Ghana halts oil payments using gold

Ghana’s newly appointed central bank governor, Johnson Asiama, has announced the suspension of the country’s gold-for-oil programme. This decision comes as he expresses confidence in the stability of the cedi, which experienced significant volatility in the past year. Asiama emphasized that the country is now focusing on maintaining a sound monetary policy and fiscal discipline under President John Mahama’s administration to ensure stability in Ghana’s foreign exchange markets.

In an interview with Bloomberg on Friday, Governor Asiama explained that the central bank’s objective is to adopt an appropriate monetary policy stance. With interest rates currently set at 27% and inflation easing to 23.5% as of January, Asiama is optimistic that improvements in both monetary and fiscal policy coordination will help alleviate inflationary pressures. This, he believes, will help Ghana move beyond the economic difficulties that stemmed from the country’s debt default in 2022. After this default, Ghana, the largest gold producer in Africa, secured a $3 billion bailout from the International Monetary Fund (IMF) and undertook a major debt restructuring process.

Despite the challenges of the previous year, Asiama indicated that the cedi, which depreciated by 19% against the US dollar in 2023, will avoid the “extreme volatilities” that plagued the currency in the past months. According to him, the stability of the cedi is an achievable goal, thanks to the new measures being implemented by the Bank of Ghana.

Suspension of the Gold-for-Oil Scheme

The gold-for-oil initiative, introduced by the previous government as a strategy to mitigate currency fluctuations, has now been put on hold. Under the programme, the Bank of Ghana would purchase gold in local currency and use it to either barter for or purchase oil. However, the scheme has faced financial difficulties, leading to its suspension. Asiama admitted that the gold-for-oil programme incurred financial losses and noted that the central bank had decided to pause the initiative. While he did not provide specific figures regarding the losses, he confirmed that the suspension was necessary to assess the scheme’s effectiveness.

The gold-for-oil programme was designed as a response to the challenges of Ghana’s foreign exchange market, allowing the country to secure oil imports without using the cedi directly. In 2024, Ghana’s oil import bill amounted to $4.5 billion, a substantial expenditure. By September of that year, the central bank had accumulated 65.4 tonnes of gold, with 30.5 tonnes added to the country’s foreign reserves by the end of the year. While the scheme provided some support, the costs associated with it ultimately led to its suspension.

Looking forward, Asiama suggested that the central bank might withdraw from gold procurement entirely. He proposed that a newly established Gold Board would take over the responsibility for managing Ghana’s gold reserves, thus shifting this function away from the central bank. This change aims to streamline operations and better manage the country’s gold assets.

Addressing Financial Losses at the Central Bank

Governor Asiama also highlighted the financial losses experienced by the central bank in recent years. In 2022, the Bank of Ghana recorded a significant overspending of 60.9 billion cedis (approximately $3.9 billion), primarily due to loan write-downs required to secure the IMF bailout. These financial losses have been a major concern for the institution and the country as a whole. However, Asiama reassured the public that such losses would not recur in the current year. He stressed that the central bank is taking decisive measures to control operational costs and ensure financial stability going forward.

Asiama’s leadership, which began when he was sworn into office by President Mahama on February 25, will focus on stabilizing the financial system and restoring the central bank’s financial health. With the right fiscal and monetary policy measures in place, he believes the Bank of Ghana can avoid further losses and contribute to the overall economic recovery of the country.

In conclusion, the suspension of the gold-for-oil programme marks a significant shift in Ghana’s approach to managing its foreign exchange and oil imports. While the central bank faces challenges, Asiama is optimistic that the combination of prudent fiscal discipline, effective monetary policy, and improved coordination will lead to greater stability for the cedi and Ghana’s economy as a whole.