Realist, not conformist analysis of the latest financial, business and political news

What An Interesting Banking Situation In Ghana – Yes, It’s Politics

We do have to warn that our information source here is more than only slightly partial. But it does hang together, does make sense. Further, it does so in a manner that an independent number which is publicly known accords with the analysis.

So, how does a government get to buy lots of votes without pissing off the World Bank, IMF and so on, the people who are largely paying the government’s bills? The answer being to do the spending to buy the votes then not pay the bills for the spending. Which is what it is said is happening here:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The real question here in my opinion is how independent is the BoG from the Ministry of Finance (MoF)? And, why could the BoG Governor not put pressure on MoF to make good their indebtedness to many of the clients of these banks such as the Bulk Distribution Companies (BDCs), the Road Contractors, and other entities in the power sector etc? This was a ticking time bomb waiting to explode! Although Government holds less than 12% of the loans through various SoEs, the total loans issued by these banks that have some sort of Government exposure is over 30% ie where Government is the credit base – meaning that Government is the underlying creditor who ultimately, directly or indirectly, needs to pay these institutions that their clients had contracts with so that these clients can make payments to these banks. And, the Non-Performing Loans (NPLs) of total loans where government is the credit base – directly or indirectly – is close to 75%. This means that most banks will not have 75% of their NPLs if Government paid their clients for works contracted. [/perfectpullquote]

So, the plan. Issue lots of new banking licences to people who perhaps aren’t entirely and 100% certain they know how to run a bank or monitor credit.

Organise lots of lovely public works projects using the private sector.

Get the companies doing the public works financed by these new banks.

Don’t pay the companies so they can’t pay their loans back to the banks.

Success! Votes bought, money doesn’t leave the Treasury, IMF and World Bank are fine.

Except, of course, bills hidden don’t disappear, they’re just hidden. So, we’ll have that new and secondary banking sector going bust:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] All Government needed to do was borrow to pay whatbthey owed to their counterparties – the BDCs, the Road Contractors, and the Power Sector Supply Chain – so these companies could make whole outstanding indebtedness. But because they want to show certain ratios to appease the likes of the World Bank and IMF, and also to manage other derivative indices and ratios they did not borrow to pay off these debts. It is important to note that Government in most cases refuses to pay the banks clients, whom they owed, the interest rates charged by the commercial banks (another bully tactic) leaving most of these BDCs, contractors and power sector value chain institutions such as ECG, VRA, IPPs GRIDCO at the mercy of these banks. Thus causing major defaults and bankruptcies of these companies and eventually these financial institutions. [/perfectpullquote]

Oh, and obviously, the companies who are now creditors to the banks go bust too. And what else is going to happen? Well, we’ve boosted aggregate demand by getting all that infrastructure built, haven’t we? And in opposition to the standard Keynesian strictures this hasn’t boosted tax revenues sufficiently to cover the cost of the building. Or if you prefer the MMT story the government hasn’t been willing to tax back the resultant inflation. Which leads to interest rates being high simply because inflation is:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The Monetary Policy Committee of the Bank of Ghana (BoG) has kept its policy rate unchanged. The bank left its key lending rate to commercial banks at 16 per cent. [/perfectpullquote]

Oh, right.

An interesting test of Keynesian and MMT thinking, no? They both crash on the rocks of actual government behaviour.

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