My central bank training didn’t teach me that – Kwakye tells Bawumia on BoG stepping in to save the economy from collapse

Dr. John Kwakye, the Director of Research at the Institute of Economic Affairs (IEA) and a former Bank of Ghana (BoG) employee of over two decades, has emphasized that his extensive training in central bank operations did not advocate for the BoG to exceed its limits in providing substantial funds to the government during times of crisis to prevent the economy from collapsing.

According to Dr. Kwakye, there is a rationale behind the limitations set by the Bank of Ghana Act on how much the central bank can lend to the government. He highlighted that resorting to financing the budget by the central bank, known as “money printing,” is the most inflationary and currency-destabilizing method. He expressed his skepticism regarding the necessity for such extreme measures, stating that his central bank training did not endorse such actions.

Reflecting on recent events, Dr. Kwakye expressed concern over the magnitude of funds advanced to the government by the BoG, which he calculates to be over 50% of the previous year’s revenue. He shared these sentiments during an appearance on the Ghana Tonight Show on TV3, reacting to Vice President Dr. Mahamudu Bawumia’s address delivered on February 7.

In his address at the University of Professional Studies, Accra (UPSA), Dr. Bawumia defended the BoG’s decision to heavily finance the fiscal deficit, particularly in 2022, praising the central bank for rescuing the economy during a period when Ghana had lost access to international capital markets.

Dr. Kwakye, however, challenged Dr. Bawumia’s stance, arguing that while the Bank of Ghana Act permits advances to the government up to 5% of the previous year’s revenue, the concern lies in the excessive amount provided, exceeding 50% of the previous year’s revenue.

He pointed out the severe impact on inflation and currency depreciation as consequences of such actions, noting the significant loss incurred by the Bank in 2022. Dr. Kwakye cautioned against downplaying the magnitude of these losses, emphasizing the adverse effects on the Bank’s balance sheet and subsequent operational constraints.