Ghana cuts dollar supply for gold-for-oil policy

The Bank of Ghana has recently announced a significant cut in its dollar supply to authorized FX dealing banks and bulk oil distribution companies operating in the downstream sector, slashing the amount by $80 million for the second quarter of the year. This decision has raised concerns and drawn mixed reactions from various stakeholders, particularly regarding its impact on the country's gold-for-oil policy. Joining CNBC Africa to shed light on the implications of this move is John Gatsi, the Dean at the University of Cape Coast School of Business. Ghana's gold-for-oil policy, which aims to exchange gold for imported oil, has been a topic of debate due to governance issues and perceived lack of transparency. Gatsi highlights the concerns raised by oil companies regarding the government's use of an intermediary in the transactions, which has sparked doubts about the sustainability of the arrangement. Additionally, there is skepticism about whether the perceived benefits in terms of refined oil products are actually a result of the gold-for-oil policy or simply a response to the global drop in crude oil prices. The recent reduction in dollar supply from $200 million to $120 million has raised questions about the government's control over the exchange rate and its move towards centralizing oil imports, contradicting the country's deregulation regime. This shift could potentially alienate oil companies and disrupt the market-led economic structure in Ghana. Furthermore, Ghana is facing additional economic challenges as it eliminates fuel subsidies and introduces new taxes aimed at generating additional revenue. The projected revenue increase of 3.96 billion Ghanaian cedis through these taxes comes at a time when the country is already grappling with high inflation rates and soaring interest rates, hovering around 40 percent for businesses. Gatsi warns of the potential inflationary pressure resulting from the new taxes and the impact on banking liquidity and capital base following the recent debt exchange program. Despite the government's attempts to boost revenue and stabilize the economy, Gatsi emphasizes the delicate balance needed to navigate these policy changes without destabilizing the financial sector or further burdening citizens already facing economic hardships. The ongoing adjustments in Ghana's economic policy require careful monitoring and strategic decision-making to ensure sustainable growth and stability in the face of challenging global economic conditions.