When most Ghanaians think about the Bank of Ghana (BoG), they think of inflation control, cedi stability, or interest rate decisions. But beneath these visible actions lies another crucial issue: the financial health of the central bank itself.
An IMF blog by Romain Veyrune titled ‘ Stress Tests Can Help Determine How Much Capital Central Banks Need,’ has reignited global debate over central bank capital. Unlike commercial banks, central banks have no universal capital requirements, because they can print money to meet obligations. Yet, as Veyrune stresses, weak capital positions can erode credibility and even threaten independence.
For Ghana, this warning comes at a delicate time. The BoG has been slowly climbing back from a financial crisis. In 2024 the BoG posted an operating loss of GH¢9.49 billion, a notable improvement from the GH¢13.23 billion loss (restated) in 2023. This trend marks a sharp turnaround from 2022, when the BoG recorded a staggering loss of GH¢60.8 billion amid the country’s economic turmoil.
Managing Risk in a New Era
Traditionally, central banks operated with small balance sheets and steady profits. But the game has changed. Like many of its peers, the Bank of Ghana has taken on new responsibilities, supporting financial stability during the banking sector clean-up, providing liquidity in crises, and absorbing shocks from government debt restructuring.
This has expanded its balance sheet risk. Just as Veyrune notes globally, Ghana’s central bank is exposed to interest rate, credit, and foreign exchange risks. Losses from the DDEP, where domestic bonds were swapped at lower interest rates to restore debt sustainability, are a prime example of how balance sheet risk translates into real financial strain.
The lesson? The BoG must not treat losses as a mere accounting problem. They highlight the urgent need to better manage risk, build buffers, and communicate transparently about the Bank’s financial position.
Shock Absorber for Future Crises
Veyrune’s central argument is that central banks need adequate capital to act as a shock absorber. Without it, even if they can technically never go bankrupt, their credibility and independence come under fire.
For the Bank of Ghana, this is especially relevant. Imagine another round of global commodity price shocks, sudden cedi depreciation, or persistent inflation forcing prolonged tight monetary policy. Could the Bank absorb the financial stress without further weakening its capital?
This is where stress-testing becomes critical. By simulating worst-case but plausible scenarios, the BoG can determine the capital levels it needs to withstand future shocks. Such transparency would not only boost confidence among investors and the public but also safeguard its ability to act independently in turbulent times.
Why Stress-Testing Makes Sense for Ghana
Credibility: A stronger capital position would shield the BoG from accusations of political compromise, especially when government financing pressures rise.
Resilience: With debt restructuring scars still fresh, stress tests would help ensure the Bank can handle new risks without losing its footing.
Transparency: Explaining when profits are retained versus shared with government would show that decisions are based on resilience, not politics.
Looking Ahead
The IMF has already developed models for central bank stress-testing and is providing technical support to countries ready to adopt them. For Ghana, embracing this approach would mark a shift toward resilience, accountability, and forward planning.
The Domestic Debt Exchange Programme (DDEP) showed the real cost of not having enough buffers. Stress-testing could ensure that the next time Ghana faces a shock, its central bank stands as a true shock absorber, credible, independent, and fully capable of protecting the economy.
