IMANI Africa has raised concerns about the feasibility of the New Patriotic Party’s (NPP) proposed Gold Purchase Programme as a long-term solution for stabilizing the Ghanaian cedi.

The think tank insists that while the programme may offer some short-term relief, it is unlikely to resolve the country's broader currency and economic challenges.

At the “2024 IMANIfesto” event, Dennis Asare, a senior research associate at IMANI Africa, shared insights into the potential limitations of the programme.

The initiative, championed in the NPP’s manifesto by flagbearer Dr. Mahamudu Bawumia, involves the Bank of Ghana purchasing gold from local markets, especially from small-scale miners, to build national reserves and support the cedi.

The programme’s goal is to stabilize the cedi by increasing gold-backed reserves, theoretically adding strength to the currency.

However, Mr Asare expressed doubts about its effectiveness, noting that previous implementations of similar initiatives only resulted in a modest 3% reduction in the exchange rate.

According to Mr Asare, relying solely on gold purchases without addressing structural issues within the economy may lead to minimal and temporary impacts.

He emphasised that while gold can contribute to national reserves, it does not address fundamental drivers of exchange rate volatility, such as trade imbalances and reliance on imports.

Mr Asare concluded that for a lasting impact on the cedi’s stability, the government should consider additional structural reforms alongside the gold programme.

He urged policymakers to adopt a comprehensive approach to stabilize the currency and strengthen the economy over the long term.

“They want to continue the Gold Purchase Programme to shore up our country’s reserves, which we see that other countries are doing the same thing. What the Bank of Ghana does is that they buy about 20% of gold from the market."

“Now they also want to look at sustainable small-scale mining, buy a lot of that gold and ensure that they are able to shore up our forex reserves. What we are saying is that, if you look at this promise alone, this year, there was an increase in terms of small-scale mining. But in periods where small-scale mining output does not grow. If this is going to be one of the anchor promises for addressing our exchange issues, how then does the BoG get more gold to address that?"

“Another challenge is that if we buy gold from large-scale miners in cedis because some of their capital expenditure is in dollar denomination, they will still have to then convert the cedi to the dollar; what we paid in cedis, they will have to convert some of them to the dollar so that they can finance their operations."

“Those underlying dynamics must be worked out so well that we can control our exchange rate. What we think is that since they started doing this, the exchange rate in terms of depreciation has dropped by just 3% and year by year, it has been depreciating more than 20%," he stated.