Fwd : Ghana Plans to Buy Oil with Gold Instead of U.S. Dollars

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Cornelius Hamelberg

Nov 27, 2022, 3:02:59 PM11/27/22
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Ghana Plans to Buy Oil with Gold Instead of U.S. Dollars

Vice President Mahamudu Bawumia has said that in order to protect the country's fast-dwindling foreign currency reserves, Ghana wants to pay for oil with gold instead of shelling out precious U.S. dollars.

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

Bawumia explained that "using gold will 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," he added.

The West African country has been facing one of its worst economic crises.

Ghana's gross international reserves have fallen by about one-third - from $9.7 billion at the end of 2021 to around $6.6 billion at the end of September 2022, according to official data. 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.

  Ghana to Use Gold to Buy Oil Instead of U.S. Dollars to Address Debt Distress

A nugget of gold.

By Kent Mensah

Accra, Ghana — Ghana's finance minister says the country is at high risk of debt distress as the currency, the cedi, has depreciated against the U.S. dollar, increasing its foreign debt by $6 billion this year alone. Ghana on Thursday announced more spending cuts, including a freeze on government hiring and a hike in the Value Added Tax. It's also looking to buy oil using gold rather than U.S. dollars as the West African country grapples with the worst economic crisis in a generation.

There is immense pressure on the Ghanaian government to turn things around, with inflation hitting a record 40 percent in October. Traders closed their shops last month to protest the rising cost of goods and services as citizens decry the high cost of living.

Market confidence is very low as the West African country negotiates with the International Monetary Fund (IMF) for a (U.S.) $3 billion deal to help restructure the economy.

Presenting the 2023 budget in parliament Thursday, Finance Minister Ken Ofori-Atta, who some governing party lawmakers have already called for the president to fire, said depreciation of the cedi continues to be a huge problem as the government strives to address the country's current challenges.

"The demand for foreign exchange to support our unbridled demand for imports undermines and weakens the value of the cedi," he said. "This contributed to the depreciation of the cedi, which has lost about 53.8 percent of its value since the beginning of the year. Compared to the average 7 percent average annual depreciation of the cedi between 2017and 2021, the current year's depreciation, which is driving the high costs of goods and services for everyone, is clearly an aberration - a very expensive one."

As part of the measures to get the economy back in shape, Ofori-Atta announced a freeze on new tax waivers for foreign companies, a review of tax exemptions for mining, oil and gas companies and a reduction in the fuel allocation to government appointees.

Daniel Amartey, an economist with the Accra-based Policy Initiative for Economic Development (PIED), said the spending cuts send a positive signal, but he wants the government to focus more on blocking leaks in the system.

"What could be done more significantly in terms of minimizing government expenditure has to do with the corruption in the system and then financial malfeasance," Amartey said. "So, we should have a way of addressing corruption and its related offences. The government if indeed is ready to minimize expenditures should empower the office of the special prosecutor to be able to deal with corruption and its related offences."

Meanwhile, the Vice-President Mahamudu Bawumia announced on Facebook that Ghana is working on a new policy, effective next year, to buy oil products with gold rather than U.S. dollar reserves as part of the government measures to strengthen the cedi.

Explaining how the policy works, Gideon Boako, the spokesperson of the vice president in a text to VOA said, "it is basically going to be [a] government-to-government transaction. The significant drain on the forex [FX, the foreign exchange marketplace] is from oil imports. Once you lock that tunnel, you are good on the FX side."

He added: "The government of Ghana will buy gold locally with cedis through the Bank of Ghana (financier) and then exchange the gold for fuel (oil) in a barter form, for example, with the government of UAE."

Amartey described the policy as innovative.

"It is a very progressive one and within the shortest possible time it should be able to help us address the depreciation of the cedi. So, less dollars will be used in terms of our exportation."

Read the original article on VOA

More about this at  allAfrica 

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