The government of Ghana is planning to stop using the US dollars to buy gold as part of its new oil purchase plan, Vice President Mahamudu Bawumia said on Facebook. This move would be in line with the government’s plan to reduce its dependence on the dollar and increase its use of other currencies.
Ghana is Africa’s second-largest producer of gold, and the move would allow the country to use more of its own resources. The vice president said the government is also considering using other local currencies, such as the cedi, in order to further reduce its dependence on the dollar.
The Ghanaian government has announced a new policy to help address the country’s dwindling foreign currency reserves and the growing demand for dollars by oil importers. The policy, which was announced on Thursday, is aimed at strengthening the local cedi and reducing living costs.
The move comes as Ghana’s economy has been struggling in recent months, with the value of the cedi falling sharply against the dollar. This has led to an increase in the cost of living for Ghanaians, as imported goods have become more expensive.
The government’s new policy is intended to help address these challenges by making it easier for Ghanaians to access dollars. Under the policy, the government will sell dollars to oil importers at a fixed rate.
Ghana’s Gross International Reserves (GIR) stood at around $6.6bn at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7bn at the end of last year, according to the government.
The fall in Ghana’s reserves is due to a number of factors, including the pandemic-related slump in global demand for crude oil (Ghana is a major producer), lower prices for gold (another key export), and a drop in remittances from Ghanaians living abroad.
The Ghanaian government has responded to economic difficulties by implementing a series of austerity measures, including cutting subsidies and raising taxes.
The new policy, if implemented as planned for the first quarter of 2023, “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”, Bawumia said.
The policy measures are intended to help Ghana regain control of its finances and reduce its reliance on foreign aid. However, they are likely to cause hardship for many Ghanaians in the short term.
Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.
The barter of gold for oil represents a major structural change in the way that the two commodities are traded. This change could have a major impact on the prices of both commodities, as well as on the economies of the countries that produce them.
The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.
Ghana is a crude oil-producing country, but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017. The country has been working to restart the refinery and increase its capacity, but in the meantime, it has had to import large quantities of refined oil products to meet demand. This has put a strain on Ghana’s resources and contributed to the country’s current economic challenges.
The country’s only refinery, the Tema Oil Refinery, suspended operations after an explosion in 2017. This has left Ghana reliant on imported refined oil products.
The refinery is currently undergoing repairs and is expected to restart operations in 2019. In the meantime, Ghana will continue to import refined oil products to meet its domestic demand.
Bawumia’s announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiralling debt crisis.
In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned that the West African nation was at high risk of debt distress and that the cedi’s depreciation was seriously affecting Ghana’s ability to manage its public debt.
Ghana is currently in the process of negotiating a relief package with the International Monetary Fund in response to the nation’s worst economic crisis in a generation. The crisis is largely attributable to Ghana’s reliance on the export of cocoa, gold, and oil, which have all seen declining prices in recent years.
As a result, Ghana’s government has been forced to cut spending and raise taxes, which has only served to further exacerbate the economic situation. The IMF package is intended to provide Ghana with the financial support it needs to weather the current crisis and emerge stronger in the future.