The Bank of Ghana (BoG) has reported a surplus of GHS 5.5 billion. However, this figure masks a significant underlying deficit of GHS 6.22 billion when one-time income sources are removed. This core deficit indicates the bank lacks "policy solvency" – the ability to cover its operational costs from its own earnings without creating new money or seeking government aid.
This situation stems from excluding extraordinary gains. These gains came from selling GHS 9.57 billion worth of gold. They also included a GHS 2.15 billion fee recovery from the Ministry of Finance. Without these, the bank's regular operations could not cover expenses. This means the BoG might resort to printing money to fund its activities. Alternatively, it would need to depend on the government for financial support.
This development places the BoG in a challenging position. Relying on monetary financing can harm inflation goals. It can also erode public trust in the central bank's actions. For instance, the central banks of Israel and Chile have managed decades of losses and negative equity. Yet, they maintained their effectiveness. This was possible because they preserved policy solvency.
The Bank of Ghana's financial statements reveal a concerning trend. Analysts point to apparent efforts to manipulate figures. An example is stretching accounting rules to offset currency appreciation impacts. This was done to reduce a headline loss of GHS 35 billion. Such actions, along with pre-release public relations efforts, are seen as inappropriate. Trust and transparency are vital for a central bank's credibility.
Experts disagree on the implications of past large open-market operations. Some see the resulting losses as a necessary cost of pursuing macroeconomic stability. This is evidenced by current low inflation and interest rates. However, others, like Gideon Donkor, argue the current monetary policy is unsustainable. He warns that drastically reducing the money supply while lowering government debt rates can trigger a severe financial crisis. It could lead to a sharp recession and currency devaluation.
This policy mix, known as quantitative tightening (QT) alongside suppressed borrowing costs, creates an 'unstoppable debt' scenario. The government tries to control inflation and manage its own interest payments simultaneously. A sharp decrease in the money supply can freeze credit markets. It becomes harder for businesses and consumers to borrow. Reduced money circulation leads to lower demand for goods. This can cause prices to fall, a phenomenon sometimes observed when market vendors report low sales despite lower prices.