According to the Vice President of the Republic of Ghana Mahamudu Bawumia’s Facebook post, the Government is developing a new strategy to allow it to purchase oil goods using gold instead of United States Dollar (USD) reserves.
The decision, made public on Thursday, aims to combat the depreciation of the Ghanaian cedi (GHS) and the rising cost of living caused by depleting foreign exchange reserves and the need for US Dollars for oil importers.
The country is a major producer of cocoa, gold, and oil. To address the country’s most significant economic crisis in a generation’s time, the Ghana Government is discussing a relief package with the International Monetary Fund (IMF).
Towards the close of September this year (2022), the Gross International Reserves of Ghana were estimated to be about 6.6 Billion US Dollars, or under three months’ worth of imports. As stated by the Ghana Government, it is less than the 9.7 Billion US Dollars it was at the previous year’s close.
The Vice President said that the policy change would significantly alter their Balance Of Payments (BOP) and considerably lessen the ongoing depreciation of their currency if it is enacted as scheduled for the 1st Quarter (Q1) of the year 2023. Since domestic vendors need not require foreign exchange for importing oil products, utilizing gold will keep the exchange rate from directly impacting the cost of fuel or utility services. A significant structural transformation is represented by the exchange of gold for oil.
The suggested policy is unusual; although nations occasionally exchange oil for several other products, in most cases, the recipient is an oil-producing country instead of the other way around. Ghana has crude oil production; however, since its sole oil refinery was closed in response to an explosion in 2017, it has depended on refined oil product imports.
The Vice President’s declaration came as the Minister for Finance and Economic Planning, Kenneth Nana Yaw Ofori-Atta, unveiled plans to reduce spending and increase revenue to stem the tide of mounting debt. While presenting to the parliament the 2023 Budget on Thursday, the Finance Minister cautioned that Ghana was in high danger of a debt crisis and that the weakening of the Ghanaian cedi (GHS) was negatively impacting the country’s capacity to handle its public debt.