Ghana’s Gross International Reserves (GIR) have suffered a third consecutive decline in April this year, pushing the country’s import cover to its lowest levels over the past two years.

Data from the Bank of Ghana show that the country’s reserves currently stands at US$8,344.3 million as of the end of April 2022, lower than US$8,801.1 million recorded in March this year. The 5.2 percent decline, impacted the import cover which dropped from 3.9 months in March to 3.7 months in April 2022.

Gross international reserves ended 2021 at US$9,695.2 million and provided an import cover of 4.3 months. However, gross reserves rose to US$9,769.6 million at the end of the first month of the year, which resulted in an import cover of 4.4 months.

Just after that, the country’s reserves started depleting, first in February, when they declined to US$9,548.0 million with the import cover falling to 4.2 months in the second month of the year. At the end of the first quarter (Q1), total reserves were US$8,801.1 million and provided a cover of 3.9 months to the country’s imports.

Gross international reserves were as high as US$11,442.5 million in August 2021 and provided an import cover for 5.2 months for the local currency. That was the highest value recorded in 2021. The strong build-up of reserves in August last year was supported by the US$1 billion Special Drawing Rights (SDRs) that Ghana received from the IMF. After that, the reserves have since declined by US$3,098.2 million to their current levels in April 2022.

On a year-on-year basis, gross reserves fell by US$2646 million when compared to the total reserve position of US$10,990.3 million in April 2021. This represents 24.08 percent decline over the past one year.

Intense pressure on the local currency

The uninterrupted depletion of the country’s gross international reserves continues to exert intense pressure on the local currency which depreciated against all its major trading currencies in the first four months of the year.

Data from the Bank of Ghana showed that the Ghana Cedi depreciated by 15.6% against the US dollar in April 2022. This compares to an appreciation of 0.5% in the corresponding month of last year. Also, the local currency depreciated against the British pound by 9.0% at the end of April 2022 compared to a depreciation of 0.6% in April last year.

The Ghana Cedi likewise, depreciated against the Euro by 8.9% as at the end of April 2022 relative to an appreciation of 2.4% in the corresponding month last year.

The local currency has come under some demand pressures from commerce, manufacturing, and energy sectors as economic activity picked up and demand for imports continue to rise.

The decline in the import cover in April further pushed it below the ideal value of 8 to 10 months which is essential for a stable currency. There is the need to shore up more reserves in the coming months to provide some stability to the local currency against precipitous depreciation in the second quarter of the year.

International reserves comprise foreign currencies, other assets denominated in foreign currencies, gold reserves, SDRs and IMF reserve positions. These reserves may be used for direct financing of international payments imbalances, or for indirect regulation of the magnitude of such imbalances via intervention in foreign exchange markets in order to affect the exchange rate of the country’s currency.