Gold for oil policy is to tackle dwindling foreign currency reserves

The economic challenges facing the country today calls for the taking of pragmatic steps to help reduce the burden on Ghanaians and make things a bit easy for the people in this country.

In doing so, it will help deal with the purchase of an essential commod­ity like crude oil to enable economic life to continue smoothly for the country irrespective of the serious challenges facing the entire world including our dear country.

The decision to use oil to purchase fuel for the country is a major step that shows that the leadership of this country is thinking outside the box to make life bearable even in a situation where things are extremely difficult.

The normal practice is that crude oil is imported into the country with the use of the US dollar and this is a practice that is accepted by many countries in the world.

This practice has established the US currency as an essential global commodity used to transact business among countries in the world.

For this reason, countries that are import oriented tend to put more demand for the US dollar, thereby causing a reduction in the value of the local currency which in the case of Ghana is the Cedi.

The Cedi will continue to depre­ciate in relation to other foreign currencies as long as undue pressure is put on the Dollar for the import of products into the country. If a reverse for this situation can be found, that is more products can be exported rather than imported, it will help the Cedi to appreciate its value against the dollar and other foreign currencies.

In the light of this, it becomes easy to understand why the leaders of this country are taking such a practical positive step to reverse the situation in this country and use one of our precious minerals, that is gold, as an exchange commodity to import crude oil.

This is why Ghana’s government, as has been pointed out already, is working on a new policy to buy oil products with gold rather than U.S. dollar reserves. This point was made by Vice-President Mahamudu Bawumia recently.

The move, he pointed out, is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

Ghana’s Gross International Re­serves stood at around $6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around $9.7 billion at the end of last year, accord­ing to the government.

If implemented as planned for the first quarter of 2023, the new policy will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency.

If Ghana for instance uses about $400 million to import crude oil every month, we can easily imagine the tremendous pressure this puts on the dollar. Thus, together with other demands for imports, the pressure on the dollar keeps escalating and this explains why the Cedi continues to depreciate, making imported prod­ucts very expensive in this country.

To correct this economic imbal­ance, there is the need to reduce imports of foreign goods. Government has already made it clear in the 2023 budget statement that imports are to be cut down by 40 per cent.

Using gold would prevent the exchange rate from directly impact­ing fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products.

The barter of gold for oil rep­resents a major structural change. Government is therefore right in tak­ing this action so that the economic situation in the country can be made better for all Ghanaians.

The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-produc­ing nation receiving non-oil goods rather than the opposite.

Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017. With time, the oil refinery in Tema, TOR, can be refurnished to make it workable so that arrangements can be made to refine our own oil in this country.

This means that we will have to negotiate a deal with investors in our oil exploration in the country so that the crude oil will not have to be sent out to be refined before being brought back into the country for consumption.

The policy relating to the use of gold for fuel is an innovative way of dealing with the enormous deprecia­tion of the Cedi and thereby help in correcting the economic imbalance in the country. As much as possible, Ghanaians must support such a policy so that the entire country will benefit from this good deal.

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Pradmat201@gmail.com (0553318911)

By Dr. Kofi Amponsah-Bediako