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BoG Profits Unduly From High Rates

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