FEBRUARY 8

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DAILY
Politics
WWW.DAILYHERITAGE.COM.GH
HERITAGE FRIDAY, FEBRUARY 8, 2019
Adongo warns BoG Governor against
credibility crisis of Central Bank
THE CONDUCT of the Governor
of the Bank of Ghana
is bringing down the revered
institution into serious credibility
crisis, the Member of
Parliament for Bolga Central,
Isaac Adongo has said in another letter to
the BoG Chief.
It would be recalled that the lawmaker
in May, 2018 wrote to the Governor of the
Central Bank, Dr Ernest Addison requesting
some information to assist him in his
work, which he was flatly denied.
But Adongo has issued another letter
addressed to the BoG Governor cautioning
that the “continuous manipulation of the
Policy Rate that is not consistent with the
fundamentals of the economy and concealing
of critical economic data will further
worsen the credibility crisis of BoG and derail
any efforts at attracting badly needed investments
into the country.”
A copy of the letter is published below:
Bank of Ghana (BoG),
P.O. Box 1989,
Accra.
Dear Governor Addison,
Please accept my warm greetings.
You would recall my earlier letter to you
dated 22nd May, 2018, in which I requested
some information to assist me with my
work.
Surprisingly though, you chose to ignore
that request. I pray this is not a norm
at the bank under you.
In that letter, however, I advised you to
stop fuelling systemic risks in the financial
sector, and to rather work to address the
loss of credibility in the sector. I am compelled
to write to you a second time about
the erosion of confidence in Bank of
Ghana (BoG), our central bank, and the
simmering credibility crisis of the institution
due to manipulation and apparent concealment
of economic data, ostensibly to
deceive investors and players in Ghana’s financial
markets.
A review of BoG’s Summary of Macroeconomic
and Financial Data and the Monetary
Policy Committee (MPC) press
statements show a very worrying trend, that
I want to bring to your attention. This trend
is creating serious credibility deficit in the
Central Bank, especially now that the extended
credit facility (ECF) arrangement
with the International Monetary Fund
(IMF) is ending, with international investors
having uncertainties about policy and institutional
credibility, going forward.
The following are among some of the
worrying issues:
1. Concealment and manipulation of
Net International Reserves (NIR)
It is very interesting to note that your
July 2018 and May 2018 MPC Press Statements
were very quiet on Ghana’s Net International
Reserves position. Why was this
so? Apparently, this was because Ghana’s
net international reserves had been worsening
since May 2018 when it recorded
USD4.65 billion. By October 2018, BoG
had drawn down about USD1.3 billion of
the reserves in response to portfolio reversals
and mounting pressure on the cedi. Indeed,
Ghana’s international reserves fell
dangerously low to USD3.3 billion that
could only cover 1.8 months of imports. As
a result of this precarious NIR position, the
country began to experience high levels of
vulnerability. Government’s efforts at increasing
borrowing to provide more forex
faltered because investors were not interested
in lending to Government unless interest
rates were increased. In the process,
the government’s borrowing, gap referred
to as uncovered auction, increased to over
GHC5 billion – USD1.04 billion, using an
exchange rate of GH4.8 to USD1.
• Isaac Adongo, MP
for Bolga Central
Sadly, BoG unethically and unprofessionally
decided to falsify Ghana’s
NIR to mislead investors and the markets
by suddenly adding Ghana’s Petroleum
Holding Funds to our net
reserves. This was a serious misconduct
that was clearly against the IMF’s
Balance of Payments Manual 5
(BPM5) guidelines on the definition of
NIR. The Petroleum Holding Funds
•Samia Yaba Nkrumah is the
daughter of Dr Kwame
Nkrumah
are encumbered funds which are not
available to BoG and cannot be added
to its reserves.
Therefore, by adding it to the NIR,
it was equivalent to stealing someone’s
money to add to yours to avoid being
identified for your true level of
poverty.
As you are aware, the BPM5 is designed
by the IMF and provides international
standards and guidelines for
compiling balance of payment (BOP)
statistics. It is actually your Bible and
that of all Central Banks in compiling
balance of BOP statistics yet I observed
that you decided to violate it
with impunity, even under a Fund program.
As a result of this manipulation
and concealment of the true data on
Ghana’s NIR position, the markets were deceived
into taking decisions based on such
falsified economic data.
