The next meeting of the Bank of Ghana’s Monetary Policy Committee, scheduled for the last week of March, is likely to be the last one before Ghana secures the approval of the Executive Board of the IMF to commence a three-year programme aimed at restoring macroeconomic stability.

This means the impending MPC meeting may be the last one to take a decision on where to put the benchmark Monetary Policy Rate before it falls under the overriding influence of the Bretton Woods institution.

Already, the spectre of such influence is churning up lots of controversy, much of it not needed.

For instance, the recent appointment of an IMF advisor to the central bank on financial sector regulation set off a debate over the degree of influence the fund should be allowed to exercise over monetary policy, even before the actual commencement of an official support programme.

The fact that the advisor had been requested for by the BoG itself and that he is tasked with technical inputs into regulation of financial intermediation institutions rather than monetary policy design and implementation were both lost on the public.

Indeed, it is this mutual understanding and respect between the two institutions that underpins the IMF’s publicly stated enthusiasm towards the potential for an economic turnaround by Ghana, which in turn is behind the fund’s willingness to cough up the $3 billion in concessionary term financing that government has asked for.

Balance of payment
This financial support would be given to the BoG as balance of payments support rather than to government itself as budgetary support and for good reason, the IMF has far more confidence in the former than in the latter.

Indeed, many economic analysts, both local and foreign have insisted that the actions of the BoG prevented Ghana’s economic meltdown in 2022 from happening much sooner, although this verdict is by no means cast in stone.

Certainly, the BoG’s monetary easing between 2017 and early 2020 was fairly straightforward, as its MPC progressively brought the benchmark MPC down.

Measured monetary easing lowered the benchmark Monetary Policy Rate from a long term high of 26 per cent as at late 2016 to as low as 14.5 per cent at the start of 2020.

This propelled increased economic activity enabling GDP growth to accelerate from below four per cent to a peak of over seven per cent during the latter half of the previous decade, even as inflation was cut from a high of 15.8 per cent as at the end of 2016 to single digits during the last three years of the decade.

But then came the masterful monetary policy management executed with the arrival of COVID-19 in Ghana in early 2020 and the requisite socio-economic restrictions imposed to curb the spread of infections led to the country’s first economic recession in decades.

Recognising the emergence of a huge output gap, the central bank eased monetary policy even further, lowering the benchmark MPR to 13.5 per cent, while lowering both capital adequacy requirements and reserve ratios for financial intermediation institutions to keep both business and consumer confidence up during those trying times by ensuring liquidity across the economy.

That the BoG did this without stoking the fires of inflation was a master stroke of calculation of monetary easing quantum and the timing of implementation.

Policy reversal
Since then, however, the BoG has had to do a complete policy reversal as the output gap has been replaced by cedi depreciation and consequent runaway inflation brought about first by supply chain disruptions, particularly for foodstuff and then a reversal of net forex inflows into Ghana into huge outflows as foreign holders of cedi denominated bonds exited the market in droves due to worries over Ghana’s debt sustainability.

While its regular increases in the MPR to nearly 30 per cent over the past one year has attracted criticism in some quarters from policy analysts who argue that monetary tightening is causing cost push inflation, actual outcomes have proven the central bank right; January’s inflation was the first decline in the rate in one year.

The current economic difficulties being experienced are characterised most vividly by forex shortages and consequent cedi depreciation.

However, this has dampened memory of just how well the BoG has managed the exchange rate over the previous half a decade.

Most importantly, by introducing forward auctions of foreign exchange, the central bank was able to eliminate the dire effects of currency speculators who for years had been taking positions against the cedi.

Combined with the buildup of gross international reserves and strategic interventions on the local forex market, the BoG was able to instill supreme confidence in the forex market and thus minimise cedi depreciation until government’s debt excesses caused foreign bond holders to flee with their forex inflows.

Financial sector
But perhaps the BoG‘s most momentous achievement has been the financial sector reform. Between 2017 and 2019, the central bank identified and revoked the licenses of 11 banks, some 30 savings and loans companies and over 300 microfinance institutions.

Most of these were for reasons of irrevocable insolvency but corporate governance and risk management infractions were also considerations in the BoG’s massive purge.

Unsurprisingly, there were both politically and financially motivated protests, but ultimately, the central bank’s actions proved unassailably correct.

Most importantly, with the support of government itself, this was done without significant loss of depositors funds as most of the closed down banks were consolidated into one – then aptly named Consolidated Bank Ghana – while the good assets of the few others were acquired by other financially solid banks.

It is instructive to note that the BoG has again partnered government to establish a deposit insurance scheme that will provide (limited) protection of customers’ deposits against future bank failures.

The chances of those happening though are low. As the cornerstone of its reforms, the BoG enforced a 233 per cent increase in the minimum capital requirement for commercial banks to GHc400 million with similarly steep increases instituted for savings and loans companies, rural and community banks, microfinance institutions and specialised non-bank finance houses alike.

Capital buffer
At the same time, the BoG insisted on a three per cent capital buffer on top of the 10 per cent minimum capital adequacy ratio thus raising the effective minimum CAR to 13 per cent.

Alongside all this, the BoG introduced a comprehensive array of corporate governance directives to ensure that the poor corporate governance and risk management practices which had jeopardised the troubled financial intermediaries in the first place do not occur again going forward.

The impact of the BoG’s financial sector reforms have proved crucial; without them Ghana’s financial intermediation industry as a whole would have collapsed like a pack of cards under the financial pressures imposed by the effects of COVID-19 on the economy when there was an unprecedented run on their deposits by panicked customers.

Indeed, the ability of the banks to survive the effects of the recently concluded Domestic Debt Exchange Programme will be the result of those reforms, coupled with the financial stability fund instituted by government and the emergency liquidity assistance which the BoG is putting at their disposal.

It has not all been smooth sailing though. The IMF remains critical of the BoG’s financing of government in 2022 to the tune of some GHc50 million; although showing empathy for the need to avoid defaults on maturing public debt , the fund notes that has been a major cause of the ongoing inflationary surge and also given government temporary space to continue its fiscal expenditure inefficiencies.

But even in this, the BoG is in basic agreement with the IMF. The two institutions are still basically on the same page although that page seems quite different from the one which government itself is.

Which is why the best way forward for Ghana as it enters a new IMF programme is for the two institutions to form a tag team; quite the opposite of the fears that the IMF is going to exert undue influence on Ghana’s central bank.