IMANI Africa has raised doubts about the New Patriotic Party’s (NPP) Gold Purchase Programme as a viable solution for stabilizing the cedi, suggesting it may fall short of resolving Ghana’s economic and currency challenges.
At IMANI’s “2024 IMANIfesto,” senior research associate Dennis Asare discussed concerns over the programme, which is a key feature in the NPP manifesto put forth by flagbearer Dr. Mahamudu Bawumia. The programme envisions the Bank of Ghana purchasing gold, primarily from small-scale mining, to bolster national reserves and support the cedi’s value.
While the programme intends to strengthen the cedi by backing it with gold reserves, Asare questioned its effectiveness, noting that initial results showed only a modest 3% improvement in the exchange rate.
Asare argued that, without further structural reforms, the Gold Purchase Programme alone is unlikely to provide sustained currency stability. “The Bank of Ghana’s approach involves buying about 20% of locally mined gold to shore up reserves. However, if this remains a primary strategy for tackling exchange rate issues, the BoG may struggle to accumulate sufficient gold, especially during periods of reduced small-scale mining output.”
He highlighted additional challenges, such as the need for large-scale miners to convert cedi payments into dollars for operational expenses, which could offset gains from the gold-backed strategy. “For this programme to have a real impact, the dynamics of our exchange rate must be better managed,” Asare noted, adding that while the depreciation rate has slowed by 3%, the cedi still devalues by over 20% annually.
Asare also pointed out that for the programme to be successful, gold prices would need to rise substantially, a scenario he deems unlikely in the short term due to global market conditions.