Leverage natural resources, inward remittances for BoG recapitalisation

In a paper titled "Bank of Ghana’s sustained negative capital and its implications on economy and potential solutions," Dr. Atuahene made several recommendations. He stated that the government must prioritize recapitalizing the Bank of Ghana (BoG). The estimated amount needed is GH¢53 billion, or about US$3.4 billion.

Dr. Atuahene suggested innovative measures to achieve this goal. He proposed revising fiscal frameworks for the natural resource sector. Strengthening inward remittance regulations could also help boost foreign exchange reserves.

He noted that the government has limited fiscal space due to debt issues. Access to international and domestic markets is currently blocked. Leveraging Ghana's natural resources and remittances could provide a viable solution without straining the budget.

The banking consultant emphasized that traditional options may not be enough. Asset transfers and profit suspensions alone might not suffice for recapitalization. His recommendations align with guidance from the International Monetary Fund (IMF).

The IMF recently outlined options for recapitalizing the BoG, including asset transfers and program-generated buffers. Dr. Atuahene stressed that a well-capitalized central bank is crucial for monetary policy independence.

A key part of his proposal involves overhauling existing natural resource fiscal regimes. He argued that laws like the Petroleum Act and Minerals Act should be revised to capture more value from resources.

Dr. Atuahene suggested adopting production-sharing agreements to increase government revenue from resources. This strategy could allow Ghana to use its gold and hydrocarbon reserves as collateral for raising capital.

He also recommended engaging stakeholders in negotiations for various financial agreements, such as debt-equity swaps or new ownership structures. These measures could stabilize BoG’s balance sheet.

Additionally, he highlighted the importance of harnessing remittance inflows for recapitalization efforts. A review of regulations governing inward remittances is necessary to ensure compliance with existing laws.

Greater oversight of money transfer operators could prevent externalization of remittance inflows, increasing foreign exchange availability in Ghana. A robust regulatory environment would help capture more foreign currency while reducing balance of payment risks.

To improve oversight, he proposed creating an Inward Remittances Department at BoG to track all foreign exchange from remittances effectively. He cited Bangladesh as a successful model where most remittances are processed through formal channels.

Dr. Atuahene believes adopting a similar approach could enhance Ghana's financial position significantly while improving exchange rate management.

Given limited fiscal space, he advocated exploring diaspora bonds as an innovative financing mechanism. These bonds can tap into Ghana’s global diaspora community for capital raising efforts aimed at BoG recapitalization.

Diaspora bonds offer an opportunity to mobilize foreign currency while encouraging national investment, according to Dr. Atuahene. This method could complement other funding strategies for central bank recapitalization.

While traditional methods like budgetary transfers are common, he argued they may not suffice under current constraints. Issuing interest-bearing government securities could provide immediate capital but would add pressure on the national budget due to debt obligations.

Dr. Atuahene concluded by stressing that innovative solutions are essential given current financial challenges facing the government.