Dr. Ernest Addison, Governor of the Bank of Ghana (BoG), has disclosed that, the Government of Ghana (GoG) plans to use US$300 million from its International Monetary Fund’s (IMF) Special Drawing Right (SDR) of US$1 billion, to support its 2022 budget.
The use of the US$300 million, Dr. Addison disclosed, is expected to enhance government’s spending, in order to speed up the country’s economic recovery from the novel coronavirus, as well as help to reduce government borrowing.
“We also agree that we have some strong fiscal pressures, so we are ready to make about a third of that available to support the budget.”
Dr. Ernest Addison
Dr. Addison, stated that, although the money from the IMF was typically meant for balance of payment supports, the IMF was willing to allow member countries to apply part to their budgets.
“We have had some discussions with the government on that and as you know, SDRs are for balance of payment support but the IMF has decided that we may also use it for budget support. So, one has to make a judgement on where the pressures for the economy are and we agreed that we have to have very strong reserves.”
Dr. Ernest Addison
Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), disclosed that when used prudently, the SDR allocation will help the economies involved to address the current economic issues.
“The SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt. Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.”
Ms. Kristalina Georgieva
Treatment of the SDR funds
The funds from the Bank of Ghana, would not be treated as central bank’s financing of the budget, but as resources from the bank to help support the fiscal agenda, the Governor disclosed.
“But we do not regard that as a kind of central bank financing which comes from our own resources. These are resources that we are passing on in the sense of the IMF and we do not classify that kind of financing as central bank financing because of the source of the resources.”
Dr. Ernest Addison
The IMF disclosed that the “domestic arrangements for holding SDRs and the accounting treatment may differ across Fund members according to differences in legal and institutional frameworks”.
Also, in economies “where the SDR positions are recorded as assets and liabilities in the central bank’s balance sheet, the SDR holdings would directly increase central bank gross international reserves”, IMF revealed.
Meanwhile, the IMF hinted that, regardless of where SDRs are recorded, being it with the central bank or a government agency, gross international reserves will increase with the SDR allocation.
Ghana’s membership with the Bretton Woods institution, helped the country to receive the said amount from the IMF. The SDR amount received is an interest-free and condition-free money, that is meant to be used by its beneficiaries at their discretion to support economic recovery.
Ghana is part of the 190 member countries of the IMF that benefited from the total SDR of US$ 650 billion in August 2021. The SDR funds were distributed proportionately, in line with each country’s share with the IMF.
The funds came at a time when COVID-19-related expenditures had exacerbated the debt situation, widened the fiscal deficit, and starved critical infrastructural projects of funds, the Governor disclosed.
In the meantime, Dr Addison stated that the central bank and the government were fine-tuning the modalities around the allocation of the funds to pave the way for actual disbursement of the SDR.
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