Financial Analyst and banking consultant, Dr. Richmond Atuahene says the devastating economic impact of the negative equity situation of the Central Bank of Ghana leaves the government with no choice but to recapitalize the bank.
Dr. Atuahene says the current situation of the bank is a major threat to the country’s monetary policy and economic stability hence the need for a drastic action.
In an extensive research work on the impact of the situation on the economy, copied to The High Street Journal, Dr. Atuahene explains that the weakened balance sheet of the bank could also jeopardize Ghana’s financial future.
The Minister for Finance, Dr. Cassiel Ato Forson has already served notice that the government won’t use the meager taxpayers’ money to bail out the bank. He has rather recommended that the Central Bank leases its flamboyant and luxurious $260 million new headquarters and use the proceeds to salvage the bank.
But Dr. Atuahene is of the firm view that the government cannot sit aloof and unconcerned considering the dire impact the situation could have on the general economy it is seeking to reset.
The Negative Equity – The Genesis
The Bank of Ghana in 2022 reported a staggering loss of GHC 60.8 billion. The loss was unprecedented in the history of the Central Bank since its establishment in 1957. The Bank explains the loss was primarily driven by the Domestic Debt Exchange Program (DDEP) undertaken by the government due to high debt overhang which became unsustainable. There was also impairment from COCOBOD including other losses.
“The BoG reported a staggering GHC60.9 billion losses due to impairments during the domestic debt exchange program, and in 2023 the losses continued with a GHC10.5 billion deficit, primarily attributed to high expenditures related to monetary interventions aimed at controlling inflation,” the document indicated.
To make matters, the research further revealed that, “It is also expected that in 2024 financial statement yet to be published may record significant losses that would long way to compound the already worst negative equity.”
The Impact of the Negative Equity
Dr. Atuahene maintains that among a number of impacts, BoG’s negative equity not only erodes its credibility but also compromises its ability to implement effective monetary policy. He says there is a need for a strong central bank balance sheet which is essential for safeguarding both independence and public trust:
The financial analyst further explains that without sufficient capital buffers, the Central Bank risks being perceived as incapable of managing its liability, thereby inviting skepticism from both financial market and the general public.
Moreover, as projected to happen in 2024, the bad position of the Central Bank’s balance could lead to persistent yearly losses. This, the analyst says, has huge consequences for price stability, a core mandate of the bank.
“Deteriorated balance sheet of Bank of Ghana could cause chronic losses that will eventually with price stability. Facing such a situation several possibilities exist; one will be abandoning price stability as a goal, by financing losses by money creation with obvious consequences of higher inflation,” Dr. Atuahene indicated.
Already, Dr. Atuahene has observed that the current situation is posing communication challenges for the bank. He reveals some key policy decisions are sending the wrong signals to the market as they wrongly speculate the intent of the bank. This also affects the credibility of the bank. He says, “Some policy decisions, such as retaining rather than selling government bonds, could be misinterpreted as being motivated by a desire to contain losses rather than as actions to pursue specific policy mandates. This would reduce central bank credibility.”
Why Government Can’t Sit Aloof
Dr. Atuahene is advocating for a robust government-led recapitalization strategy to recapitalize the Bank of Ghana. Citing the dire need for a capital infusion, he asserts that the BoG must be strengthened to fulfill its critical role in ensuring price stability and maintaining economic confidence.
He is therefore recommending an urgent capital injection into the BoG to rebuild its balance sheet to restore public confidence.
To make the process of recapitalization easy for the government without draining the national coffers as feared, Dr. Atuahene says the government could leverage the country’s huge natural resources and inward remittance space to breathe life into the Bank of Ghana. He believes through this area, the government can raise an amount to the tune of GHC53 billion (US$3.4 billion) without putting much stress on the national budget in the next few years.
Dr. Richmond Atuahene is making it clear that without decisive action, the negative equity of the Bank of Ghana will continue to undermine its independence and efficacy and affect the government’s reset agenda.
His call for government-led recapitalization is not merely a financial recommendation. It is a clarion call for preserving the integrity of Ghana’s monetary system and securing a stable economic future.
