West African nation, Ghana has decided to purchase oil using gold instead of US Dollars. The announcement was made by the vice president of the country, Mahamudu Bawumia on Thursday.
Ghana which is the second most populated country in West Africa has been suffering from dwindling foreign exchange reserves and a severe economic crisis for the past many months. Despite being an oil-producing nation, Ghana needs to depend upon the international market for refined oil and other petroleum products. An attack on an oil refinery in 2017 put Ghana behind in oil refining and the government was finding it unable to cater the domestic needs without importing.
The government of Ghana hopes that the purchase of oil using gold will help it to replenish the foreign exchange reserve. The latest statistics suggest that Ghana’s gross international reserves have fallen by about one-third — from $9.7 billion at the end of 2021 to around $6.6 billion at the end of September 2022.
High inflation rates and the oil supply crisis in the international market had forced international oil suppliers to demand US Dollars in exchange for selling oil. This put more pressure on the already weakened Foreign exchange reserves in Ghana. With the introduction of gold into the oil purchase, the government hopes to slow down the depreciation of the Ghanaian Cedi against US dollars and also to control high inflation in the economy. With the purchase of oil using gold, oil importers and suppliers in the country need not take into account the exchange rate of the cedi against the US dollar. This might help the country in controlling inflation rates and strengthening the falling cedi, at least a little bit.
The West African country has also approached international financial institutions such as the international monetary fund for financial assistance at the time of severe economic crisis.
Ken Ofori-Atta, Finance Minister of Ghana, said on Thursday that the country only has Foreign exchange reserves to import commodities for the next 2.9 months. The government of Ghana had earlier placed a target for Foreign exchange reserves to cover the three-and-a-half-months worth of imports for 2022. The details regarding the situation of the foreign exchange reserve crisis became public through a copy of the budget speech made by Ken Ofori-Atta on Thursday.
Along with other developing economies, Ghana has also been facing high inflation rates due to the tumbling value of the Ghanaian Cedi, the official currency of Ghana. The US dollar has strengthened by more than 130 percent against Ghanaian Cedi due to the economic crisis in the country. Ghanaian Cedi is also one of the worst-performing currencies in the current financial year.