THE MINISTER of Finance, Ken Ofori-Atta, has submitted to Parliament the report on government’s decision to access emergency financing from the Bank of Ghana (BoG) consistent with the provision in Section 30 of the BoG Act 2002 (Act 612), as amended.
According to him, the coronavirus pandemic was posing significant challenges to the fiscal operations of government, especially on the implementation of the 2020 budget through shortfalls in revenues, additional emergency spending and tight financing conditions.
“The revenue shortfalls emanate mainly from petroleum revenue shortfalls through plunging crude oil prices, shortfalls in import duties and other taxes and shortfalls in non-tax revenues, significantly affecting the cash flows for the year and at the same time posing a threat to containing the pandemic.”
The minister stated that preliminary assessments, taking into consideration the revenue shortfall impact, direct health-related spending and additional expenditures including programmed expenditures for the Coronavirus Alleviation Programme, put the fiscal gap at about GH¢21.42 billion (i.e. Revenue Shortfall Impact of GH¢15.85 billion + Covid-19 related expenses of GH¢5.57 billion).
He said the assessment included the payment of outstanding government claims to health-related sectors of the economy (National Insurance Trust Fund) and identified government intervention programmes.
Mr. Ofori-Atta told Parliament that the uncertainty underlining the pandemic created significant risk to sustaining Ghana’s macroeconomic stability.
According to him, given such exceptional circumstances and the challenges highlighted, he, and the Governor of the BoG, as well as the Controller and Accountant-General, as required under section 30 of the BoG Act 2002 (Act 612) as amended, had agreed to trigger the emergency financing provision under the law which permitted increasing the limit on the purchase of government securities by the central bank in the event of any emergency, to help finance the residual expenditures.
“The current domestic market conditions, in the wake of the pandemic have reduced liquidity on the market. Since the beginning of the year, there has been sell offs by non-resident investors, which have heightened these liquidity constraints.
“Therefore, financing the residual gap would not only significantly increase domestic interest rates but would be counterproductive by denying the private sector access to cheaper sources of financing,” he noted.
He continued that global financing conditions have also worsened as investors had negative sentiments towards emerging markets.
As a result, the international capital markets remained largely closed to emerging market issuances.
By Ernest Kofi Adu, Parliament House