The Islamic Finance Research Institute of Ghana (IFRIG) has reacted to the recent announcement that the Bank of Ghana (BoG) is set for recapitalization in the wake of losses in recent years.

The central bank has come under intense scrutiny from some quarters following a historic loss of over 60 billion Ghana cedis in 2022 and another loss of almost 11 billion Ghana cedis last year – both figures emanating from the bank’s annual reports.

It was announced in early July 2024 that the BoG will sign a Memorandum of Understanding (MoU) with the finance ministry for the sole purpose of recapitalization as part of plans to restore the bank’s financial health and drive its policy position.

But for the IFRIG Director, Dr. Shaibu Ali, as imperative as capitalization is, the contributory factors that landed the BoG in this unpalatable situation must be identified and comprehensively addressed to forestall a recurrence.

“The Bank of Ghana, like any central bank, cannot fail because of the implications on the economy of any nation. I will add that the BoG must not put itself in situations where instead of policing banks under its ambit, it also causes itself to have to be policed.

“The timeline for signing this MoU, we have learned, is by the end of the third quarter of this year. We would patiently await the parameters, especially the capital required, timeline for recapitalization, and most importantly, the sources of funding,” Dr. Ali submitted.

We fully align with a recent call for transparency in the entire transaction as advocated by Prof. John Gatsi of the University of Cape Coast Business School.

“The BoG must clarify financial details, execution strategies, and set clear deadlines for the recapitalization exercise to ensure accountability and bolster confidence in Ghana’s financial regulatory framework,” the Dean of UCC Business School stated in a social media post.

For the IFRIG Director, he was also particularly concerned that in an election year and under an International Monetary Fund (IMF) programme, the government has to squeeze limited resources to aid the central bank.

He stressed that while the BoG insists that the losses that triggered the need for recapitalization were occasioned by impairments during the domestic debt exchange, it is clear that other factors relative to economic management practices and borrowing did contribute to the current state of affairs.

“The role of COVID-19 and the Russia-Ukraine war on the economic downturn has now become the subject of partisan interpretation at the policy level, regrettably so, but each school of thought comes to the table with valid arguments.

“For us as a research institution, we continue to study trends across the West African, African, and global perspectives, and reiterate our position that the politicized tone in the discourse on BoG operations should be toned down drastically,” he added.

He noted that while it is refreshing that the IMF is in the loop on the move, strict adherence to existing laws could have saved the BoG from this situation. “The bank must, going forward, adhere strictly to the zero financing of the government budget as signed in April 2023.”

https://www.bing.com/search?form=SKPBOT&q=About%20the%20BoG%E2%80%99s%20Losses

According to the BoG governor, Ernest Addison, in his foreword, the loss resulted from a substantial increase in total interest expenses on open market operations by the Central Bank.

“In 2023, the global economy was characterized by uncertainties in the first half of the year. Despite these uncertainties, global economic activity rebounded in the second half of the year, amid solid demand and resilient labour markets.

“Global inflationary pressures also eased substantially, though headline inflation remained above target in many countries. The deceleration was driven, in large part, by declines in energy and food prices.

“This led to a pause in policy rate hikes by several central banks, but the lagged effects of previous policy tightening measures kept global financing conditions tight in the near term,” Addison wrote.

IFRIG is, first and foremost, a research institution focused on the Islamic Banking and Finance ecosystem in the country and the West African subregion.

"Our efforts, currently pivoted in the area of research, advocacy, and capacity building, have the medium to long-term aspirations of leveraging research to usher Ghana into an incremental adaptation of Islamic finance – banking and insurance," a post on their website read.

IFRIG’s flagship programme is the Islamic Finance International Conference (IFIC).

The annual event, since 2020, has pooled together experts from Ghana, the West African subregion, and beyond to continue sharing perspectives on the importance of non-interest banking and finance for the wider socio-economic good of Ghana specifically and the global economy.