About three years ago, the Bank of Ghana (BoG) made a promise never to print money for the government or finance the state.
This resolution came after the central bank’s loans to the state hit nearly GH¢42 billion, feeding a runaway inflation that hit about 54 percent and helped tip Ghana into its worst economic crisis in a generation.
Despite this lesson, a leading economist is leading a charge to get this promise reviewed in the interest of economic growth and development. Prof. Charles Ackah, a Research Fellow at the Institute of Statistical, Social and Economic Research (ISSER), argues that Ghana’s “zero-financing” rule, a condition of its $3 billion IMF bailout, has been too conservative.
Prof. Ackah argues with how heavily-indebted, high-growth economies achieved that feat. He notes that their central banks held large shares of government debt. For him, he cannot fathom why the central bank, which prints its own money, should not support the government.
Drawing case studies from across the world in relation to Ghana, he compares Ghana’s roughly 45 percent debt-to-GDP ratio to Japan’s 250 percent, Italy’s 155 percent and the United States’ 133 percent. On his reading, Ghana’s caution has pushed it toward costlier external borrowing instead of leaning on its own currency-issuing institution.
The Case for Loosening the Grip on BoG Financing
Prof. Ackah’s argument is drawn from real-world cases. The Bank of Japan holds roughly half of all outstanding Japanese government bonds, a decades-long strategy that funded reconstruction and growth without triggering runaway inflation.
During the 2008 financial crisis and again through COVID-19, the US Federal Reserve and the Bank of England bought trillions in government debt to keep their economies afloat, which is a tool once considered fiscal taboo, but now standard crisis policy in advanced economies. Closer to home, proponents of “developmental central banking” note that South Korea and Malaysia paired state-directed finance with industrial policy to escape poverty within a generation, the very comparison Prof. Ackah draws when explaining Ghana’s stagnation.
The Case Against Loosening the Grip
Chief proponent on the other side of the argument, the IMF’s position, however, is not born of theory alone. It’s based on Ghana’s own recent history. The Fund has consistently urged the BoG to end quasi-fiscal activities after its GH¢22 billion in losses from ventures like the gold purchase programme, and zero-financing was written into the government-central bank Memorandum of Understanding precisely because unchecked deficit financing preceded the 2022 collapse.
The cautionary tales go further and not only with Ghana. Zimbabwe and Venezuela both leaned on their central banks to bankroll spending, and both ended up in hyperinflation that wiped out savings and public trust. Turkey’s more recent experience, a government pressuring its central bank into cheaper money, is often cited by economists as a case study in how quickly credibility, once lost, is expensive to rebuild.
A Question Not Easy to Answer
Even Prof Ackah is careful to add a caveat that any greater central bank role, he says, must come “with safeguards.” This single caution has a very significant impact on the debate.
Japan and the US finance their governments from positions of deep institutional trust and low inflation; Ghana is only three years removed from a debt restructuring and still building back that trust.
Whether the BoG’s conservatism today is prudent scar tissue from a recent crisis, or an over-correction holding back the investment Ghana needs, remains an open question, one that will likely shape budget debates long after this one fades from the headlines.
