How The Central Bank Of Ghana Lost $5B In One Year

Ghana is currently going through its worst economic crisis in a generation. Last year, the inflation rate hit a record high of 54% – and is still running at more than 40%. Multiple credit rating agencies have downgraded the nation, preventing it from borrowing money internationally.

By September 2022, Ghana’s total debt had surged to $55bn. This meant the government needed in excess of 70% of its income to service the debt, something it was unable to do. It subsequently defaulted on much of its debt payments.

The government was forced to approach the International Monetary Fund (IMF) for assistance. To secure a $3bn bailout earlier this year, the government had to agree to fulfil a number of requirements.

The most important of these was to reduce the nation’s debt interest payments to a manageable level by 2028. This would leave them with enough funds to run the economy.

To achieve this, Ghana’s government began debt restructuring by renegotiating terms with its creditors, proposing lower interest rates on their loans and longer repayment terms to relieve pressure on public finances.

However, some creditors refused to take part in this debt exchange programme.

On 9 August the Bank of Ghana issued a statement saying the government had told it that it didn’t have enough money to meet the IMF’s requirements and consequently would not repay half of the $700m it had borrowed from the bank.

Instead the money would go towards the debt restructuring. It also said it would not pay any interest due to the bank.

Opposition politicians have accused central bank boss Ernest Addison, pictured, of mismanagement.

In the UK, the Bank of England will be making a net loss of about $180bn over the next 10 years which will be funded by the UK government. But the size of the UK economy is in the trillions of dollars.

Inflation in Ghana is still running at more than 40%

Bright Simons, a Ghanaian social innovator and writer, says that the bank cannot compare its losses with those of other countries. “Their attempt to deflect blame and point to losses by other central banks doesn’t make sense as the scale of their losses far outstrips those of other peer banks.

“A lot of the mess is down to the bank’s accommodative stance on the government’s loose fiscal policy,” he says.

In other words, by creating money the bank has allowed the government to live beyond its means.

Human Impact

A World Bank report last month estimated that 850,000 Ghanaians have drifted into poverty because of high inflation.

Ghanaians’ incomes have been eroded, affecting their purchasing power. The prices of food, fuels and utilities remain high, and many households are struggling to make ends meet.

And on top of all that, the central bank is now under scrutiny from both within the country and the IMF.

Under the terms of the IMF loan, if the government demands more bailouts, the bank will have no choice but to refuse.