Mahama did not borrow from the BoG to finance the 2016 budget

Business news for Friday, September 11, 2020

Source: Class FM

2020-09-11

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Former Finance Minister Seth Terkper has denied claims that the former Mahama administration borrowed from the Bank of Ghana (BoG) to finance the 2016 budget.

“As Minister of Finance at the time, I wish to clarify that the Mahama Administration did not borrow directly from the Government Bank to finance the 2016 Budget.

“I signed the Memorandum of Understanding (MOU) on No Loans with the Governor of the BoG, as an IMF conditionality under the IMF’s Enhanced Credit Facility (ECF) Agreement, even as we were going through the Crude Oil Price Shock (2014 to 2016) and Nigerian Gas Supply Crisis (Dumsor)… ”Terkper said in a statement copied on ClassFMonline.com.

He explained more below:

BoG performs various functions in financial markets for the government, including borrowing on behalf of the government (MOF).

A) Loans to (on behalf of) the government from banks and individuals.

These short-term and medium-long-term loan instruments are called treasury bills, notes, bonds, etc.

By borrowing, they become GoG instruments and GoG loans.

In the budget and debt reports, although the Banco de Guatemala is shown as the “source” of obtaining these loans, it does not mean that the Central Bank granted the loans directly to the government.

Therefore, it is a big mistake for FACT-CHECK to classify them as loans from the BoG directly to the Mahama government.

Note that the BoG itself is in the financial markets to lend and borrow to run the sector.

B) Loans from the BOG to the Government (directly, on its own account).

These are simply called short-term advances to the government on budgets and debt reports.

They are NOT shown in Appendix 1 of the 2016 Report because

(I) there was no new BoG Advance in 2016 and before; and

(Ii) GoG and BoG agreed in 2014 or 2015 to convert the outstanding balance or the stock of past advances into a long-term bond.

C) Limit of 5% of the BoG in action

While the BoG Law allows you to make an advance of up to 5 percent to the government, as explained above, the IMF’s ECF Agreement did not allow the Mahama Administration to borrow from the BoG.

D) Conclusion

The only substantial amount that GoG received from BoG at that time was “Dividend”, as the sole shareholder of the Bank. This is usually shown as Non-Tax Income in the budget.