Interestingly, you adjusted the NIR in
your latest Summary of Economic and Financial
data, which gives completely different
figures for the various months of the
year from what was reported in November
2018.
Mr Governor, this is chaotic, unethical
and insincere. It is observed
that this time, you added another
USD600 million to our NIR position
as at December 2018 to increase the
figure from USD3.2 billion to USD3.8
billion, apparently to hide the true
state of our reserves and the unprecedented
draw down in NIR.
Mr Governor, I want to take the
opportunity to urge you to desist from
such behaviour and to stop cooking
Ghana’s economic data. Let us be true
and consistent in approach as prescribed
by international standards and
tell the true story of Ghana’s economic
performance.
Based on the projections of possible
global economic downturn, Ghana,
as a commodity exporting nation, has
to be extremely worried about the low
levels of NIR, especially in the face of a cumulative
trade surplus of USD3 billion.
Strangely, however, we failed to build on
our NIR and that has now exposed the cedi
to severe headwinds, going forward, and
this must be informing monetary policy actions
and not fictitious economic data to
lure investors.
For example, it is worrisome that the
level of NIR as at end-2018 is less than
what it was on 31st December 2016. This is
in spite of the fact that the country made a
• Dr Ernest Addison,
BoG Governor
cumulative USD3 billion trade surplus,
mainly from oil exports, between 2017 and
2018. This means that effectively, our external
vulnerability has worsened as a country,
resulting from excessive BoG intervention
to support the depreciating cedi.
Mr Governor, I want to appeal to you
to stop endangering Ghana’s international
reserves through such excessive intervention
in the forex markets. Please allow the
cedi to adjust to the shocks and thereby
save the reserves for a rainy day. Otherwise,
if we experience a sudden increase in capital
flow reversals or a slump in world commodity
prices, going forward, we will be
forced back to the IMF even after the intended
exit this year. Henceforth too, BoG
should ensure that it is reporting Ghana’s
NIR accurately in its Summary of Macroeconomic
and Financial Data and MPC
Press Statements to give transparency and
clarity to the markets and not seek to hide
In your MPC press statement of January
28, 2019, you said the overall
BOP had deteriorated from a surplus
of USD1.1 billion in 2017 to a deficit
of USD671.5 million in 2018, equivalent
to 1.0% of GDP. Interestingly,
however, the Summary of Macroeconomic
and Financial Data for January
2019 captures the overall BOP
as of December 2018 at a deficit of
USD1.28 billion, equivalent to 2.0%
of GDP.
things in a manipulated Summary of
Macroeconomic and Financial data.
2. Manipulative Policy rate cuts
and Policy Distortions
Mr Governor, it is becoming very clear
that MPC meetings are now focusing on deceiving
investors when Government is
about to go cup in hand on a road show to
borrow money. It is very strange to see any
serious fundamentals of the economy and
the thrust of monetary policy that supports
your recent Policy Rate cut. In particular,
the data contained in your MPC Press Statement
and the Summary of Macroeconomic
and Financial data do not support 28th January,
2019 Policy Rate cut. For example:
i. Inconsistency in overall BOP: Mr
Governor, it is curious to note that despite
ignoring my letter of 22nd May, 2018
(which bothered on data inconsistency), you
appear to have entrenched it and now extending
same from the banking sector to
the external sector.
In your MPC press statement of January
28, 2019, you said the overall BOP
had deteriorated from a surplus of
USD1.1 billion in 2017 to a deficit of
USD671.5 million in 2018, equivalent
to 1.0% of GDP. Interestingly, however,
the Summary of Macroeconomic
and Financial Data for January 2019
captures the overall BOP as of December
2018 at a deficit of USD1.28
billion, equivalent to 2.0% of GDP.
Where did you get the deficit of
US$671 million from? This is grossly
unethical and connotes an active attempt
to conceal data in other to deceive
the public and investor
community in particular.
ii. While I am unable to decide
which of the overall BOP deficit figures
to use for my analysis, I have, on
my own prerogative, decided to base it
on the USD671 million deficit that
was contained in your press statement.
