The Bank of Ghana (BoG) has announced it is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies.
According to the bank, this will strengthen the central bank's foreign exchange auctions and boost the supply of foreign exchange to the economy.
A release issued by the Monetary Policy Committee (MPC) of the Bank of Ghana, which made this known, said “The US dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana's peers) are all experiencing sharp depreciation to date. The Ghana cedi has depreciated by 25.5 percent year-to-date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, nonresidents disinvestment in local currency bonds, and loss of reserve buffers.”
The cedi slumped to a fresh record low against the dollar this week, trading at 9.38 from 9.03 at last week's close.
The MPC also noted that recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks.
“This has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.”
Banks Primary Reserve Requirement Increase
The BoG further said it has raised the primary reserve requirement of banks from 12 percent to 15 percent to be implemented in a phased manner.
It will be raised to 13 percent from 1st September, 2022; followed by 14 percent by 1st October, 2022; and then 15 percent by 1st November, 2022.
The central bank, explaining the rationale for such measures, among others, said the execution of the budget for this year has remained challenging. “Revenue has not kept pace with projections and created financing challenges. In the absence
of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review,” it indicated adding that “The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft.”
It continued that whilst addressing the immediate financing problems, the ongoing policy discussions with the IMF are expected to address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and provide sustainable balance of payments cushion.
AZA Finance, Africa's largest non-bank currency broker by trading volume at over US$1 billion annually, in its recent survey, said “The IMF is concerned that Ghana is not moving fast enough on its economic reform efforts to extend further support from the Fund. We expect the larger than expected hike to at least slow the cedi's recent slide against the dollar.”