[ 2015-05-26 ]

BoG to halt lending to govt from 2016
Starr News has gathered that the Bank of Ghana
will from 2016 halt lending to the government of
Ghana.

The move, according to government sources is part
of measures by the International Monetary Fund,
(IMF), to discourage government’s appetite for
borrowing.

Government’s debt currently stands at 88.2
billion Ghana cedis.

Senior Research Fellow at the Institute of
Economic Affairs, Dr John Kwakye, revealed that
interest rates will decline if government adheres
to measures being prescribed by the IMF.

“…Starting from this year under the program
with the IMF the lending limit from the Bank of
Ghana to government has been reduced to 5 percent
and this is being monitored on a monthly basis.
From next year it will be zero. No lending to
government from next year.”

But the Institute of Fiscal Studies (IFS) has
raised an alarm that plans by the Central Bank to
halt lending to government will affect the
economy. According to them, the move will lead to
crowding out the private sector.

A research fellow at the institute, Lesley Mensah
told Starr News “the likely implication is that
the policy will further crowd out the private
sector because even though I agree that the
central bank must curb its lending to government,
it is rather extreme to say it should be reduced
to zero.”

He added “so the prescription, I think, is
excessive to the point of being imprudent.
Implication is that banks and individuals like us
will now carry the total burden of financing the
government deficit in the domestic economy and
that is simply going to crowd out the private
sector.”

Mr. Mensah added that what must be done is to
define prudential limit of the Central bank's
lending to government.

“Saying that it should go down to zero is simply
not proper,” he noted.

Source - Starrfmonline

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