Dr. Henry Kofi Wampah, Ghana’s immediate past Central Bank Boss announced on Tuesday March 29, 2016 that he was stepping down from the post he occupied from January 2013 when he was sworn in to March 2016 although he was due for retirement in August 2016. Dr. Wampah until his appointment was the Deputy Governor of the Bank of Ghana in charge of Research and Economic Policy, Banking Supervision, Financial Stability and other duties. From these previous roles at the bank, it’s a no brainer that he wielded some authority on the workings of the central bank and expectations were high that some stability in monetary policies of the bank would be achieved. Was that achieved during his reign?
Many analysts have expressed mixed feelings on the legacy he leaves at the central bank. Franklin Cudjoe the Founding President of Imani Ghana believes,”he did ensure that the banking industry was fairly expanded but evidently he allowed himself to be caught up in the storm of armstrong politics.” The presidential and parliamentary polls in November this year have also been linked to his decision to step down. In an interview with Graphic, Dr. Wampah said,” It is just fair to leave early in order to give enough room for my successor, whoever he might be, to settle down before we get to the elections.” So yes, the December polls is a major factor but equally being a possibility for him stepping down before August is the brouhaha surrounding his son-in-law David McDermott’s alleged drug trafficking and money laundering. In advanced economies the report of a central bank governor’s son-in-law being alleged to be engaging in money laundering could have sent negative signals to the markets but that’s not the case down here. I think it’s partly due to the reason that many are unbanked and the informal activities in the economy far outweigh the formal transactions.
Ghana in recent times has been bedeviled with large budget deficits, inflationary shocks, and rising public debt, an ever increasing public sector wage bill to wide fiscal imbalances. This makes the job of a central bank boss in Ghana not an easy ride. How far did Dr. Wampah go in tackling some of these age-old challenges? Deposit Protection Scheme and the Specialized Deposit-Taking Institutions Bills that are meant to sanitize and bring significant reforms into the banking sector are some the radical reforms he brought to the table. Deposit Protection Act, 2015, is an act to provide for the establishment of a Deposit Protection Scheme, a Deposit Protection Fund, a Deposit Protection Corporation and for related matters. This Act applies to banks and specialized deposit-taking Institutions licensed by the Bank of Ghana. The object of the Act is to;
(a) Protect a small depositor from loss incurred by the depositor as a result of the occurrence of an insured event; and
(b) Support the development of a safe, sound and efficient stable market-based financial system in Ghana.
The government and the Bank of Ghana (BoG) are expected to contribute €10 million each as seed capital towards the establishment of the Deposit Protection Scheme (DPS).
Chairman of the Finance Committee of Parliament believes that, this insurance being established under the Deposit Protection would protect small depositors in the event of a financial institution becoming insolvent or distressed. DKM customers would have benefited from such a scheme if it had been around before the institution suffered that distress. All these reforms will build some trust among stakeholders and clients in the financial sector.
Banks and Specialized Deposit-Taking Institutions Act, 2015, is an act to amend and consolidate the laws relating to deposit-taking; to regulate institutions which carry on deposit-taking business, and to provide for related matters. Trust in the finance and banking sector is paramount in the wake of recent DKM and other microfinance institutions brouhaha with their clients.
Dr. Wampah believes a lot of these reforms have started yielding fruits owing to the economic stability we are seeing in recent times. He says, it puts the economy on an even platform for development. This is buttressed by the Economic Intelligence Unit (EIU) political outlook ahead of the November 7polls which remarks, “Whichever party wins in 2016 is expected to preside over an improving economic situation.”
The founding president of Imani Ghana, a policy think-tank based in Accra, Franklin Cudjoe asserts Dr. Wampah was too subservient. He cites the sale of Merchant Bank which he believes was one big miscalculation and that sent signals of supporting underhand dealings in a divestiture arrangement involving hidden players. “Wampah should have been bolder in reigning in the voracious appetite for borrowing by the government to fund mostly poorly costed projects with dire consequences for the moribund private sector,” he adds in his Facebook post hours after the former BoG boss announced he’s stepping down.
The governor is primarily responsible for formulating and implementing monetary policy aimed at among other things achieve monetary measures and the stabilization of the currency within and outside Ghana (Banking Act, 2002). The forex rules introduced in 2015 to arrest the free fall of the local currency-cedi against its major trading currencies was also a major misdirection in monetary policy. Between January to March 2015 the cedi depreciated by 12.5%. And by September 2015, it has lost 21% of its value against the USD.
Ghana experienced net capital outflows in June 2015, partly driven by deterioration in perceived risk in the midst of global market volatility. As a result, gross international reserves were down by $1.1 billion by end-June to $3.2 billion (equivalent to 2.1 months of import-cover).
As a former Deputy Governor of BoG who among other roles was in charge of Banking Supervision, Financial Stability and other duties, his expertise in these roles was called to question in the wake of DKM microfinance scandal. Many including the President in his state of the nation’s address earlier this year laid the blame squarely at the doorstep of the BoG and its boss, Dr. Wampah. Many lost several millions of Ghana cedis through this Ponzi scheme. And many are still counting their losses.
I am of the strong opinion that the excessive interference in the duties of the central bank boss gives rise to some of these economic backlashes. It’s an age-old phenomenon which needs to be rectified by passing the appropriate legislations to stem the forgoing trend. I agree with Imani’s boss, Franklin Cudjoe, when he says, “…hope that the next Central Bank Governor ensures at least a more pragmatic monetary policy that truly asserts the independence and effectiveness of the Central Bank. Perhaps the next Governor can be bolder and aspire to copy the habits of highly effective countries such as what I experienced last November in the UK after an insightful meeting at the Bank of England with its Director for International Development my notes were: Three roles for the central bank, ensuring micro prudential, macro prudential and monetary Policy. The Bank is independent in ensuing the fiscal targets set by any UK government is met. However, if the government deviates from what the bank proposes to be done, then it loses credibility and will be punished by the voting public. Curiously, the Monetary Policy Committee’s decisions are published but will in the interest of transparency and market confidence, publish minutes of its meetings including what each of the nine -member committee said in its meetings. So, prudent monetary policy management must resonate with prudent fiscal foresight. Our finance minister in Ghana should not have a fiscal target whilst the central bank can have a mind of its own, and the electorate can simply applaud.”
Dr. Henry Kofi Wampah has bowed out but the challenges being age-old still persist. More grease to the next boss, Dr. NasiruIssahaku. Tackling the high interest rates, unstable local currency and bold moves to check public expenditure particularly in this election will be his main hurdles.
Author: Paa Swanzy-Essuman || firstname.lastname@example.org