The Governor of the Bank of Ghana (BoG), Dr. Ernest Kwamina Yedu Addison, has revealed that the GH¢60 billion loss reported in the 2022 Financial Statement was a result of technical losses arising from the haircut and application of accounting standards (in particular, IFRS 9), and the Covid-19 pandemic that hit the country, leaving in its wake devastating effects.
“It is important to state that the losses reported were technical losses arising from the haircut and the application of accounting standards (in particular, IFRS 9) to estimate expected credit losses over the tenure of the Government debt held by Bank of Ghana,” he revealed at a news conference in Accra yesterday.
According to BoG, it was not money lost by the Bank of Ghana through its operations in 2022,
“Rather, one should look at this as the reflection of the total cost of the economic and social crisis the country faced over the years and an attempt to resolve a major structural problem of the Ghanaian economy,” he added.
Covid-19
Per the Governor, Ghana was not spared the effects of the Covid-19 pandemic. Despite the effects, he said there were clear public policy initiatives by the government, with outstanding leadership by the President, to protect lives and livelihood at all costs.
“Protecting lives and livelihood at all costs required exceptional financing. Fortunately, through the swift intervention of the international financial institutions, the IMF (through the Rapid Credit Facility) and the World Bank, a significant portion of this financing was met,” he indicated.
He further revealed that when Ghana was hit by the Covid-19 in 2020, per Section 30(6) of the Bank of Ghana Act (612), the Bank purchased GH¢10 billion worth of Covid-19 bonds to support the economy through the pandemic.
In addition, his outfit “following prudent management, had built enough buffers and policy space, which enabled it to trigger the emergency financing exception under Section 30(6)) of the Bank of Ghana Act, Act 612 as amended, to provide the needed additional financing support through the purchase of GH¢10 billion of the Government’s Covid-19 bonds, which helped to close the exceptional financing gap.”
These interventions from the Bank of Ghana, the IMF, and the World Bank, Dr. Addison said, helped the government to navigate and effectively contain the devastating effects of the pandemic.
Also, he indicated that this was done within the applicable laws governing the Bank of Ghana, thus, section 30 (6) of the Bank of Ghana Act (612), as amended, when triggered allowed the Governor, the Minister for Finance, and the Controller and Accountant General to agree on a new limit of central bank financing.
Losses not news
Dr. Ernest Addison, who addressed a news conference where he justified the losses, added that this was not the first time that the Bank has gone into negative equity, and that if one took time to go through historical financial statements of the Bank of Ghana, they would realise that it was nothing new.
“During the early years of structural adjustment, very large exchange rate depreciations led to revaluation losses that drove the Bank into negative Equity. Indeed, anytime the economy faces major challenges, the Bank of Ghana balance sheet suffers, and the equity position moves into negative territories.
“You will recall that in 2017 and 2018, the Bank of Ghana incurred similar negative equity from the impairment of legacy liquidity support loans granted in 2015 and 2016 to insolvent banks, which our external auditors impaired due to the doubtful prospects of recovering from those insolvent banks. The Bank of Ghana however, recovered and generated profits throughout the period 2019 to 2021,” the Governor asserted.
BoG on providing gov’t finance
Dr. Addison also debunked claims that the Bank of Ghana has been providing financing for the Government every year.
“There has been zero financing in 2017, 2018, 2019 and 2021. The Bank of Ghana has only had to support in the pandemic year of 2020 and the crisis year of 2022. The Bank of Ghana Act (612), as amended, limits financing of Government to 5 percent of previous year’s tax revenue,” he disclosed.
This provision in the law has been adhered to “since I took office in April 2017. Between 2017 and 2019, in addition to the requirements of the Bank of Ghana Act (612), as amended, the Bank signed a Memorandum of Understanding (MOU) with the Ministry of Finance to even impose a tighter restriction of zero central bank financing.”
Impact of losses in its operations
On this, the Governor noted that Central Banks were not commercial banks, and that the current financial condition would not impact negatively on the operations of the Bank. To him, the IMF Technical Assistance mission validated this conclusion, before the necessary decisions were taken.
“In their opinion, the Bank of Ghana was policy solvent and would remain so, as it had enough income to cover monetary policy operational costs. The Bank of Ghana had sufficient capital amounting to about 15 per cent of its total liabilities. Its recommendation was for the Bank to retain all profits and a reassessment should be made in the year 2027. The Bank will also manage to reduce its operational costs during this period”, he said.
New Headquarters
In a brief history of how this has evolved over the years, Dr. Addison explained that the Bank of Ghana as far back as the 1990s began the search for suitable and secured land for a new Head office.
In 2012, he said the Bank was allocated an unnumbered 5.19-acre land at Accra Central by the Lands Commission, which also had issues so the Bank did not have access to the land since the Ministry of Foreign Affairs and Regional Integration refused to give the Bank vacant possession on the grounds that they had never agreed to give up ownership of the land.
“The Bank continued to search for suitable land for its Head Office throughout the period from 2013 to 2016. More recently in 2018, the Bank approached the SIC to acquire its vacant land at Ridge near the Ridge Hospital. The Government issued an Executive Instrument to allow the Bank of Ghana acquire that Land and SIC was duly compensated
“The Bank then began to plan the building of its new Head Office, taking into consideration the need to ensure the building meets all the requirements of a modern central bank of international standards (similar to central bank head office buildings in Abuja and Dakar), and includes provision for data centers, currency processes, vaults, and other sensitive installation. It is not just a simple ordinary building. Let me re-emphasize that the Bank followed all the necessary public procurement processes in this endeavor
“The decision to commence construction was taken in 2019 when the Bank generated profits. Appropriations for the Head Office were made each year from profits in 2019, 2020, and 2021. The project has, therefore, been going on for over 3 years,” he said.
Dr. Addison said the new office project had been running for three years and was about 50 percent completed. He assured that the Bank is fully aware of its responsibilities to ensure that the costs do not escalate beyond reasonable levels and that many of the original design features to including data centre, currency processing centre, ICT equipment, specialised security features have been deferred and only grey boxes provided for future use to manage costs.
He reassured the public on the policy solvency of the Bank of Ghana to achieve its statutory mandate going forward because every central bank’s credibility depends on its ability to achieve its mandate.
These technical losses, however, do not jeopardise that ability and are sometimes the price to pay for achieving those aims, according to him.
“We will continue to rebuild our policy buffers to continue to provide the necessary assurance of policy support as we rebuild a stronger and a more resilient and inclusive economic post pandemic,” he included.
By Jennifer Ambolley and Stephanie Birikorang
