The Bank of Ghana (BoG) has released the first tranche of GH¢5.5 billion of the GH¢10 billion emergency facility the government is seeking to support residual expenditures to cushion the economy against the impact of COVID-19, the Minister of Finance, Mr Ken Ofori-Atta, has said.
The release, he said, was consistent with global policy responses of central banks with large-scale asset purchases to provide support to manage the pandemic.
However, the Minority in Parliament described the move as an illegality and vowed to go all out to resist it.
Addressing Parliament yesterday, the Finance Minister said: ”Given the exceptional circumstances and the challenges posed by COVID-19, the Finance Minister, the Governor of the Bank of Ghana and the Controller and Accountant-General, as required under Section 30 of the BoG Act, 2002 (Act 612) as amended, have agreed to trigger the emergency financing provisions under the law, which permitted increasing the limit on the purchase of government securities by the BoG in the event of any emergency to help finance the residual expenditures,” he said.
He added: “The government, therefore, decided to launch a special COVID-19 Relief Bond Programme with a size of GH¢10 billion.
“The coupon rate is pegged to the prevailing monetary policy rate with a 10-year tenure and two-year moratorium on both principal and interest payments.”
He stated this when he laid the Parliamentary memorandum on the report on the limit of borrowing of the government under sub-section (6) of section 30 of the Bank of Ghana Act, 2002 (Act 612) in the novel coronavirus emergency.
After the laying of the report, the First Deputy Speaker, Mr Joseph Osei-Owusu, who was in the seat, referred it to the Finance Committee for consideration and report.
Presenting the report, Mr Ofori-Atta said the unprecedented COVID-19 pandemic was posing a significant challenge to the fiscal operations of the government and, more generally, on the implementation of the 2020 budget through shortfalls in revenues, additional emergency spending and tight financing conditions.
He said the revenue shortfalls emanated mainly from petroleum revenue shortfalls through plunging crude oil prices, shortfalls in import duties and other taxes, as well as decline in non-tax revenues, significantly affecting the cash flows for the year and at the same time posing a threat to containing the pandemic.
The minister noted that following a preliminary assessment, which took into consideration the revenue programmed expenditures for the Coronavirus Alleviation Programme, the payment of outstanding government claims to health-related sectors of the economy and identified government intervention programmes, put the fiscal gap at about GH¢21.42 billion.
That, he said, comprised a revenue shortfall impact of GH¢15.85 billion and COVID-19 related expenses of GH¢5.57 billion.
Mr Ofori-Atta indicated that the identified financing measures of the government, including the IMF Rapid Credit Facility of $1 billion, the World Bank’s Development Policy Operations (DPO) of $350 million and the Stabilisation Fund of $219 million, still resulted in a residual financing gap of about GH¢17.9 billion to be sourced from both the domestic and external markets.
“While we are in the early stages, work done by the Ministry of Finance and the Bank of Ghana on the initial potential impact of COVID-19 pandemic on various sectors of the economy shows that real GDP growth will slow down significantly from the projected 6.8 per cent to 1.5 per cent, with lingering effects on economic activity into 2021 and beyond, “ he stated.
To counter the challenge, the minister said: “ The President has directed the Finance Ministry to come up with a stabilisation and revitalisation plan for the country.”
In that regard, he said, the Finance Ministry was developing a three-year COVID-19 Alleviation and Revitalisation of Enterprise Support Programme to help stabilise and revitalise the economy.
Reacting to the borrowing from the central bank, the Ranking Member on Finance, Mr Cassiel Ato Forson, said by submitting the report to the House, the Finance Minister was asking Parliament to grant the government the approval to borrow from the BoG, an amount of GH¢10 billion.
He said per the BoG Act (Act 918), as amended in 2016, the central bank could only lend to the government five per cent of the previous year’s revenue.
“In the 2019 fiscal year, the total revenue was approximately GH¢52 billion and five per cent of this revenue is about GH¢2.59 billion and today, here we are that the central bank has breached its threshold.
“What they have done is that they have printed, as of last month, an amount of GH¢5.5 billion already and given to the government, breaching section 30 of the BoG Act. The law is clear that anytime you reach that limit, you come to Parliament, “ Mr Forson posited.
He argued that what the central bank had done was that it had breached the limit, gone ahead to print more money to fund government operations without going to Parliament, which, he said, amounted to covering up an illegality.
“Unfortunately, the cardinal signal is that they want to print another GH¢4.5 billion. This will mean that in 2020, they will end up financing government operations 20 per cent more of the previous revenue and this has never happened in the history of Ghana,” he said.
Mr Forson signalled the Minority’s readiness to resist such “illegality by the government.”