The debate over the Bank of Ghana’s current financial circumstances has been driven by politics as much as by financial economics leaving Ghanaians bemused, if not outright confused. TOMA IMIRHE presents the facts as determined by technicalities devoid of political sentiment.
The Bank of Ghana’s 2025 financial results have reignited a critical debate within Ghana’s financial and policy circles: does a central bank with deep cumulative losses and negative equity become insolvent in a meaningful sense? Or, more precisely, has the BoG become policy insolvent?
With a reported loss of GH¢15.63 billion in 2025 and cumulative negative equity of GH¢93.82 billion, the question is not merely academic. It goes to the heart of monetary policy credibility, fiscal sustainability, and institutional independence.
Unlike commercial banks, central banks are not judged primarily on profitability. Their mandate is macroeconomic stability—controlling inflation, stabilising the currency, and ensuring financial system soundness.
This distinction underpins the concept of policy solvency which refers to whether a central bank’s operating income is sufficient to cover the cost of implementing monetary policy.
By this measure, the BoG insists it remains solvent. The BoG reported a policy solvency surplus of about US$440 million in 2025. However, this headline figure is controversial. Analysts argue that the surplus was achieved largely through non-recurring income, notably gains from gold reserve transactions. Strip out these one-offs, and the Bank would have recorded a policy solvency deficit of roughly US$326 million.
This raises a critical point: policy solvency exists—but may not be structurally sustainable.
The scale and drivers of losses
The BoG’s financial deterioration is stark. Losses widened from GH¢9.49 billion in 2024 to GH¢15.63 billion in 2025, while negative equity ballooned from GH¢58.62 billion to GH¢93.82 billion.
The primary drivers include the Domestic Debt Exchange Programme (DDEP) as losses on restructured government securities significantly impaired the BoG’s balance sheet, and Open Market Operations (OMO) as the cost of sterilising excess liquidity surged, with OMO expenses rising sharply year-on-year. Added to these are exchange rate and valuation losses as a swing from revaluation gains to losses further eroded capital.
These losses are not incidental—they are the financial cost of macroeconomic stabilisation, particularly during Ghana’s post-crisis adjustment period.
As one line of official defence suggests, such losses represent “the cost of stabilisation”—a trade-off central banks often accept to restore economic balance.
Does negative equity mean insolvency?
In conventional banking, negative equity implies insolvency. But central banking operates under different rules.
Globally, central banks in countries such as the Czech Republic, Chile, and Israel have operated effectively with negative capital positions for extended periods.
The BoG itself has emphasised this distinction, arguing that it remains operationally capable despite its impaired balance sheet. Indeed, central banks can continue functioning because they have monopoly power to issue currency, can operate with deferred losses and are typically backed by sovereign governments.
However, this does not make negative equity irrelevant. It introduces credibility risks and potential macroeconomic consequences.
The key test is whether the central bank can continue to fund its policy operations without resorting to inflationary financing or excessive balance sheet expansion.
There are warning signs.
Analysts note that the BoG’s operating losses effectively inject liquidity into the economy—each dollar of operating loss is a dollar of new cedis, unless sterilised.
This creates a vicious cycle. Losses inject liquidity which in turn fuels inflationary pressure forcing the BoG to sterilise the liquidity. But sterilisation increases costs which generate further losses.
This dynamic suggests that while the BoG may not yet be policy insolvent, it is operating under mounting structural strain.
As one financial economist puts it, the situation reflects “mounting pressure on the Bank’s policy framework.”
If the BoG were to become truly policy insolvent, the implications would be severe. It would lead to loss of monetary policy credibility as markets may doubt the Bank’s ability to control inflation; currency instability as expectations of monetisation could weaken the cedi; and fiscal dominance as monetary policy becomes subordinated to government financing needs.
It would also lead to higher inflation risk since persistent losses can translate into money creation and ultimately reduced independence, as the central bank would eventually have to rely heavily on government’s financial support.
While Ghana has not reached this tipping point, the current trajectory underscores the importance of timely intervention.
The path back to stability
Recognising the risks, the BoG and the Ministry of Finance (Ghana) have agreed on a phased recapitalisation programme, spread out from 2026 to 2032., to restore positive equity and rebuild capital buffers through an injection of cash and government securities.
According to the BoG, these inflows are expected to return it to positive net equity by 2032.
This plan is anchored in legal obligations under the Bank of Ghana Act, which requires the government to restore the central bank’s capital when impaired.
Additionally, recent legislative reforms—including raising the minimum capital requirement to GH¢1 billion—signal a stronger institutional framework going forward.
Recapitalisation will not be costless. It effectively transfers the burden of central bank losses to the sovereign government balance sheet which means it is ultimately the State’s burden.
For government, this means: higher public debt or contingent liabilities, potential trade-offs with other fiscal priorities and inevitably increased scrutiny under IMF programmes which means avoiding falling back into another as it exits this one in a few months.
For the BoG, recapitalisation offers the restoration of balance sheet credibility, reduced vulnerability to interest rate shocks and greater capacity to conduct policy without financial constraints.
However, the success of this plan hinges on fiscal discipline and continued macroeconomic stability.
A delicate balance
The BoG’s current position can best be described as financially impaired but operationally functional.
It is not technically insolvent in the conventional sense, nor fully policy insolvent. But neither is it comfortably solvent.
The distinction matters. A central bank can operate with negative equity—but not indefinitely, and not without consequences.
The coming years will therefore be decisive. If recapitalisation proceeds as planned and macroeconomic gains are sustained, the BoG can restore both its balance sheet and its credibility.
If not, the line between policy strain and policy insolvency could become dangerously thin.
To be sure, the Bank of Ghana’s 2025 losses – and the more worrying accumulated negative equity position – do not, in themselves, render it policy insolvent. However, they expose a fragile equilibrium—one in which the central bank’s ability to sustain its core functions increasingly depends on external support and one-off income.
The recapitalisation programme offers a credible pathway back to strength. But until it is fully implemented, the BoG remains in a transitional state: not insolvent, but not entirely secure either.
By: Toma Imirhe / businesspostonline
