Dr. Ernest Addison, the governor of the Bank of Ghana, has allayed concerns about the nation’s declining foreign reserves by asserting that once the policies set by the government and the Bank begin to show results, everything would return to normal.
The Gross International Reserves (GIR) have decreased to GH6.6 billion as of October this year, representing just 2.9 months of import cover compared to GH10.6 billion a year ago, which represented 4.8 months of import cover, according to the Summary of Economic and Financial Data (November 2022) published by the Bank of Ghana.
In the same vein, the net international reserves (reserves readily available to the central bank) have also depleted to GH¢2.8billion from GH¢7.2billion in the same period under consideration. This has raised some concerns over a possible total depletion of the reserves, which would have dire consequences for the economy – especially on the cedi, as it has already lost more than 50 percent of its value to the dollar this year.
But queried at a press conference after announcing a 250 basis points increase in the policy rate, which effectively takes it to 27 percent, Dr. Addison said the depleted reserves result from significant outflow transactions that have taken place this year with no corresponding inflows; adding that these are government obligations which have to be performed at all cost.
“This year alone, even though we didn’t go to the capital market we still had to service our debt. The numbers suggest that we experienced an outflow of US$5.2billion year-to-date in 2022. That is the extent of pressure on the central bank’s reserves because we had to pay our loans, almost US$3billion outflows to service debt – interest and amortization; almost US$800million to pay for energy payments; another US$1.8billion to support the market’s functioning. So we are seeing a situation where from the outflow side these are obligations that you cannot default. As I speak, we are still servicing our debt.
“And from the inflow side, the only major inflow that has come to support the budget this year is the Afri-Exim bank loan; and then, fortunately, we have the cocoa loan inflow in October. On a net basis we have lost, on a balance of payment basis, almost US$3.4billion as at the end of September; and we are projecting that we will even lose more. By December we could have lost US$4billion,” he said.
The Governor however expressed optimism over discussions with the IMF: that when completed and successful, the agreement will add about US$3bilion to the foreign currency buffers, in addition to its own gold purchasing policy which has already kick-started.
“If we are successful with the restructuring operations, the burden on balance of payments, in terms of external interest payment, will also be lifted; so we do not expect to see the same type of outflows we have seen this year…The IMF financing is an important part of the outlook. Hopefully, that will bring in US$3billion over the three-year period. And one of the things we are doing is buying gold to help improve reserve buffers,” he said.