The Director of Research at the Institute of Economic Affairs (IEA), John Kwakye, has described the period between 2020 to 2022 as one of the worst in the country’s central banking history.

He said during the period, the Bank of Ghana’s actions led to financial losses that resulted in high inflation and depreciation.

“The 2020-22 period will go down in history as one of the worst in central banking in Ghana: A period when BoG virtually opened its vault to the Treasury, contributing to its huge financial loss and negative equity, and near-record inflation, interest rates, and depreciation,” he wrote on X on January 7, 2024.

The Bank of Ghana reported a loss of GH¢60.8 billion in 2022.

The BoG, however, explained the loss as follows:

What is driving this huge loss: The main reason for this huge loss is the impairment of the holding of marketable government stocks and non-marketable instruments of Government all being held in the books of the Bank of Ghana.

This stock of government instruments has been built over the years. In addition, the Bank of Ghana’s (BoG’s) exposure to COCOBOD, which has been built over the years, was also impaired. As we all know, the government of Ghana embarked on both domestic and external debt restructuring.

The holdings of government instruments and COCOBOD exposures were all part of the perimeter of the debt exchange. Whereas all other stakeholders that participated in the Domestic Debt Exchange (DDEP) did not have principal haircuts, but rather had new instruments with new tenors and coupon structure, the BoG, which served as the loss absorber to the entire debt exchange program, a key requirement that allowed the government of Ghana to meet the threshold for the approval of the IMF program.

As a result, the BoG had to take on a 50 percent principal haircut on the total principal (which stood at GH¢64.5 billion at the time of the exchange). Consequently, BoG had new instruments with extended tenor and significantly reduced coupons. By applying the full requirements of IFRS 9, this means that from the principal alone, a 50 percent haircut on the non-marketable amounted to a loss of GH¢32.3 billion.

The impairment from exposure to COCOBOD also amounted to GH¢4.7 billion. These three DDEP items (ie marketable, non-marketable, and COCOBOD) accounted for GH¢53.1 billion out of the total loss of GHC 60.8 billion for 2022. In addition to these three items, price and exchange rate valuation effects accounted for GH¢5.2 billion of the total loss, whereas interest expense on the cost of monetary policy operation accounted for GH¢3.3 billion.

See the rest of BoG's explanation below

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