March 2, 2024
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BoG’s fiscal dominance regime undermining fight against inflation – Minority

The Minority in Parliament has cautioned the central bank to desist from operating a fiscal dominance regime in a bid to finance government at all cost as the act is dangerous to the economy in the short and medium terms.

This comes after the Minority’s accusation that the Bank of Ghana has wrongfully printed money to the tune of GH¢22billion to finance the budget deficit of government.

Notwithstanding section (4) of the Bank of Ghana Act, 2002 (Act 612), BoG is aware that the injection of base money in large amounts will have negative consequences for inflation, hence, such a decision should not be taken lightly.

Unfortunately, the Bank of Ghana is behaving like a God unto itself and ignoring the negative impact of fiscal dominance on its monetary policy. BoG must cease forthwith the fiscal dominance regime the bank is superintending. It is dangerous for the future, and undermines the fight against inflation for both the short term and the medium term,” the caucus said in a statement in response to the BoG emergency MPC press release dated August 17, 2022.

The central bank had previously denied printing money for government, but in the said emergency MPC release, the bank noted: “In the absence of access to the international capital markets and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft”.

According to the NDC Caucus, they find the act surprising and incriminating as by law, BoG is not mandated to solely decide to finance government in the absence of access to the international capital market.

First, the caucus wishes to state that central bank overdraft is the same as monetary printing in the technical sense which BoG tried to deny earlier as per its statement dated July 26, 2022.

Second, given that BoG is now working with the Ministry of Finance to agree on a cap on the overdraft, BOG is acting in utter disregard for provisions in the Bank of Ghana Act, 2002 (Act 612), and the Bank of Ghana (Amendment) Act, 2016 (Act 918).

There is nowhere in Act 612 and Act 918 where BoG is mandated to arbitrarily grant central bank overdraft when there is lack of access to the international capital markets coupled with constrained domestic financing.

The statement further noted that Parliament has oversight and must mandate such an exceptional financing of government by the central bank before execution.

It, however, stated that the Bank of Ghana reserves every power to resist instruction from government or any other authority, therefore, it has full powers in the face of excessive monetary growth, to limit the bank’s financing of government.

Consequently, the NDC caucus in Parliament hereby wishes to remind BOG again that it has all the independence and powers to engineer and move away from the current fiscal dominance that we are experiencing. Most of its actions in recent times are surprisingly schemed to accommodate financing of government without regard to the negative impacts of such dominance. This is undermining the credibility of its policy decisions, and needs to be curtailed.

The caucus also wants BoG to conduct a complete overhaul of its monetary policy framework to improve transparency and credibility, which they say must include publication of its minutes and clarity on its forecasting and policy analysis model.

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