Ghana’s Central Bank governor shuts door on lending Government more money

Last week, the bank of Ghana's governor, Mr Ernest Addison, refused to provide more loans to the Ghanaian government. He said providing more loans won't narrow the budget shortfall, and would instead lead to an instability in the current exchange-rate of the CEDI. 

 

Earlier this year, the central bank shelved its zero-financing policy this year to lend the government 10 billion CEDI ($1.7 billion) to help reduce the effect of the coronavirus on the country. 

Ghana's fiscal gap problem 

Its current budget deficit is projected to reach 11.4% of gross domestic product by the end of December, against an initial target of 4.7% of GDP. Concerns over the wide fiscal Gap poses a problem to the central bank. 

 

“The wide fiscal gap raises important financing issues,” Addison said in a speech. “Its financing should not be by recourse to central bank funds, as this will weaken the central bank’s ability to serve as the anchor of monetary- and exchange-rate stability.”

Stability of the CEDI against the US Dollar 

 

Despite the current coronavirus, the CEDI has had its most stable spell in more than a  decade this year, weakening 2.6% to the U.S. dollar. That’s even as the coronavirus health crisis drove Ghana’s ratio of debt to gross domestic product to 71% in September, the highest in four years.

 

Ghana is not the only African country that has faced a weakening currency against the US dollar. The Nigerian central bank has weakened the naira three times this year, as the regulator struggles to stem demand for dollars amid lower than anticipated foreign-currency inflows. 

 

Nigeria has experienced a significant drop in foreign-exchange inflows as sale of oil is responsible for more than 90% of the country's foreign-exchange earnings. 

 

“Going forward, difficult decisions will have to be taken to reorganize public finances and expenditure priorities, while exploring more sustainable revenue sources,” the Ghana central bank governor Addison added.