BoG losses necessary for economic stability – Dr Gloria Afful-Mensah

The recent financial losses recorded by the Bank of Ghana were a deliberate and necessary cost of restoring stability to the economy, according to economist, Gloria Afful-Mensah.

Speaking on Channel One TV’s Quarterly Economic Outlook, Dr Afful-Mensah said the central bank’s interventions, though reflected as losses on its books, played a critical role in reversing the economic crisis Ghana faced in 2022.

“The losses that we are talking about are accounting losses and necessary correction losses,” she said.

She explained that the measures taken by the central bank were essential to bring down inflation, which had surged beyond 50 percent at the peak of the crisis, threatening incomes, savings, and overall living standards.

According to her, Ghana’s recent economic recovery—characterised by easing inflation, improving growth and stronger policy effectiveness—did not come without trade-offs.

Data shows inflation has now dropped to about 3.2 percent, while GDP growth for 2025 is estimated at around 6.0 percent, up from 5.8 percent in 2024.

Dr Afful-Mensah noted that the central bank’s approach is anchored on an inflation-targeting framework, which depends heavily on managing public expectations within a band of 8 percent plus or minus 2 percent.

“Currently the monetary policy that the Bank of Ghana is implementing is the inflation targeting framework and the framework thrives more on the ability to manage the expectations of the public,” she stated.

However, she pointed out that structural weaknesses in the financial system continue to limit the effectiveness of monetary policy, particularly the slow response of lending rates to policy rate changes.

“What we have seen historically shows that there’s that rigidity in terms of the lending rates responding to the policy rates,” she explained.

She attributed this challenge to excess liquidity in the banking sector and the tendency of banks to prioritise returns from government securities over lending to the private sector.

To address this, the central bank had to undertake aggressive liquidity management operations—actions that contributed to the losses recorded on its balance sheet.

Despite concerns over the Bank’s financial position, Dr Afful-Mensah maintained that the interventions were justified and necessary to stabilise the economy.

She added that as liquidity conditions improve and the economy strengthens, the pressure on the central bank’s balance sheet is expected to ease in the coming years.

In simple terms, Ghana’s macroeconomic stability was preserved through four main channels.

First, inflation was suppressed at a high monetary cost. The Bank of Ghana tightened monetary conditions aggressively, mainly by mopping up excess liquidity in the banking system. This helped to rein in inflation, but it required issuing large volumes of Bank of Ghana bills at market interest rates.

Second, the cedi was defended using expensive policy instruments. Currency stabilisation measures often involve high interest rates and costly market interventions, both of which place pressure on a central bank’s finances.

Third, stabilisation programmes were financed off‑budget. Instead of passing the full cost through the government’s fiscal accounts, some stabilisation efforts were handled by the central bank, effectively moving these costs to its balance sheet.

Finally, the Bank absorbed government‑related and macroeconomic risks directly. By stepping in as the shock absorber of last resort, the BoG protected the broader economy while weakening its own financial position.