The Institute for Fiscal Studies (IFRS) has called for a change in the ownership structure of the country’s major merchandise exports.

In resetting Ghana’s external sector, it wants the ownership structure of the country’s two major merchandise exports, gold and oil to be changed.

Therefore, it wants the government to actively participate in the gold and oil sectors by acquiring commanding interests through joint venture arrangements.

According to the economic think-tank, this is the surest way for the government to rope in more revenue from the extractive sectors and help stabilise the cedi.

“An alternative to the above is the use of production sharing agreement. These will ensure that the bigger part of export revenues from these commodities return to Ghana in hard currencies for the defense of the cedi and thus help prevent future crises”.

“Thus, taking controlling interests in the extractive sector through joint venture arrangements or the use of production sharing agreements is of critical importance for two reasons: (1) it is needed for the generation of adequate fiscal revenue for effective fiscal management, and (2) it is instrumental in helping the country generate enough actual export revenue in foreign currencies for the stabilisation of the cedi without the negative effect of external debt buildups and large foreign debt service payments, which make Ghana’s economy crisis-prone”, it said.

IFRS, in a statement, said Ghana’s merchandise export, which has been the main driver of the merchandise trade and current account balances, has had little effect on the strength of the Ghana cedi relative to foreign currencies.

“Indeed, the capital and financial account balance of the balance of payments has been the balance of payments variable that determines the strength of the cedi relative to foreign currencies in Ghana. The cedi does not largely respond to the behavior of merchandise export and its impact on trade and current accounts, at least within the period under consideration. The main variable under capital and financial account of the balance of payments the Government of Ghana has been using to manage the cedi is international borrowing”.

“As we already know, the average depreciation rate of the cedi against the US dollar stood at 8.7% during this period. In 2020-2021, the depreciation rate of the cedi against the US dollar declined to 4.0% because, driven by increased Eurobond issuance during the period, average capital and financial account balance increased to US$3.096 billion".

However, in 2022-2023, the Government of Ghana was unable to borrow externally due to the downgrade in Ghana’s credit rating to junk status in early 2022, turning the capital and financial account into a negative balance of as much as -US$1.437 billion. This is the cause of the dramatic average depreciation of the cedi against the US dollar by 28.9% in 2022-2023”, it alluded.

It added that the critical question now is, why is it that growth in merchandise exports has an insignificant effect on the strength of the cedi as we saw above, making the government of Ghana resort to external borrowing to defend the value of the cedi?