Ghana’s Vice President, Mahamudu Bawumia took to Facebook on Thursday to say that the country is developing a new strategy that would see it purchase oil products using gold rather than U.S dollar reserves.
The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.
If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”, Bawumia said.
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 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.
“The barter of gold for oil represents a major structural change,” he added.
Ghana produces crude oil, but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.
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.
The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.
The reserves will cover just 2.9 months of the country’s goods and services imports — short of the government’s target of covering three-and-a-half-months worth of imports for 2022, according to a copy of the country’s budget speech delivered by finance minister Ken Ofori-Atta on Thursday.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur