Vice President, Dr Mahamudu Bawumia, has revealed that the implementation of government’s gold for oil policy will change the balance payment of the country significantly.
According to him, the move will equally help other aspects of the economy thrive under the current economic crisis. He indicated that a major source of cedi depreciation has been the demand for forex to finance Ghana’s import of oil products.
To address this challenge, the Vice President noted that government is negotiating a new policy regime where sustainably 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.”
Dr Mahamudu Bawumia
Dr Bawumia explained that some analysts and commentators have misinterpreted Ghana’s stated policy of using gold reserves to pay for oil as an attempt by Ghana to move away from the US dollar for international transactions.
Contrarily, he stated that Ghana’s gold for oil program will offer the country the space to accumulate more international reserves as the country will save the $3 billion it spends on oil imports. He emphasized that the use of gold was precisely 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. Far from it. We want to accumulate more US dollar reserves in the future.”
Dr Mahamudu Bawumia
Relevance of government’s gold for oil barter
The Vice President asserted that 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.
“Many governments, including ours, are facing very difficult economic crisis that requires solutions that must come out of the box. How do we stop the depreciation? How do we stop the persistent increases in the prices of fuel and utility? We have been thinking about this long and hard.”
Dr Mahamudu Bawumia
Dr Bawumia iterated that the challenge that Ghana faces is a limited access to foreign exchange as the country’s foreign exchange reserves have depleted but the “demand has not fallen but been relatively steady”.
In light of this, he noted that the demand exceeds the supply and then you have depreciation.
“So, the thinking was that how do we get in more foreign exchange reserves for the country to be able to stem this gap between the demand and the supply.”
Dr Mahamudu Bawumia
The Vice President in hindsight, questioned why government won’t accumulate reserves in terms of gold when gold is a foreign exchange reserve in its own right, especially considering Ghana produces gold.
Dr Bawumia expressed that since gold is a foreign exchange commodity, the “moment we dig it up, we have forex in hand, which is exponentially better than earning foreign exchange via other commodities like cocoa and oil which needs to be sold before earning dollars”.
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