2022 Annual Report and Financial Statement: BoG loses GH¢55.12bn …following restructuring of govt debt

The Bank of Gha­na (BoG) incurred a loss of GH¢55.12 billion in the 2022 financial year as a result of the restructuring of the Central Bank’s holdings of government debt.

This was done under terms similar to those of the Domes­tic Debt Exchange Programme (DDEP), the Governor of the BoG, Dr Ernest Addison, stated in his foreword to the 2022 Annual Report and Financial Statements of the BoG posted on the Bank’s website.

He explained that the BoG recorded a loss because the Non-marketable holdings of Government of Ghana instru­ments, including long-term stocks, a COVID-19 Bond and overdraft were subjected to a 50-per cent haircut (reduction).

Dr Addison also said the BoG’s claims (holdings of marketable instruments) were exchanged un­der similar terms as other financial institutions under the DDEP and led to an impairment of GH¢48.40 billion in 2022.

He explained that at the same time, the Bank incurred revalu­ation losses on its foreign assets and liabilities due to exchange rate depreciation and the impairments and revaluation losses led to a neg­ative equity position of GH¢55.12 billion for 2022.

“The negative equity position was not the result of sub-optimal policy decisions but emanated from the restructuring of gov­ernment debt and adverse market movements,” Dr Addison stated.

The Governor stressed “This negative equity does not imply loss of policy effectiveness, and is expected to correct as the econo­my recovers and foreign reserves build up.”

Dr Addison said BoG would put in place policy measures to restore the equity of the bank.

The measures, he mentioned included retention of profits to rebuild capital; optimisation of the bank’s investment portfolio and operating cost mix to bolster effi­ciency; and an assessment of the potential need for recapitalisation support by the government in the medium-term.

Dr Addison said the broad expectation was for steadfast implementation of those policy measures to restore the bank’s equity to positive territories by the end of 2027.

Touching on the economy, the Governor said economic growth slowed down to 3.1 per cent in 2022, from 5.1 per cent in 2021.

He said the Sovereign credit downgrades by rating agencies over fiscal policy implementation and debt sustainability concerns led to loss of access to the international capital market which, together with low domestic revenue mobilisation, negatively impacted government’s ability to finance the budget.

“On the back of these devel­opments, inflationary pressures heightened, with headline inflation rising to 54.1 per cent in December 2022, from 12.6 per cent in De­cember 2021,” Dr Addison stated.

He said to re-anchor inflation expectations and bring inflation back to the medium-term target band of 8±2 per cent, the Mon­etary Policy Committee increased the Monetary Policy Rate cumula­tively by 1,250 basis points to 27.0 per cent in 2022.

“With rising inflation, loss of reserves, slowdown in growth, fis­cal policy implementation inertia, and a rapidly depreciating currency, the Government took a decision to approach the International Monetary Fund (IMF) for a $3.0 billion three-year Extended Credit Facility to restore macroeconomic stability and debt sustainability,” Dr Addison stated.