Ghana plans to buy oil with gold instead of dollars
The move is aimed at tackling dwindling forex reserves amidst rising inflation and a weakening local currency.
The West African nation has warned it is facing its worst economic crisis in a generation [File: Reuters]
Ghana’s government is working on a new policy to buy oil products with gold rather than US dollar reserves, Vice President Mahamudu Bawumia has said on Facebook.
The move, announced on Thursday, 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.
Ghana’s Gross International Reserves stood at around $6.6bn at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7bn at the end of last year, according to the government.
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 barter of gold for oil represents a major structural change,” he added.
The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.
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.
Vice President Dr. Mahamudu Bawumia has stated that some analysts and commentators have misinterpreted Ghana’s stated policy of using gold reserves to pay for oil as an attempt by the country to move away from the US dollar for international transaction.
Speaking at the 2022 AGI Awards in Accra, Dr. Bawumia noted that to the contrary, Ghana’s gold-for-oil programme will give Ghana the space to accumulate more international reserves as the country will save the $3 billion it spends on oil imports.
He further stated that the use of gold was specifically for oil imports in the face of declining foreign exchange reserves.
“Unfortunately, some people have misinterpreted this as Ghana being against the use of the US dollar in international transactions,” he stated.
“Far from it. We want to accumulate more US dollar reserves in the future.”
Vice President Bawumia noted that a major source of Cedi depreciation has been the demand for forex to finance imports of oil products and to address this challenge, government is negotiating a new policy regime where sustainable mined gold will be used to buy oil products.
“If we implement the gold-for-oil policy as it is 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, he noted, is because the exchange rate 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.