The 2023 International Monetary Fund Regional Economic Outlook Report for Sub-Saharan Africa has indicated that Ghana’s net international reserves is almost depleted, a sign of great danger for the economy in the coming weeks.
According to the Regional Economic Outlook Report for Sub-Saharan Africa, the reserves are expected to end in 2023 at approximately three weeks of import cover (0.8 months).
This is in contrast to the Bank of Ghana’s Summary of Economic and Financial Data, which estimated Ghana’s reserves for 2023 at 2.7 months of import cover, while the report indicates it stood at a little above two weeks (0.6 months) of import cover in 2022.
The Implication is that if foreign inflows cease, Ghana’s economy will suffer significantly as there are only limited dollars in the reserves for balance of payment transactions.
Therefore, the IMF bailout of $3 billion loan is critical for Ghana’s economic stability going forward.
The report predicted that the country’s reserves will increase to about 1.7 months of import cover in 2024.
Only Zimbabwe (0.2 months), South Sudan (0.5 months), and Ethiopia (0.6 months) in Sub-Saharan Africa are projected to have lower import cover than Ghana.
In March 2023, the Bank of Ghana reported that Ghana’s net international reserves had slightly improved to $2.62 billion, about 2.8 months of import cover in February 2023, up from $2.24 billion in December 2022, which was about 2.7 months of import cover.
However, the country’s Balance of Payment had a deficit of $3.63 billion, equivalent to approximately 5% of Gross Domestic Product by the end of February 2023.
The accumulation of foreign exchange reserves by the monetary authorities of emerging and developing economies is now considered an important requirement to proper functioning of the an economy.
In many emerging economies, the holding of foreign exchange reserves now exceeds any measures of optimality which could be defined as self-insurance against possible shocks (precautionary motive).
It has been recently argued, in the light of the recent experience with the financial crisis, that the unilateral accumulation of reserves provided a fundamental buffer without which several emerging economies would not have endured the sudden stop in capital inflows and the seizing-up of local markets in foreign currency.
The reserve build-up has been often coupled with excess net portfolio inflows, often called speculative inflows of hot money by the accumulating countries.
READ ALSO: Global Cybertech Investments Decline Significantly By 81% in First Quarter of 2023
