BoG losses were necessary for stabilisation – Economist

The losses incurred by the Bank of Ghana (BoG) were necessary for economic stability, Economist and lecturer at the University of Ghana, Dr. Gloria Afful-Mensah, has said.

She argued that these interventions were crucial to curb inflation, which previously exceeded 50 percent in 2022, and to prevent deeper erosion of incomes, savings and living standards.

“What we have seen historically shows that there’s that rigidity in terms of the lending rates responding to the policy rates,” she explained.

“The losses that we are talking about are accounting losses and necessary correction losses,” she said at a public forum held in Accra on Monday April 27.

Dr Afful-Mensah further said that Ghana’s recent macroeconomic stabilisation marked by easing inflation, improving growth and stronger policy transmission has come with necessary but justified costs on the balance sheet of the Bank of Ghana.

Her comments come as Ghana records a notable turnaround, with inflation easing to about 3.2 percent, monetary policy gradually normalising from crisis levels, and GDP growth for 2025 rising to around 6.0 percent compared to 5.8 percent in 2024.

She explained that the Bank of Ghana’s inflation-targeting framework relies heavily on managing expectations within a defined target band of 8 percent plus or minus 2 percent.

“Currently the monetary policy that the Bank of Ghana is implementing is the inflation targeting framework and the framework thrives more on the ability to manage the expectations of the public,” she said.

She noted that while policy rate adjustments are meant to transmit into commercial lending rates and ultimately the real sector, structural rigidities in the financial system have often weakened this mechanism.

Ghana’s return to macroeconomic stability after the 2022–2023 economic crisis did not happen by chance. It was the result of deliberate and often difficult policy choices, many of which were carried out by the Bank of Ghana (BoG). While these actions have helped restore stability, they have not been costfree. Instead of the burden falling directly on the central government’s budget, much of the cost has appeared on the balance sheet of the central bank itself.

Since the crisis, the Bank of Ghana has undertaken extraordinary interventions to stabilise the economy. These measures imposed large financial and quasi-fiscal costs on the Bank, leading to significant losses. It is important to understand that these losses are not a sign of policy failure or mismanagement. Rather, they represent necessary correction losses, losses that helped shield individuals and businesses from the harsher consequences of economic instability. In this sense, they are the opportunity cost of restoring and maintaining macroeconomic stability in Ghana.

 What the Bank of Ghana Absorbed

In the aftermath of the crisis, the Bank of Ghana took on losses in order to achieve four critical objectives:

Reducing inflation, which had reached dangerously high levels;

Stabilising the cedi, which was under severe pressure;

Rebuilding foreign exchange reserves, essential for external confidence; and

Preserving financial system confidence, to prevent panic and systemic collapse.

These interventions were central to calming the economy and restoring trust but required the BoG to assume risks and costs that would normally fall outside a central bank’s traditional role.

 How Stability Was Achieved

In simple terms, Ghana’s macroeconomic stability was preserved through four main channels.

First, inflation was suppressed at a high monetary cost. The Bank of Ghana tightened monetary conditions aggressively, mainly by mopping up excess liquidity in the banking system. This helped to rein in inflation, but it required issuing large volumes of Bank of Ghana bills at market interest rates.

Second, the cedi was defended using expensive policy instruments. Currency stabilisation measures often involve high interest rates and costly market interventions, both of which place pressure on a central bank’s finances.

Third, stabilisation programmes were financed offbudget. Instead of passing the full cost through the government’s fiscal accounts, some stabilisation efforts were handled by the central bank, effectively moving these costs to its balance sheet.

Finally, the Bank absorbed government-related and macroeconomic risks directly. By stepping in as the shock absorber of last resort, the BoG protected the broader economy while weakening its own financial position.

What Was Prevented

These actions achieved important outcomes. They helped prevent:

Hyperinflation, which would have eroded incomes and savings;

A disorderly collapse of the cedi, which would have raised the cost of living sharply; and

Financial system failure, which could have led to bank runs and deep economic damage.

However, these gains came at a price. The cost was borne through the deterioration of the Bank of Ghana’s solvency and balance sheet health.

A Clear Example: Liquidity Mop Up

One clear illustration of this cost is the Bank’s aggressive liquidity mop up after the crisis. By issuing its own securities and raising interest rates, the BoG succeeded in bringing inflation down dramatically from 54.1% in 2022 to 5.4% by December 2025, well below its medium term target.

Yet this success had a financial downside. The Bank pays market interest on its own bills without earning equivalent income on the assets backing them. The result is recurring operating losses. In practical terms, the Bank lost money so households and businesses could enjoy price stability.

Currency Stability and Gold Based Operations

Another source of cost came from efforts to stabilise the cedi and rebuild reserves. Through initiatives such as the Gold for Reserves programme, the Bank of Ghana took on commodity price and trading risks that central banks typically avoid. Losses arose from pricing gaps, trading shortfalls, and off-taker fees. While these programmes supported exchange rate stability and reserve accumulation, they again transferred the cost of stability onto the central bank’s books.

The Bottom Line

Ghana’s recent macroeconomic stability has real and measurable costs. Instead of being immediately felt by citizens through higher prices, sharper currency depreciation, or financial instability, much of the burden was quietly absorbed by the Bank of Ghana. These losses should be understood not as waste, but as the price paid to protect the economy.

In short, the Bank of Ghana served as the shock absorber of the crisis. Its weakened balance sheet represents the opportunity cost of avoiding even greater economic pain for households, businesses and the financial system as a whole.

Source: 3news.com by Laud Nartey