Govt may be forced to cap Central Bank financing at 5% of revenue – Economist

Economist Professor Lord Mensah has stated that the government may be forced by the International Monetary Fund (IMF) to cap Central Bank pre-financing of government’s budget to not more than five per cent of expected revenue in a year.

According to him, the IMF might impose the condition to check the government expenditure and also control inflation.

During the COVID-19 period, the government sought financing from the Bank of Ghana to spend on COVID-19 related expenditure.

Speaking to Joy Business, Prof. Mensah argued that the government might be hit with a conditionality of not seeking central bank financing beyond five per cent of expected revenue as it seeks support from the Fund.

“I think the IMF will look at how we have used pre-financing from the central bank before setting the conditionality of five per cent of expected revenue,” he said.

Reacting to a question whether the Fund could push for zero percent, Prof. Mensah stated that it would be difficult conditionality to enforce since central bank financing played important role in supporting government’s fiscal policies.

Meanwhile, Prof. Mensah had described as apt government’s decision to finish talks with an International Monetary Fund delegation in Ghana before presenting the Mid-Year Budget review in parliament.

According to him, it would be in the right direction to use the mid-year budget to send a clear signal to the investor community concerning government’s intention to chart a new path.

He expressed optimism the IMF’s input would be a good development for the international business community.

The mid-year budget review has been postponed to July 25, 2022.

The Finance Minister, Ken Ofori-Atta, was scheduled to give an update on the first-half year revenue and expenditure estimates on Wednesday, July 13, 2022 but the date was changed due to government ongoing negotiations with the International Monetary Fund for economic support .

This is expected to allow government to possibly make some recommendations to the budget, after the conclusion of the discussions with the visiting IMF team.

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