Fitch Warns: Falling Gold Prices May Spark Cedi Sell-Off

Fitch Solutions has issued a stark warning that a sharp drop in global gold prices could dramatically undermine Ghana’s economic stability. According to the UK-based credit-rating agency, such a scenario could shake the cedi, inflame inflation, and force the Bank of Ghana (BoG) into sustaining higher interest rates for longer. With the local currency’s resilience heavily tied to gold export revenue, a slump in prices could severely erode Ghana’s external reserves and test the central bank’s ability to defend its value.

Gold: Pillar of Economic Stability

Ghana’s foreign exchange reserves have recently been buoyed by unusually high gold prices, which have not only reinforced the cedi but also helped manage inflation. As Fitch notes, any sharp reversal in gold value—potentially triggered by shifts in U.S. trade policy or improved geopolitical relations—poses a direct risk to the economy. The saving grace of elevated gold earnings may transform into a fiscal and monetary burden if prices retreat.

“If gold prices fall dramatically, the cedi could come under renewed pressure, inflation would remain high, and both households and businesses would lose confidence, prompting the central bank to hold interest rates at elevated levels for extended periods,” the report explains.

Gold Dependence: A Double-Edged Sword

While gold revenues act as a lifeline during times of external pressure, they also create exposure to global market swings. The cedi’s strength is closely tied to how much gold is sold internationally. A peak in prices lifts the cedi and softens inflation, while a dip could reverse these gains. This volatility creates a cyclical challenge: when the currency weakens and inflation rises, monetary policy must tighten, which can further curb economic growth.

Positive Scenario: Cedi Appreciation Benefits Economy

Conversely, if gold prices maintain their upward trajectory and support cedi appreciation, Ghana could enter a virtuous cycle. A stronger currency would accelerate disinflation, allowing the BoG to cut interest rates sooner than projected. Such a move could stimulate private consumption and credit expansion.

“Declining inflation, supported by a stronger cedi, would boost consumer confidence and propel domestic demand,” Fitch observed, painting a brighter economic outlook under this scenario.

Fiscal Tightening Under IMF Program

Despite these currency dynamics, Fitch anticipates government consumption will scale back in 2025. Ghana’s ongoing IMF-backed fiscal consolidation efforts aim to restrain public spending and strengthen long-term stability.

“The expected contraction in government spending reflects a strategic pivot toward tighter budgetary control,” the analysis states. The commitment to fiscal discipline may help counterbalance some currency vulnerabilities.

New Growth Projection Rises to 4.9%

Reflecting improving economic fundamentals, Fitch Solutions has revised its 2025 GDP growth forecast for Ghana upward—from 4.2% to 4.9%. This follows the Ghana Statistical Service’s report of 5.3% year-on-year growth in Q1 2025, compared to 3.6% in Q4 2024.

The Q1 surge was driven by stronger crop and fisheries output in agriculture, a rebound in mining and quarrying despite ongoing challenges in the oil sector, and resilient trade activities stoked by rising consumer demand. The mining sector, especially gold extraction, benefited from high pricing.

Retail and trade activity were standouts, underscoring the role of household spending in sustaining the growth momentum.

Strategic Balance — Reform and Resilience

Ghana’s economy now stands at a critical juncture. While recent performance is commendable, its dependence on gold prices and sensitivity to external economic forces carry substantial risks. Fitch emphasizes that the credibility of Ghana’s macroeconomic management—especially in executing structural reforms and maintaining flexible exchange rate policy—will determine the country’s ability to navigate future shocks.

“Investor confidence in Ghana will depend not only on gold-related revenue flows but also on broader policy coherence and resilience to outside pressures,” the analysis concludes.

With global markets prone to swift changes—particularly in response to moves by the U.S. administration or easing geopolitical tensions—Ghana’s economic trajectory remains a high-stakes balancing act. The coming months will test whether the nation can sustain growth while guarding against external volatility.