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Bank of Ghana Governor Ernest Addison ruled out granting more loans to the government to help narrow the budget deficit, saying this would jeopardize exchange rate stability.
The central bank suspended 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 the West African economy. Ghana’s budget deficit is expected to reach 11.4% of GDP by the end of December, against an initial target of 4.7% of GDP.
“The large fiscal gap is raising major financing problems,” Addison said Thursday in a speech in the capital, Accra. “It should not be funded through recourse to central bank resources, as this will weaken the central bank’s ability to act as the anchor of monetary and exchange rate stability.”
The cedi has gone through its most stable period in more than a decade this year and has weakened by 2.6% against the US dollar. That’s even if the The global health crisis pushed the debt-to-gross domestic product ratio in Ghana to 71% in September, the highest level in four years.
“Going forward, tough decisions will have to be made to reorganize public finances and spending priorities while exploring more sustainable sources of income,” Addison said.