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SDR Allocation Not a Type of Central Bank Financing, Governor Clarifies

October 21, 2021
Stephen KotochiebyStephen Kotochie
in Economy, One Top Story
0
SDR Allocations Not a Type of Central Bank Financing, Governor Clarifies

Dr. Ernest Addison - Governor of the Bank of Ghana

The Governor of the Bank of Ghana has clarified that the recent US$ 1.007 billion Special Drawing Rights (SDR) allocation will not be classified as a Central Bank financing due to the source of the resources.

According to Dr. Ernest Addison, SDRs are central bank resources, which the central bank is passing on to help support the budget but are not regarded as a kind of central bank financing which comes from its own resources.

“These are resources from the International Monetary Fund, which we are passing on, in a sense, to support the budget. I have asked our Research Department to make the necessary adjustment and not to classify that type of financing as central bank financing because of the source of the resources”.

Dr. Ernest Addison

The Governor made this clarification whilst responding to questions on the use and treatment of Ghana’s share of the International Monetary Fund’s SDR allocations.

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Main purpose of the SDR

Dr. Addison explained that the Bank of Ghana has had some discussions with the governing authorities on the use of the SDR. He explained that the government had to make a decision as to where these resources should go to ease the pressure on the economy.

“SDRs are mainly balance of payments support instruments 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 are for Ghana. We agreed that we need to have very strong reserves and we agreed that there are some strong fiscal pressures, so we are ready to make about a third of that available to support the budget. This is the understanding that we have with the Ministry of Finance”.

Dr. Ernest Addison

Experts have raised concerns about the treatment of ‘exceptional’ expenditure items and arrears as a footnote.  It can be recalled that Former Minister for Finance, Seth Tekper stated earlier this year that key attention will be paid to how the government will treat the IMF US$1billion SDR inflows in its provisional outturn for 2021 or the 2022 budget. It is therefore, expected that the recent clarification by the Governor may reflect in the overall treatment of these resources in the government’s balance sheets going forward.

Boosting reserves and fiscal position

This notwithstanding, the recent SDR allocation has given some form of cushion to most economies across the world. In the case of Ghana, the Ministry of Finance hinted that it will not resort to additional borrowing from the international capital markets this year due to the country’s strong reserves position, the recent US$ 1.007 billion SDR allocation and the relatively stable currency.

The Governor explained that Ghana holds enough reserves to mitigate any exchange rate adjustment, saying “we are in a relatively comfortable position with the 5.2 months of imports cover”.

A historic general allocation of Special Drawing Rights (SDRs) equivalent to about US$650 billion became effective on August 23, 2021. The allocation was to help all IMF member countries address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. The IMF said It would particularly “help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis”.

The Fund expects the SDR allocation to supplement countries’ foreign exchange reserves and reduce their reliance on more expensive domestic or external debt.

READ ASLO: Male Experts Outnumber Females On Ghana Media Programs, New Study Reveals

Tags: Bank of GhanaDr. Ernest AddisonIMFMinistry of FinanceSDR

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