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Business News of Tuesday, 26 May 2015


BoG to halt lending to gov’t from 2016

Starr News has gathered that the Bank of Ghana will from 2016 halt lending to the government of Ghana.

The move, according to government sources, is part of measures by the International Monetary Fund, (IMF), to discourage government’s appetite for borrowing.

Government’s debt currently stands at 88.2 billion Ghana cedis.

Senior Research Fellow at the Institute of Economic Affairs, Dr John Kwakye, revealed that interest rates will decline if government adheres to measures being prescribed by the IMF.

“…Starting from this year under the program with the IMF the lending limit from the Bank of Ghana to government has been reduced to 5 percent and this is being monitored on a monthly basis. From next year it will be zero. No lending to government from next year.”

But the Institute of Fiscal Studies (IFS) has raised an alarm that plans by the Central Bank to halt lending to government will affect the economy. According to them, the move will lead to crowding out the private sector.

A research fellow at the institute, Lesley Mensah told Starr News “the likely implication is that the policy will further crowd out the private sector because even though I agree that the central bank must curb its lending to government, it is rather extreme to say it should be reduced to zero.”

He added “so the prescription, I think, is excessive to the point of being imprudent. Implication is that banks and individuals like us will now carry the total burden of financing the government deficit in the domestic economy and that is simply going to crowd out the private sector.”

Mr. Mensah added that what must be done is to define prudential limit of the Central bank's lending to government.

“Saying that it should go down to zero is simply not proper,” he noted.