The Research Director of the Institute of Economic Affairs (IEA), Dr. John Kwakye, has expressed his support for the Memorandum of Understanding (MoU) that the Bank of Ghana (BoG) Governor, Dr. Ernest Addison, signed to end the central bank’s financing of the government’s budget.
He said this would help to curb inflation in the long run.
Dr. Ernest Addison confirmed to centralbanking.com that he and the Finance Ministry signed the MoU on May 2, 2023.
“The MoU has been finalized and signed,” Governor Ernest Addison said.
He also told the Financial Times that the MoU became effective on May 1, 2023, and would be implemented if the International Monetary Fund approved Ghana’s request for a $3 billion loan facility.
Dr. Kwakye commented on this development and the decline in the inflation rate on Twitter. He said: “We should welcome the declining inflation but not celebrate it.
“At 41.2% in April, inflation far exceeds the BoG target of 8+/- 2% as well as our peers’ inflation. Recent MOU to freeze BoG lending to Gov’t should go a long way in stemming inflation.”
However, the Dean of the Business School of the University of Cape Coast, Professor John Gatsi, said that the BoG should still provide some level of support for the government’s activities within the fiscal laws of the country.
Prof Gatsi said this on News 360 on TV3 Monday, May 8. He said: “In the first place, we don’t actually need an MoU, we only need respect for the law. We have a law that states that the lending to the central government by the Bank of Ghana should not exceed five percent of the previous year’s revenue.
“That is to be respected. It is because we are not respecting that, we need to show the IMF proof that we are going to commit to zero financing of government activities. That is why this MoU was occasioned. It is just a sign that we are not adhering to our fiscal laws in the country.”
He added: “Also in the earlier IMF agreement that the government inherited, the IMF was asking for zero financing. But in the overall interest of the of government Parliament felt that there should be some level of Bank of Ghana support for the budget if need be, that should not go beyond five percent. “
“Really, I do believe that there should be some level of financing of government activities by the central bank but that level of support that the central bank should give to government activities should be respected, and should not go beyond what has been stated.”