I hope this letter reaches you in good health. Please accept fraternal greetings from the good people of Bolgatanga Central Constituency on whose behalf I write to you. I am writing to remind you of your obligations as enshrined in the Constitution of Ghana, the Bank of Ghana Act, 2002 (Act 612) and the Bank of Ghana (Amendment) Act, 2016 (Act 918). You may be aware of your obligation to ensure the independence of the Bank of Ghana (BoG) from Executive interference and the Prudential and Fiduciary limits imposed on you in the financing of fiscal operations of the Government.
First, I wish to commend you on your bold recommendation to the Government to use the 2022 budget to create a credible path towards fiscal sustainability. This is refreshing because your call is consistent with growing public concerns, local and international, about Ghana’s rising fiscal risks and the consequential vulnerabilities thereon. It needs no reiterating that the BOG, as the banker of Government, must separate its financial assets and obligations from the Government. To this end, the laws of Ghana provide clear rules that impose limits on your ability, as a central bank, to finance Government’s fiscal operations. This perspective is critical in your actions and inactions regarding the utilisation of various IMF covid-19 related reliefs.
In the wake of the Covid-19 pandemic and its impacts on the global economy, you will recall that the IMF instituted measures to assist Governments in tackling the different risks and vulnerabilities to their economies.
Expedited arrangements for countries to access the Rapid Credit Facility (RCF) to address the fiscal impact of Covid-19 on economies and make financial resources available to Governments to address additional covid-19 related revenue shortfalls and expenditures. These monies were paid to Government accounts for utilisation ‘without conditions’. The Government of Ghana accessed US$1 billion from the IMF for this purpose. This accompanied an application to the Parliament of Ghana to suspend relevant ‘fiscal rules’ as allowed and an asset purchase arrangement from the Bank of Ghana in a historic fiscal expansion program never experienced in Ghana.
The establishment of a US$650 billion increase in special drawings rights (SDR) of several member countries. This was distributed to member countries’ Central Banks to augment their foreign reserves that have been constrained by Covid-19’s disruption of global supply chains and its attendant effects on foreign inflows from exports. Unlike the RCF fiscal support to Governments, these monies were rightly paid directly to the account of the Bank of Ghana as assets of the Central Bank and not Government accounts with BOG.
I have read a response attributed to you during the recent MPC Press conference in which you suggested that $300 million of the SDR equivalent will be surrendered by BOG to the Government to fund the 2022 budget expenditures and that since the SDR are not BOG’s resources, it will not count as BOG financing of the Government budget.
If this attribution is accurate, Mr Governor, it is most unfortunate and a perverse interpretation of the rules that govern your mandate. Considering the many events of the past, including the willful misreporting of key government indicators by your organisation, it will not be far-fetched to suggest that you are willing to surrender your fiduciary responsibility to protect the resources of BOG and uphold its laws. While reminding you that such conduct has dire consequences, let me draw your attention to crucial compliance issues you are conveniently seeking to sidestep:
SDRs are only an equivalent in a trading currency and cannot be converted into cash in any currency without interest accruing to the country that holds that currency as its proprietary legal tender. The IMF provides daily interest rates and currency conversion rates for SDRs. As you may be aware, Ghana stands to pay interest on its shortfall of the initial holding of SDRs released to it by the IMF. Your view that SDRs constitute ‘free money’ to be distributed at your discretion, based on a convoluted interpretation of the laws of Ghana and best international practice, must be reconsidered.
I believe that the above considerations guided the IMF in suggesting that even though member governments decide the utilisation of the SDR, it must be done in compliance with the governance frameworks of member countries. To avoid doubt, the governance framework for utilising this IMF SDR of US$650 million in Ghana are the Constitution, Public Financial Management Act, and the Bank of Ghana Act, 2002 (Act 612) and its Amendment, 2016 (Act 918).
To be clear, Section 30(1) of the Bank of Ghana Act 2002, (Act 612) states as follows:
Bank of Ghana may make advances and loans to the Government on overdraft or in any other form that the Board may determine.
Make direct purchase from the Government of treasury bills or securities representing obligations of the Government.
Section 30(2) of the BOG (Amendment) Act, 2016 (Act 918) also stipulates that “(a) The total loans, advances, purchases of treasury bills and securities made under subsection (1) shall not at any time exceed five percent of the total revenue of the previous fiscal year.
I am aware of various arguments advanced to suggest that the peculiarities introduced by covid-19 justify the setting aside of the laws of Ghana. I may have considered this argument worthy if the existing laws that moderate your mandate at the Governor did not provide for such ‘crisis’ scenarios. You may be aware that the Bank of Ghana Act, 2002 (Act 612) provides in section 30(6) that in the event of an emergency, the Governor, the Minister and the Controller and Accountant General shall meet to decide the limit of borrowing that Government should make following which the responsible Minister (of Finance) shall submit a report on the issue to Parliament within seven sitting days. There is no contestation that your support to the Government exceeded the allowable five percent threshold as per the laws you swore to abide by. Typical of this Government, and with your overt support, the requirement to seek prior parliamentary approval within seven days has been conveniently overlooked. In my search, I have found no public record or other evidence of a meeting organised to set a borrowing limit, nor have I seen any evidence of a report submitted to Parliament, in this regard, within the stipulated seven working days.
If you chose to argue that Act 918 makes the provision in Act 612, section 30(6) redundant, then note also that Section 30(7) of the amendment Act, 2016 (Act 918) provides that where the total of loans, advances, purchases of treasury bills and securities made under subsection (1) is 5% of the previous fiscal year’s total revenue, the Governor shall notify the Minister and Parliament of the attainment of the limit under subsection (2) and the Minister upon notification shall report to Parliament of the remedial measures to be taken.
The BOG Act and its Amendment Act do not provide for freebies from BOG to Government. Instead, it imposes responsibility on you to report to the Minister anytime the 5% threshold is exceeded. The finance minister then reports to Parliament with a clear program to remedy the violation. Unfortunately, these have not been complied with.
Mr Governor, you will remember that you purchased the Government’s financial sector resolution bonds in 2018 to the tune of Ghc3.6 billion in violation of Ghana’s MOU with the IMF. The IMF imposed zero financing of the Government’s budget under the ECF. You also remember the asset purchase arrangement with the Government totalling a whopping Ghc10 billion in 2020. You have so far failed to recover these monies and failed together with the Minister for Finance to report such breaches with a remedial program as required by law.
Based on the statement attributed to you and re-echoed by various agents of Government, I am worried about your seemingly default inclination to aggravate the breaches of the laws of Ghana, including supporting, the exceeding of the 5% threshold, engrained in your own Act.
To be clear, any offering of $300million of your SDR to the Government will aggravate the breaches of the 5% threshold. If you were unaware of the provisions of your own Act, I do hope that my letter draws your attention because willful breaches of the law do have consequences, usually dire. Also, bear in mind that I reserve the right, as a citizen and Member of Parliament, at a time of my choosing to activate legal action that may crystalise such legal consequence.
I will strongly urge you to remedy your earlier plethora of breaches of the BOG laws. While I understand the unbearable pressure you may be experiencing from the Executive arm of Government to disregard your own laws, please be mindful of the potentially dire consequences and remain resilient.
Please accept, Sir, the assurance of my highest consideration.
Hon. Isaac Adongo
MP, Bolgatanga Central
1. The Head of Economic Management Team, Dr Mahamudu Bawumia, Jubilee House Accra.
2. The Minister for Finance, The Ministry for Finance, Accra.
3. The Speaker of Parliament, Parliament House, Accra.
4. The Resident Representative, IMF, Accra.
5. The Country Director, The World Bank, Accra.