By Lord Fiifi Quayle inspired by George Oyatey

Once hailed as a beacon of hope for economic development in West Africa, Ghana now finds itself grappling with a myriad of challenges that threaten its stability and growth. At the heart of this turmoil lies the Central Bank of Ghana (BoG), whose policies and actions have significantly contributed to the country’s economic mismanagement. From inflation control to banking sector clean-up, the BoG’s role has been pivotal, yet detrimental, in shaping Ghana’s current economic landscape.

The Inflation Dilemma

In recent years, Ghana has experienced soaring inflation rates, with the Consumer Price Index (CPI) reaching unprecedented levels. The BoG’s attempts to manage inflation have often been characterized by a reactive rather than proactive approach. For instance, the central bank’s decision to raise the policy rate to combat inflation has frequently been too little, too late. In 2022, inflation surged past 30%, driven by rising food and fuel prices, yet the BoG was slow to adjust its monetary policy, leading to a loss of credibility in its inflation-targeting framework.

Moreover, the central bank’s reliance on expansionary monetary policies, particularly during election years, has exacerbated inflationary pressures. The decision to finance government deficits through the issuance of treasury bills and bonds has created a vicious cycle of borrowing, leading to increased money supply and, consequently, inflation. This has made life increasingly difficult for the average Ghanaian, whose purchasing power has eroded significantly.

A Tool for Government

The BoG has often been perceived as a tool of the government rather than an independent institution focused on monetary stability. This relationship has resulted in a compromise of its primary mandate. For example, the central bank’s decision to finance the government’s budget deficits has led to a significant increase in public debt. The fiscal irresponsibility of successive governments has been enabled by the BoG’s willingness to accommodate their borrowing needs, undermining its credibility and the integrity of monetary policy.

The recent trend of the BoG engaging in “monetary financing” – lending directly to the government – has raised concerns among economists and financial analysts. This practice not only fuels inflation but also jeopardizes the long-term stability of the economy. The incoming president must prioritize the restoration of the BoG’s independence to ensure that it can effectively manage inflation without political interference.

Mismanagement of Reserves

The mismanagement of foreign exchange reserves has also been a significant issue under the BoG’s stewardship. Ghana’s reserves, which are crucial for stabilizing the currency and managing external shocks, have dwindled alarmingly. As of late 2022, Ghana’s gross international reserves fell to a precarious level, barely covering three months of imports. This decline has been attributed to poor fiscal management and excessive reliance on external borrowing.

The BoG’s failure to build and maintain adequate reserves has left the country vulnerable to external shocks, such as fluctuations in commodity prices and global economic downturns. The incoming administration must prioritize a comprehensive review of the BoG’s reserve management policies, focusing on building a robust reserve buffer that can withstand economic shocks.

Banking Sector Cleanup

The banking sector in Ghana has undergone significant turmoil in recent years, with the BoG playing a central role in the cleanup process. While the decision to consolidate and recapitalize banks was necessary, the execution has been marred by inconsistencies and a lack of transparency. The collapse of several banks, including the infamous UT Bank and Capital Bank, exposed deep-rooted issues within the sector that the BoG failed to address in a timely manner.

The central bank’s approach to banking supervision has often been reactive rather than preventive, leading to a loss of public confidence in the financial system. The incoming president must advocate for a more stringent regulatory framework that prioritizes transparency and accountability within the banking sector, ensuring that the BoG fulfills its role as a prudent regulator.

Path Forward: Recommendations for the Incoming President

To address the myriad issues stemming from the central bank’s mismanagement, the incoming president must embark on a multi-faceted approach:

1. Reestablish Independence: The president should prioritize the independence of the BoG, ensuring that it operates free from political interference. This will restore confidence in its ability to manage inflation and maintain monetary stability.

2. Strengthen Monetary Policy Framework: A comprehensive review of the monetary policy framework is essential. The BoG should adopt a more proactive approach to inflation targeting, utilizing a mix of interest rate adjustments and other monetary tools to stabilize prices.

3. Enhance Reserve Management: The new administration should work with the BoG to develop a robust reserve management strategy that focuses on building a sustainable reserve buffer capable of withstanding economic shocks.

4. Reform Banking Regulation: Strengthening regulatory oversight within the banking sector is crucial. The BoG must adopt a more transparent and accountable approach to banking supervision, ensuring that financial institutions adhere to best practices.

5. Promote Fiscal Responsibility: The government must commit to fiscal discipline, reducing reliance on central bank financing and prioritizing sustainable economic policies that foster growth without exacerbating inflation.

In conclusion, the Central Bank of Ghana has played a significant role in the country’s economic mismanagement, affecting inflation control, reserve management, and banking sector stability. The incoming president has a critical opportunity to rectify these issues and set Ghana on a path toward sustainable economic growth and stability. By prioritizing the independence of the BoG and implementing sound monetary and fiscal policies, Ghana can reclaim its status as a regional leader in economic development.