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Bank of Ghana Governor Ernest Addison ruled out providing more loans to the government to help reduce budget shortfalls, saying it would jeopardize exchange rate stability.
The central bank left behind its zero-funding policy this year to lend the government 10 billion cedis ($ 1.7 billion) to help mitigate the impact of the coronavirus pandemic on West Africa’s economy. Ghana’s budget deficit is projected to reach 11.4% of gross domestic product by the end of December, compared to an initial target of 4.7% of GDP.
“The wide fiscal gap poses major funding problems,” Addison said in a speech last Thursday in the capital, Accra. “Its funding should not go to central bank funds, as this will weaken the central bank’s ability to serve as an anchor for monetary stability and exchange rates.”
The cedi has had its most stable spell in more than a decade this year, weakening 2.6% against the US dollar. This is even like the the global health crisis boosted Ghana’s debt-to-GDP ratio to 71% in September, the highest in four years.
“In the future, difficult decisions will have to be made to reorganize public finances and spending priorities, while exploring more sustainable sources of revenue,” Addison said.