The Bank of Ghana (BoG) says it committed to not financing government’s deficit this year.
According to the governor of BoG, the banks’s stance is premised on the fact that they are not expecting the budget to be overrun so much that it will have to step in.
The issue of zero financing has been a huge debate as the Institute for Fiscal Studies (IFS) last year took a swipe at the Bank of Ghana (BoG) and government for yielding to pressure from the IMF to roll out zero financing for government’s budget deficit, which was initially pegged at 10 per cent.
Ghana in 2016 recorded larger than expected deficit which brought its budget deficit to between to 8 to 9%.
But speaking to the media on the sidelines of IMF/World Bank Spring Meetings in Washington DC, BoG Governor Dr. Ernest Addison said, “If we have been able to stick to a zero-financing regime in an election year, we do not see that being a problem in a non-election year.”
The regulations governing the central bank currently does not allow it to lend more than 5 per cent of the previous year’s revenue to government.
This comes after the Parliament of Ghana voted against a proposed zero financing of government’s budget deficit which is one of the conditions under the IMF Extended Credit Facility (ECF) programme for Ghana.
The government in 2016 was to achieve a budget deficit of not above the 5.3% target of GDP but exceeded as the government recorded a deficit of about 10 percent of GDP.
Analyst and economist have always blamed the country’s widening fiscal deficit, to overspending during election years, a situation the IMF bailout programme is expected to curtail.