Government's decision to transfer $250m from the Central Bank to a private bank which then lent the money to the government at a huge interest has been described as absurd.
Two Members of Parliament - an economist and a Chartered Accountant - have very contrary views over the legality of the Finance Minister’s decision.
NDC MP and Parliament’s Finance Committee chairman James Avedzi says there is no violation of any law in the decision while economist and MP for New Juaben South, Dr. Mark Asibey pointed out that it is a clear violation.
The man who sparked the controversy is the NPP Vice-Presidential candidate Dr. Mahamudu Bawumia.
“The Bank shall hold all foreign exchange of the State and be responsible to Parliament in the performance of its function in relation to the foreign exchange”, the law says.
Bawumia says by transferring $250million to a private bank, the government has outsourced its work of keeping the money to a private bank, UBA.
This is not the only money, government could transfer to private banks as investments, he pointed out. Funds from the National Health Insurance Scheme can also be invested, he suggested.
The exchange of long views by the former BOG deputy governor and the Finance minister has set the stage for debate.
Speaking on Joy FM’s Top Story Chairman of the Finance Committee of Parliament James Avedzi said he sees no evil.
“If you leave the money at the BoG…the value will go down” he recycled the Finance minister’s argument.
Mr. Avedzi explained that not all of the money belonging the Bank of Ghana is kept in Ghana. Some are kept in foreign banks on behalf on the BoG, which both MPs agreed is standard practice.
If another bank can hold Ghana’s monies then the BoG can transfer public funds to any private bank.
He also explained that the money is government’s funds and not the Central Banks’ money. The BoG was holding the money for government’s Ghana Infrastructure Investment Fund, he said. Government is therefore free to direct the use of its money which was raised on the European market.
“That cannot amount to a violation. I don’t think so,” he stressed.
His counterpart on the Finance Committee and NPP MP Dr. Mark Assibey said a perspective may help the chairman understand the illegality.
Dr. Mark Assibey-Yeboah
He said the Finance Minister went to the Central Bank to ask that the Bank pays interest to government on the monies it was keeping for government.
“The Bank of Ghana said no. When we hold government money we don’t pay interest on it”, he said.
Displeased by the response, Seth Terkper transferred the money to UBA.
“$250 million is huge for UBA so they exchanged it into ₵1billion and bought treasury bills. Who is selling the T-bills? It is government,” he said.
Government now pays UBA 23% interest on Treasury Bills bought by the UBA with government’s own money saved at the private bank.
But in turn, government gets only 12% interest from its own money it has saved at UBA, Mark Assibey explained.
“[This is] imprudent financial management. Not only is government breaking the law, you can’t defend this kind of financial management,” Mark Assibey condemned the move.
But James Avedzi responded that his colleague by comparing Treasury Bills returns paid to UBA in cedis to UBA paying government back in dollars is comparing apples and oranges.
Government is likely to earn more from UBA which pays back to government in dollars than the private bank would earn from government in cedis.
“At least we are making some savings…the value of the money will not go down”, he insisted.
But Mark Asibey drew his colleague’s attention to the economic principle that too much money in an economy chasing goods and services triggers inflations.
“If you pump a 1billion Ghana cedis into the economy, do you know the consequences? It is inflationary.. are we not better off holding the money at the Bank of Ghana?”, he said.
He explained that the BoG holds the foreign exchange to prevent swings in the foreign exchange market.
