A Memorandum of Understanding (MoU) for the early recapitalization of the Bank of Ghana (BoG) is set to be signed by the end of the third quarter this year.
This move follows significant losses by the Central Bank over the past two years.
The MoU is a strategic effort to restore the Central Bank’s financial health and improve its equity position.
The BoG reported a GHS 10.5 billion loss in 2023 due to high expenditures related to monetary interventions, following a GHS 60.9 billion loss in 2022 from impairments during the domestic debt exchange program.
The Ministry of Finance and the Bank of Ghana will sign the MoU to ensure that the Central Bank can continue its mandate of managing monetary policy and ensuring price stability.
The recapitalization plan will specify the necessary capital, the timeline for recapitalization, and the sources of funding.
This early recapitalization will strengthen the Central Bank’s operations both domestically and internationally. It will be carried out alongside other measures and in strict adherence to the BoG’s zero financing of the government’s budget, as agreed in April 2023.
The recapitalization plan has already been discussed by the Ministry of Finance, the BoG, and the International Monetary Fund (IMF), following an assessment of the impact of the domestic debt exchange program on the BoG’s balance sheet.
The fresh GHS 10.5 billion loss in 2023, unlike the 2022 loss, was primarily due to the BoG’s open market operations aimed at controlling inflation.
These operations incurred significant expenses to absorb excess liquidity in the economy, preventing an increase in demand for forex for goods and services.
This was typically managed by issuing BoG bills, which commercial banks purchase, with the BoG paying its monetary policy rate as interest upon maturity.
Despite these losses, the Bank of Ghana maintains that it remains solvent from a policy perspective.
The proactive recapitalization measures are expected to enhance the BoG’s financial stability and operational efficiency.
