Bank of Ghana raised rates to 19-year high; Debt-ridden government launches a unique gold-for-oil plan

on Nov 29, 2022
  • Bank of Ghana raised rates by 2.5% in its meeting yesterday to a near two decade high.
  • The government is rolling out a gold-for-oil scheme due to a weak currency and high indebtedness.
  • Authorities announced direct procurement from mining companies.

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Rocketing inflation in Ghana has forced a supersized 2.5% rate hike by the central bank to a 19-year high of 27%, in its meeting yesterday.

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October retail inflation reached 40.4%, over 4 times the country’s target inflation ceiling of 10%, and is showing little sign of cooling.


Adding to inflationary pressure was the sharp depreciation of the local currency, the cedi, amid the strength in the dollar and the surge in crude oil prices earlier in the year.

Source: Google, Refinitiv

The country is gripped by a foreign exchange and debt crisis, as dollar reserves have continued to evaporate, with the local currency losing over 40% of its value in the last 12 months.

Total forex reserves now stand at less than 3 months’ worth of goods and services imports. 

Faced with such a precarious situation, the central bank is looking to stem the erosion of forex reserves by making the rate of return more attractive to foreign investors.

However, due to the debt crisis, a higher rate of interest would also drive higher interest payments.

As a result, to stay afloat, the government has been forced to seek the assistance of international bodies such as the IMF.

A golden parachute?

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Finding itself in a desperate situation, Ghana, which is the largest gold producer in Africa, and the sixth largest in the world is attempting to reorient its balance of payments to offer the precious metal in exchange for oil products.

Although Ghana produces and exports oil, it does not have any refining capacity and imports oil products.

Since international goods and services are priced almost solely in USD, the Ghana government has been forced to sell ever higher amounts of cebi to procure the greenback and finance their spending.


As of September 2022, official forex reserves stood at a depleted $6.6 billion.

Additionally, in a draft publication of the 2023 budget speech, the government has suggested,

“To implement structural and public sector reform…

Expand the gold purchase programme by the Bank of Ghana to support FX Reserve accumulation, promote an LBMA-certified gold refinery in Ghana and promote local currency stability;”

By moving to this new policy regime, the authorities hope to procure refined oil products by bilateral trade with countries that are willing to accept gold as a means of international payment.

Amid rising inflation, higher debt and a weakening currency – a lethal combination for any economy, a structural switch to gold payments will likely halt the depreciation in the local currency, and inflationary pressures will be eased by making the import of oil products more manageable.

Domestic companies and importers, for instance, would not need to arrange specially for dollar funding to access international oil markets.

Given that several countries the world over are struggling due to a surge in the dollar’s strength this year and crushing debt burdens, Mario Innecco, macroeconomic analyst and popular YouTuber, stated,

I think it is going to set an example for a lot of emerging market(s)… of what they could do to help themselves.

Although not specifically mentioned by Ghana, Russia had announced earlier in the year that they will accept gold as final payment from international trade partners for the purchase of oil flows.

Whether Ghana’s plan will be politically palatable to other countries or be seen as both supportive of countries such as Russia, and a threat to the US dollar’s status as the international reserve currency is yet to be seen.

Procurement of gold

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The government appears to be taking decisive steps towards the gold-for-oil structure, with the Vice-President Bawumia announcing that large-scale mining companies will sell 20% of their product directly to the government.

With a total production of roughly 130 MT per year, this would roughly work out to 26 MT being deposited with the treasury on an annual basis, or $1.46 billion at current spot prices.

The government has suggested that purchases will be made without a discount.

Although some miners denied having been approached directly by the authorities yet, a Gold Fields official stated that industry players are already a part of the Bank of Ghana’s gold purchasing program, and are expected to fulfil a quota of delivery of 15,000 oz this year.

Since the yellow metal has been a universally accepted form of commodity money for thousands of years, other fiscally fragile countries will be paying close attention to Ghana’s latest experiment.


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