The curious question with that deficit
is: why is the BOP for 2018 in deficit
despite a trade surplus for 2018? This
is because of capital flight as investors
are taking their monies invested in
Government Bonds in search of better
yields abroad. That is why you are
having a precarious NIR position despite
a cumulative USD3 billion trade
surplus over the last two years.
To reverse this vulnerability and
improve foreign currency liquidity would require
a monetary policy stance that attracts
more foreign exchange denominated investments
into the country. This is not achieved
with Policy Rate cuts because that will
rather drive away portfolio investors leading
to further capital flight and flow reversals.
So what is the basis for this fictitious Policy
Rate cut? One wonders if it is
meant to deceive investors to price
low for the USD3 billion Eurobond
foray planned later this
year.
iii. The constant regulatory
tyranny in the last quarter of 2018
produced foreign exchange rates
and depreciation figures you
wanted to see and not what the
market produced. The cedi crossed
the GHC5 to USD1 mark way back
in October 2018. As you and your
staff continued to warn and
threaten banks whose exchange
rate quotations exceeded the
GHC5 mark in their Intraday reports,
the banks began not to quote
their actual rates for foreign exchange
transactions, Hence, the
data you have released on exchange
rates and depreciation of the cedi
are suppressed and do not reflect
the market value of the cedi.
Mr Governor, I want to, again, urge you
to desist from manipulating the market with
threats and tyranny to allow market forces
to dictate the exchange rate. We are now indirectly
operating a controlled exchange rate
regime and that distorts market information.
iv. Interest rate distortions between Policy
Rate and various instruments: The conduct
of BoG and the recent interest rates
movements on Government’s risk-free debt
instruments suggest that both the Government
and BoG have no trust in the economic
data that have influenced Policy Rate
cuts in recent times.
While BoG is cutting interest rates to
signal a downward trajectory of interest
rates, the same BoG and Government are
raising interest rates on benchmark risk-free
instruments to signal rising risk-free costs
of capital. What that means is that the market
is being told that you can lend to Government
at a high interest rate and,
therefore, before you lend to any other person,
your starting interest rates is what
Government will pay you and it is rising so
charge a premium above what Government
pays. Does this reflect a BoG that believes
in its policy rate decisions?
The above shows that as you have continued
to artificially cut policy rates to deceive
the people and score cheap political
points, the fundamentals of the economy,
which you recognise in pricing Government
securities, are showing that interest rates are
going up and should be going up.
v. Struggling Economy
The data released for the MPC meeting
as reported in the Summary of Macroeconomic
and financial data, show an economy
that is struggling to support productive activities
and require a deliberate policy to inject
the needed foreign direct investment
and improved appetite of lenders to Government
to raise the needed resources to
fund the economy and revive several ailing
sectors of the real economy in the last two
years. The data is showing very worrying
spectacle.
ECONOMIC GROWTH- JANUARY
TO SEPTEMBER
It is clear from the above that the economy
needs serious stimulus to return to its
robust non-oil GDP growth in 2016. BoG’s
own Composite Index of Economic Activity
(CIEA) supports the fact that the economy
is struggling.
Table 2: BoG Real Sector Indicators
(CIEA) –November 2017/November 2018
All the indicators of your own surveys
show deteriorating economic performance
on your composite index of economic activity.
As a matter of fact the high business
and consumer confidence started disappearing
towards the end of 2017 and has now
worsened per your own data.
To summarise, this requires investment
by Government to propel the non-oil sector
of the economy to replace the dominant
performance of oil since 2017. With Government
facing significant uncovered auctions
of about GHC5 billion in 2018 and
massive portfolio flow reversals, monetary
policy should rather focus on eliminating
the unattractiveness of Government Debt
instruments.
The continuous manipulation of the
Policy Rate that is not consistent with the
fundamentals of the economy and concealing
of critical economic data will further
worsen the credibility crisis of BGG and
derail any efforts at attracting badly needed
investments into the country.
Mr Governor, we have been enjoined to
be citizens and not spectators, and it is in
this direction and in performing my civic
duties to my constituents in Bolgatanga that
I took it upon myself to write you this letter.
It is my hope that the issues I have
raised will be addressed for the sake of the
good people of this country, and out of respect
for the high office you occupy.
Complements of the season, Mr Governor
ISAAC ADONGO (HON)
Member of Parliament (MP), Bolgatanga
Central, and Member, Finance
Committee of Parliament