Data from the Bank of Ghana has revealed that Ghana’s Gross International Reserves have shot up by 2.5% year-on-year in December 2020.
Gross International Reserves at the end of December 2020 was US$8,624.4 million compared to US$8,418.1 million in December 2019. Albeit, below the record high of US$9,883.0 million in March, 2020. This indicates an increase in the country’s reserves by as much as US$ 206.3 million.
The data reveals that the current value of the country’s reserves is enough to guarantee an import cover of 4.1 months. Comparatively, this is just slightly above 3.9 months import cover as at November 2020.
With an import cover of this size, Ghana’s currency still remains unstable, as eight to ten months of import cover is required for the stability of a currency. Meanwhile, the cedi is said to have depreciated by 3.5 percent at year-end 2020. This is largely attributed to the success of the Central Bank’s introduction of the forward forex transactions to establish an efficient exchange rate price discovery anchored by macroeconomic fundamentals rather than by speculative trading.
Notably, the rise in Ghana’s external position is evident by other key developments in the external sector. Total exports in December 2020 increased by US$1, 4452.8 million from US$1, 3162.8 million, indicating a month-on-month increase of 9.80 percent. However, declining from US$1, 5667.5 million as at December 2019.
Gold exports also made a record high of US$6,799.1 million last year. Thus, indicating a year-on-year increase of 9.14 percent. Evidently, this overwhelming increase is due to the high demand of gold by investors as a safe haven asset.
Other export commodities such as Cocoa and Oil also performed well. As volume of cocoa exports increased from US$2, 288.4 million to US$2, 336.1 million between November 2020 and December 2020. Oil exports also increased from US$2619.4 million in November 2020 to US$ 2,910.6 million in December 2020.
Bank of Ghana’s data further shows that the country’s trade balance as at year-end 2020 was US$2, 015.4 million. This surplus in trade is the highest throughout last year, although this value is a slight decline from the 2019 trade balance of US$2, 256.8 million. The country’s trade balance as a percentage of GDP stood at 3 percent as compared to that of the previous month of 2.5 percent.
The significance of rising Reserves
The rising reserves give a lot of comfort to the government and the Bank of Ghana in managing Ghana’s external and internal financial issues at a time when the debilitating effects of the COVID-19 pandemic continues to wreak havoc to the growth of the economy. It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year. Rising reserves also helps the cedi to strengthen against the dollar.
Reserves also provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.
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