On March 25, 2024, the Monetary Policy Committee (MPC) of the Bank of Ghana decided to maintain the policy rate at 29 percent, citing persisting upside risks to inflation. But the stark reality is that BOG is in a financial quagmire because it may find it difficult to meet its operating expenses when interest rates fall significantly; which, on the other hand, is necessary for sustainable high economic growth.
BOG’s “interest and similar income” amounted to GH₵5.09billion in 2022, which
was 92.7 percent of its total operating income of GH₵5.49billion. Going by its
2022 financial statements, if BOG’s policy rate were to fall from 29 percent to
14.5 percent (still very high given its target of 8 percent inflation), BOG
would lose close to half of its income and be unable to meet its operating
expenses, of which staff costs alone amounted to GH₵1.62billion, that is
GH₵735,361 per employee in 2022 or GH₵61,280 monthly per employee.
In announcing its March 25, 2024 decision, BOG explained: “Despite a sharp
deceleration in 2023, the pace of disinflation has moderated in the first two
months of the year. While inflation experienced a slight uptick in January 2024
followed by a marginal decrease in February, the latest forecasts indicate a
potentially elevated trajectory”. The bank added: “Factors contributing to this
outlook include possible adjustments in transport fares, utility tariffs,
higher fuel prices and the pass-through effects of exchange rate depreciation”.
The truth is, all these variables are related. While the policy rate is an
important tool of monetary policy, its misuse, as in our case, can have
damaging effects. As long as interest rates are kept unnecessarily high, our
currency – the cedi – will continue to suffer adverse consequences, with
pass-through effects on other prices, including transport fares, utility
tariffs and fuel prices. Persistent cedi depreciation has been a key factor in
our energy (including power) sector problems. We have always felt the need to
adjust prices, not because consumers were not paying enough, but because the
cedi has been depreciating.
The bank further stated: “Headline inflation has demonstrated relative
stability since December 2023, with a decline to 23.2 percent in February from
23.5 percent in January 2024. This decrease was driven by reductions in both
food and non-food inflation, signalling broad-based easing in underlying
inflationary pressures”. Well, let us wait and see what will be recorded for
March 2024, given that the consumer price index (CPI) fell by 1.2 percent in
March 2023.
BoG concluded that their monetary policy rate decision underscores their
commitment to balancing economic stability amid persistent “inflationary risks”
and supporting sustainable growth of the economy. But economic stability and
sustainable high growth will remain elusive as long as interest rates stay
astronomically high.
BOG needs high interest income to fund excessive spending
The reality, as I stated in my most recent article, is that BOG – given its
excessive operating and other expenditures – may not be able to hold its own in
a low-interest rate environment. So, the bank has the incentive to keep its
policy rate high to protect its main revenue source – interest income. Its
“interest and similar income” amounted to GH₵5.09billion (net GH₵1.8billion) in
the difficult post-pandemic 2022, up 47 percent from GH₵3,46billion in 2021,
and was 92.7 percent of its operating income of GH₵5.49billion.
Details of BoG’s 2022 annual report say a lot about our mentality. Budgeted
expenditure of US$ 250million for their new head office, equivalent to 0.35
percent of our GDP, sounds insane in a small and struggling country. The same
can be said of the reported expenses: GH₵97.4million for travel; GH₵131million
for motor vehicle maintenance/running; GH₵32million for communication;
GH₵67million “computer-related”; GH₵207.7million for premises and equipment;
GH₵336.9million for currency issue (currency in circulation amounted to
GH₵40.73billion); GH₵287.83million for other administrative expenses, etc.
The bank’s personnel costs amounted to GH₵1.62billion. With a total of 2,203
employees, this equals an average remuneration of a colossal GH₵735,361 per
employee in 2022 or GH₵61,280 monthly per employee, including several
allowances. These employees also had staff loans amounting to GH₵1.247billion,
an average of GH₵566,046 per head.
BoG is also reported to be remodelling its regional offices, while investing
GH₵142million in a 50-bed guest house in Tamale.
BoG and its staff are living in a completely different reality. Apart from its
excessive operating expenses, proper cost-benefit analysis would not justify
its colossal investments in a new head office building and in non-core
activities like a hospital and guest houses.
With a GH₵55billion negative net worth, BoG is indeed in a quagmire and would
be reluctant to see interest rates fall quickly at this critical time when it
needs to make more money to survive. And its new tiered Cash Reserve Ratio
(CRR) system should bring it more free cash for its exploitative and predatory
lending activities. This is in addition to its power to print money.
It is difficult to believe how some BoG’s operating incomes and expenses
compare with those of Bank of England (BoE). For example, BoG spent
GH₵1.62billion (£147.27million at 2022 average cedi-pound exchange rate) on its
2,203 employees, that is £66,851 per employee – about 38x Ghana’s GDP per
capita. BoE, on the other hand, with an average labour force of 4,675 per their
2021-22 financial report, spent £448million, that is £95,829 per employee,
about 2.6x UK’s GDP per capita.
Unlike BoE staff who do not receive loans from their employer, BoG st
Source:
B&FT