Central Banks do not exist for profits — BoG Governor

Dr. Ernest Addison, the Governor of the Bank of Ghana (BoG), emphasized that Central Banks should be viewed as institutions of public policy working for the national welfare rather than for profit.

He highlighted that even if the Bank has a negative equity position, it can still effectively influence the country’s economy through policy decisions.

Dr. Addison stressed that the credibility of the Central Bank should be based on its ability to fulfill its main objectives, which include improving the balance of payments, managing public finances, and promoting overall economic development.

He underlined the importance of prioritizing the Central Bank’s policy mandate over generating profits. These comments were made during a press briefing in response to the BoG reporting losses of GHS 55 billion.

He clarified that these losses were more of a technical nature and were a result of accounting standards applied to assess anticipated credit losses on government debt held by the Bank of Ghana.

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Dr. Addison framed these losses as a reflection of the broader economic and social challenges the country had faced over the years and an attempt to address structural issues within the Ghanaian economy.

Dr. Addison noted that the Bank’s balance sheet tends to suffer during significant economic challenges.

He mentioned examples such as exchange rate depreciations during the early years of structural adjustment and the impairment of liquidity support loans granted to insolvent banks in 2017 and 2018.

He pointed out that despite such challenges, the Bank of Ghana managed to recover and generate profits from 2019 to 2021.

During the COVID-19 pandemic, the BoG provided financial support by purchasing GHS 10 billion worth of government COVID-19 bonds, which helped mitigate the financial gap caused by the pandemic.

However, due to the loss of access to international capital markets for new financing, the Bank faced a liquidity crisis and had to use its external reserves to address government obligations.

Dr. Addison mentioned that the Bank collaborated with the International Monetary Fund (IMF) to secure necessary support to keep the economy afloat until comprehensive reforms could be implemented to trigger IMF financing.

As part of these corrective measures, a proposal was made for the BoG to accept a 50% reduction (haircut) on its holdings of government’s non-marketable debt.

This included various types of debt, including legacy debts dating back to 1992 and accrued overdrafts.

Ultimately, Dr. Addison emphasized that the BoG’s actions were driven by the need to stabilize the economy and secure funds from international partners like the IMF.

He explained that the accumulated lending to the government, including from IMF programs and financial sector resolutions, had contributed to the Bank of Ghana’s exposure to government debt.

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