Gold purchase alone won’t solve Ghana’s exchange rate challenges – IMANI tells government

IMANI Africa has expressed deep concerns over the feasibility of the New Patriotic Party’s (NPP) proposed Gold Purchase Programme as a solution for stabilizing the cedi, arguing that it may be insufficient to address Ghana’s currency and economic challenges.

Speaking at IMANI's “2024 IMANIfesto,” Dennis Asare, a senior research associate at IMANI Africa, outlined key issues with the programme, which has been highlighted in the NPP's manifesto by flagbearer Dr. Mahamudu Bawumia.

The initiative involves the Bank of Ghana purchasing gold from the local market, particularly from small-scale mining operations, to strengthen national reserves and support the cedi.

While the programme aims to stabilize the cedi by backing it with gold reserves, Asare questioned its efficacy, pointing out that initial implementation only reduced the exchange rate by a modest 3%.

He suggested that without additional structural reforms, the programme alone would likely have minimal long-term impact on currency stability.

“They want to continue the Gold Purchase Programme to shore up our country’s reserves, which we see that other countries are doing the same thing. What the Bank of Ghana does is that they buy about 20% of gold from the market.

“Now they also want to look at sustainable small-scale mining, buy a lot of that gold and ensure that they are able to shore up our forex reserves. What we are saying is that, if you look at this promise alone, this year, there was an increase in terms of small-scale mining. But in periods where small-scale mining output does not grow. If this is going to be one of the anchor promises for addressing our exchange issues, how then does the BoG get more gold to address that?

“Another challenge is that if we buy gold from large-scale miners in cedis because some of their capital expenditure is in dollar denomination, they will still have to then convert the cedi to the dollar; what we paid in cedis, they will have to convert some of them to the dollar so that they can finance their operations.

“Those underlying dynamics must be worked out so well that we can control our exchange rate. What we think is that since they started doing this, the exchange rate in terms of depreciation has dropped by just 3% and year by year, it has been depreciating more than 20%.

“So, this programme may not be effective because what will make this programme effective is that gold prices must be so high that you can buy a lot more to shore up your forex reserves, which we don’t think is possible within the shortest possible time looking at the global market,” he stated.

-citinewsroom