A policy think tank, IMANI Africa, has explained why the Gold Purchase Programme is not Ghana’s answer to the country’s cedi depreciation and economic challenges.
According to a Senior Research Associate at IMANI Africa, Dennis Asare, there are various issues with the programme that will affect its feasibility.
Speaking at IMANI’s “2024 IMANIfesto,” he questioned the policy’s efficacy, explaining that the initial implementation only reduced the exchange rate by 3%.
This initiative was proposed by the New Patriotic Party (NPP) in their manifesto. It involves the Bank of Ghana purchasing gold from the local market, particularly from small-scale mining operations, to strengthen national reserves and support the cedi.
He said: “They want to continue the Gold Purchase Programme to shore up our country’s reserves, which we see that other countries are doing the same thing. What the Bank of Ghana does is that they buy about 20% of gold from the market.
“Now they also want to look at sustainable small-scale mining, buy a lot of that gold, and ensure that they are able to shore up our forex reserves. What we are saying is that, if you look at this promise alone, this year, there was an increase in terms of small-scale mining. But in periods where small-scale mining output does not grow, if this is going to be one of the anchor promises for addressing our exchange issues, how then does the BoG get more gold to address that?” he questioned.
IMANI Africa has warned that the Gold Purchase Programme, on its own, will not achieve long-term stability for the local currency unless accompanied by deeper structural reforms.
“Another challenge is that if we buy gold from large-scale miners in cedis, because some of their capital expenditure is in dollar denomination, they will still have to convert the cedi to the dollar; what we paid in cedis, they will have to convert some of it to the dollar so that they can finance their operations.
“Those underlying dynamics must be worked out so well that we can control our exchange rate. What we think is that since they started doing this, the exchange rate in terms of depreciation has dropped by just 3%, and year by year, it has been depreciating more than 20%,” Dennis Asare added.
The think tank also pointed out that the programme is unlikely to succeed, as it relies on gold prices remaining exceptionally high to meet its goals, which is not a feasible expectation.
“So, this programme may not be effective because what will make this programme effective is that gold prices must be so high that you can buy a lot more to shore up your forex reserves, which we don’t think is possible within the shortest possible time, looking at the global market,” the Senior Research Associate stated.