The sharp depreciation of the cedi against the dollar at the end of last year led to a spike in fuel prices, with the additional effect of rising prices of goods and services in the local economy. The gold-for-oil policy is designed to insulate the Ghanaian economy from future depreciation of the cedi.
41,000 metric tonnes sold under the policy have been sent to the Bulk Oil Storage and Transportation Company (BOST) for onward sale to Bulk Distribution Companies (BDCs) around Ghana.
The proceeds of the sale will be placed in an escrow account at the Bank of Ghana to be used to procure more gold to buy more fuel from the international market.
The new consignment is valued at $40 million and sold in a deal brokered by the Economic Management Team led by the Vice President, Dr Mahamudu Bawumia.
Dr. Bawumia announced the government of Ghana to use gold instead of dollars to take oil from the international market last year.
The Vice President explained that the implementation of the policy will result in the exchange rate of the cedi to the US dollar being taken out of the equation when it comes to the price of fuel products in Ghana.
“The challenge we face is limited access to foreign exchange because our foreign exchange reserves have been depleted but the demand has not decreased but remains stable… the continuous depreciation and the impact on fuel, utility prices, food and so on, the government has decided to implement the policy of using our gold to buy oil products.
“If we implement as we have envisioned, it will fundamentally change our balance of payments and significantly reduce the continuous depreciation of our currency with the increase in the price of fuel, electricity, water, transportation and food” Bawumia explained.
He added: “It’s very simple. This is because of the exchange rate…it will not directly enter the formula for determining the price of fuel or utilities once it has been implemented because the purchase of fuel for transportation and utilities will be in cedis, not in dollars. Because you buy fuel with gold, in there is an exchange. But if you sell fuel, you sell it in cedis, then the bank of Ghana uses cedis to buy more gold and buy oil, you sell it and it goes around. Basically, you take the exchange rate out of the equation”