The Member of Parliament for Bolgatanga Central, Isaac Adongo has attributed the cedi’s continual depreciation against the dollar to what he describes as illegal injections of Ghana cedis into the economy by the Bank of Ghana.
Mr. Adongo says the problem is as a result of the Bank of Ghana’s defiance and disregard for the laws with respect to budget funding by the Central Bank.
“The key strand of Ghana’s inflationary targeting framework is what we call fiscal dominance over monetary policy. What this means is that, the Bank of Ghana should be restrained from giving money to the government to finance the budget. That is why its law stipulates that they cannot give more than 5% of government previous year’s revenue at any point in time in cumulative lending,” he explained.
“Last year 2021, they ended the year with 35 billion Ghana cedis and as we speak today, they are heading toward the same 35 billion which would bring it to 70 billion. When you do that, there are two things that happen. One is that monies that you have pumped into the economy, the cedi in the economy, is what is chasing the dollar now,” Mr. Adongo told Starr News
He continued: “If you have over 70 billion of monies that do not belong to the economy, in the economy and chasing the dollar, the dollar would definitely collapse the cedi. That is caused by the Bank of Ghana itself. Two, when you do that, then you need to mop up the excess liquidity, you need to find a way to get that money back into the banking sector, and probably back to the Bank of Ghana. In doing so, you must continuously increase the policy rate. Now, in the end, it is the businessman who gets hurt because he must be able to find a business that can give him 35% of returns of margins to pay the interest and even leave something to survive on.”
According to Mr. Adongo, the Central Bank’s action has therefore resulted in an increase in interest rates and cost of doing business.
“The government itself now has to pay very huge sums of money to borrow, so the government is now borrowing at 33% for 90 days. The end result is that the government doesn’t even have the revenue to service this 33% and the government is back in cycle. So, the Bank of Ghana having thrown money into the economy to chase the dollar and having tried to bring back that money into the economy is now creating difficulty for you, the businessman and everybody,” he opined.
Mr. Adongo has also called for the head of the Central Bank’s governor in addition to the minority’s already existing position on the finance minister.
