes to the BoG Act,” the Fund said in its report on Ghana.