The government of Ghana plans to use the gold to buy oil raw. This is based on an upload by Vice President Mahamudu Bawumia to Facebook last Thursday.
This step was taken to overcome the low foreign exchange reserves belonging to Ghana. The use of dollars to import oil has weakened Ghana’s currency, the Cedi, causing the cost of living to rise.
Ghana’s gross international reserves stood at approximately $6.6 billion at the end of September 2022. This amount is down from $9.7 billion at the end of last year and is estimated to be sufficient to meet import needs for less than 3 months.
If according to plan, the policy will be implemented in the first quarter of 2023. Bawumia said that this policy will reduce the pressure on the Ghanaian currency.
“The policy will change our balance of payments and significantly reduce the continued depreciation of our currency,” Bawumia said, quoted by Reuters on Friday (11/25/2022).
Using gold would prevent exchange rates from having a direct impact on fuel or utility prices. Because domestic sellers no longer need foreign exchange to import petroleum products.
“Bartering gold for oil is a major structural change,” he added.
The policies proposed by the government are very unusual. Many countries sometimes exchange oil for other goods or commodities, such deals usually involving the oil producing country receiving non-oil goods rather than the other way around.
Ghana produces crude oil but depends on imports of refined petroleum products. This has been since its sole refinery was shut down after the explosion in 2017.
Bawumia’s announcement came as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenue in a bid to deal with the escalating debt crisis.
In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned that the West African country was at high risk of a debt crisis. Meanwhile, the depreciation of the Cedi has severely undermined Ghana’s ability to manage its public debt.
The government is negotiating an aid package with the International Monetary Fund as the cocoa, gold and oil producing nation faces the worst economic crisis of its generation.