No Printing Of Money To Finance Budget Deficit — BoG

Dr. Benjamin Amoah Head of stability, Bank of Ghana (1)The Bank of Ghana (BoG) has denied reports that it is printing money to finance the government’s budget deficit.

Fitch, an international rating agency, recently reported that the BoG was printing money to finance the government’s budget deficit, threatening to fuel inflation and weaken the cedi.

The agency further alleged that the first-quarter budget deficit of 2.1 per cent of the Gross Domestic Product was financed by the Central Bank, which provided funding equivalent to 10 per cent of government revenue, twice the bank’s full year limit.

But addressing a press conference in Accra on Friday, the Head of Financial Stability Department of the BoG, Dr Benjamin Amoah noted that the Fitch report had generated anxiety among the public and the investor community.

He said the report had created the impression that the BoG was literally ‘printing money’ to finance the government budget deficit.

Dr. Amoah explained that the BoG prints currency once a year, usually in the fourth quarter, when there is demand for cash to cover cocoa purchases and Christmas activities.

‘’The issuing of currency by the BoG is therefore not to finance the government deficit, but to support general economic activity,’’ he said.

Dr Amoah said the term ‘printing money’ that Fitch used in its report in financial terms meant “the BoG advancing loans to government.’’

On the allegation that BoG was advancing loans to government, he said the BoG Act, 2002 (Act 612) permits financing of government deficits from both domestic and international sources.

‘’Section 39 (1) (a) of Act (612) states that the bank can make advances and loans to government on overdraft or in any other form that the Board may determine,’’ Dr Amoah said.

To mitigate the potential inflationary impulses, including those from Central Bank lending to finance the deficit, and to enable the BoG to deliver on its price stability target, the monetary policy has been tightened in 2014 by increasing the policy rate by 200 basic points.

He said the cash reserve requirements of banks had been increased from 9 to eleven per cent.

‘’The recent data from the Ghana Statistical Service has revealed a slowdown in the pace of inflation,’’ Dr Amoah said. By Kingsly Asare

 

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