Analysing Ghana’s plan to end gold for oil policy

The Bank of Ghana has announced plans to gradually phase out the Gold-for-Oil policy, which was implemented earlier this year to stabilize fuel prices in the country. According to the Central Bank, the program has successfully achieved its purpose and is no longer deemed necessary. Courage Boti, an Economist at GCB Capital, joined CNBC Africa to discuss this significant move in light of Ghana's efforts to unlock the second tranche of $600 million under the IMF Extended Credit Facility arrangement and the Cocoa syndication loan by the end of the year. Courage Boti acknowledged the instrumental role the Gold-for-Oil policy played during a period of low reserves, limited offshore inflows, and tight liquidity conditions in the local market. The policy facilitated the importation of much-needed oil and helped build reserves for the country. Boti highlighted that the Bank of Ghana reported successful mobilization of reserves, with a significant portion of the refined oil consumed in Ghana being imported using the Gold-for-Oil policy since the beginning of 2023. While the Bank of Ghana aims to phase out the policy as stability objectives are met, Boti cautioned that Ghana's current reserve levels, standing at 1.1% of import cover, indicate ongoing economic challenges. One of the focal points of the discussion was the timeline for receiving the second tranche of the IMF Extended Credit Facility Arrangement amounting to $600 million. While initial expectations pointed towards November, Boti expressed skepticism about the timeline, citing ongoing negotiations and uncertainties surrounding the release of the funds. He noted that the Finance Minister had been engaging with official creditors to expedite the process but emphasized the tight timeframe for reaching a deal by December. Boti remained cautious about setting definitive timelines, considering the complexities involved in the negotiations. On a more positive note, Boti mentioned the likelihood of the COCO syndication loan being disbursed in the coming weeks, following parliamentary approval. The injection of approximately $800 million in tranches could provide relief to Ghana's currency situation, particularly after recent adjustments to cash reserve ratios and currency holdings. Boti pointed out that these inflows, along with other measures, are expected to steady the local currency and mitigate seasonal pressures around the Yuletide season and into the first quarter of the year. In wrapping up the conversation, the focus shifted to Ghana's inflation slowdown and the sustainability of the downward trend in the coming months. While Boti commended the Monetary Policy Committee's vigilance on inflation, he refrained from making definitive statements about Ghana's ability to maintain the slowdown within the first quarter. The upcoming months will be crucial in monitoring economic indicators and policy responses to ensure stability and growth. As Ghana navigates its economic landscape amid shifting policies and global financial dynamics, stakeholders remain attentive to developments in key sectors. The phased approach to ending the Gold-for-Oil policy signals a transition towards broader economic strategies aimed at strengthening Ghana's financial resilience and fostering sustainable growth.