Govt urged to renegotiate zero budget financing in IMF programme

Economist, Dr. Eric Osei-Assibey has urged government to renegotiate with the International Monetary Fund(IMF) to relax the provision that requires the Bank of Ghana(BoG) to reduce its budget financing from 10 percent to zero.

This follows an earlier assertion by the Institute for Fiscal Studies (IFS), criticizing government for accepting the provision under a $918 million Extended Credit Facility.

Speaking to Citi Business News, Economist, Dr. Osei-Assibey stated that it will be prudent to review the position since it will be crucial in reducing domestic interest rates and help contain government's debt.

“I think that measure was drastic and premature.I think government can always go back to renegotiate. I think they can tell the IMF that you  want us to reduce domestic interest rates and also want government to reduce borrowing, then it is a high time that stricter condition is eased up,” he strongly suggested.

According to Dr. Osei Assibey, the demand is counterproductive since it puts unnecessary pressure on government to always go to the domestic market to borrow, forcing interest rates to increase.

“For me this is counterproductive in the sense that what the programme seeks to achieve will not be realized because stabilizing the macroeconomic environment also hinges on our ability to grow to create more employment and to finance critical infrastructure, that will help reduce inflation in the long round,” he argued.

He was of the view that budget financing is a provision of the constitution, stating that government's budget can be financed to the tune of 10 percent of the previous year's total revenue.

Citing how relevant the provision has being to government in the past, Dr. Osei-Assibey maintained that it has supported fiscal expenditure in the past to invest in critical sectors of the economy.

He, however added that, governments have also abused it in the past, by forcing the central bank to finance deficits in the budget over the 10 percent benchmark to about 36 percent at some point in time.

“My only problem is that it's been abused by governments in the past forcing the central bank to purchase government's instruments to the tune of 36 percent. That was the main reason why the IMF said BoG should not finance any government instrument,” he said.

He was of the view that, the IMF should have provided a process by allowing the central bank  to reduce the financing gradually instead of directing it to stop at a go.

By: Lawrence Segbefia/citibusinessnews.com/Ghana