Ghana is contemplating a new strategy that would involve using gold reserves rather than U.S. dollar reserves to pay for oil products.
On Thursday, Vice President Mahamudu Bawumia made this announcement on Facebook.
He clarified that the choice was made to address Ghana’s diminishing foreign exchange reserves and the need for dollars from oil importers, two factors that have significantly devalued the local cedi and raised living costs.
The Vice President claimed that using gold would prevent the exchange rate from immediately affecting the price of fuel or utilities because domestic vendors would no longer need foreign money to import oil items.
“The demand for foreign exchange by oil importers in the face of dwindling foreign exchange reserves results in the depreciation of the cedi and increases in the cost of living with higher prices for fuel, transportation, utilities, etc.”
“To address this challenge, the Government is negotiating a new policy regime where our gold (rather than our US dollar reserves) will be used to buy oil products. The swap of sustainably mined gold for oil is one of the most important economic policy changes in Ghana since its independence.
“If we implement it as envisioned, it will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency with its associated increases in fuel, electricity, water, transport, and food prices. This is because the exchange rate (spot or forward) will no longer directly enter the formula for the determination of fuel or utility prices since all the domestic sellers of fuel will no longer need foreign exchange to import oil products,” he explained.
Ghana’s gross international reserves were projected to be roughly $6.6 billion at the end of September 2022 or less than three months’ worth of imports. This is less than it was at the end of the previous year, when it was $9.7 billion, according to the government.
Although Ghana produces crude oil, it is now entirely dependent on imports of refined oil products after its only refinery was forced to close in 2017 due to an explosion.
During the presentation of the 2023 budget, Ofori-Atta warned Ghana’s parliament that the West African nation faced a significant danger of a debt crisis and that the depreciation of the cedi was adversely affecting Ghana’s ability to manage its public debt.
A relief package is currently being negotiated between the government and the International Monetary Fund in the country that produces cocoa, gold, and oil even as the country is also going through its worst economic crisis.
