The Institute of Statistical, Social and Economic Research (ISSER) has called for a decrease in the Bank of Ghana’s (BoG) funding of the government budget, emphasising that such deficit financing by the central bank has significant implications for money supply, inflation, and the exchange rate.
In its assessment of the government’s Mid-Year Budget, ISSER highlighted that a crucial aspect of maintaining formal monetary policy independence lies in the degree of legal restrictions on the central bank’s provision of funds to the government.
Using Chile as an illustration, ISSER pointed out that Chile has the strictest legal constraints, with no direct or indirect funding of public expenditures by the central bank except under exceptional circumstances such as wartime.
Similar practices are observed in countries like Germany, Switzerland, and the Netherlands, where legislation enforces strict boundaries on direct central bank credit to the government, while permitting the acquisition of government paper through open market operations.
The Director of the Institute, Professor Peter Quartey, who presented a review of the mid-year budget noted that while the “BoG haircut” during the DDEP was necessary at the time, the circumstances leading to it should not be repeated. Deficit financing of ¢53,150 million out of a total financing of ¢65.156 billion was highlighted.”
He further advocated for the establishment of clear and defined limits on government financing, to be firmly established within the legal framework of the country.
Additionally, he stressed the importance of aligning fiscal and monetary policies to achieve price stability.
Professor Peter Quartey also called for enhancements in tax management, sustained revenue mobilization, stringent expenditure controls, prudent allocation of funds, and a review of the government’s overall size.
