IMF Urges Bank of Ghana to End Quasi-Fiscal Activities Amid Gold Purchase Programme Losses

Key Takeaways

• The International Monetary Fund (IMF) has called on the Bank of Ghana (BoG) to discontinue quasi-fiscal activities following losses incurred under the Domestic Gold Purchase Programme (DGPP).
• The programme, aimed at boosting reserves, has instead weakened the central bank's financial position, with losses amounting to 5% of Ghana's Gross Domestic Product (GDP).
• The IMF has warned that these quasi-fiscal activities pose significant risks to the central bank's financial stability and independence.

The International Monetary Fund (IMF) has urged the Bank of Ghana (BoG) to discontinue quasi-fiscal activities following losses incurred under the Domestic Gold Purchase Programme (DGPP). The programme, aimed at boosting the country's gold reserves, has instead weakened the central bank's financial position, with losses amounting to 5% of Ghana's Gross Domestic Product (GDP).

The IMF's recommendation comes as part of its regular review of Ghana's economic performance under the Extended Credit Facility (ECF) arrangement. The Fund has expressed concerns about the central bank's growing reliance on quasi-fiscal activities, which pose significant risks to its financial stability and independence.

Background & Context

The Domestic Gold Purchase Programme (DGPP) was introduced by the Bank of Ghana in 2018 with the aim of boosting the country's gold reserves. The programme involved the purchase of gold from local miners and traders, with the central bank offering a premium to encourage sales. However, the programme has been plagued by controversies, including allegations of corruption and irregularities in the procurement process.

Despite these challenges, the programme has contributed to a significant increase in Ghana's gold reserves, with the country's stockpiles rising to 5.3 million ounces in 2020. However, the programme has also imposed significant financial costs on the central bank, with losses amounting to 5% of Ghana's GDP.

Key Findings

The IMF's review of Ghana's economic performance has highlighted several key findings, including the need for the central bank to discontinue quasi-fiscal activities. The Fund has also recommended that the central bank implement a comprehensive review of its gold purchasing activities, including the procurement process and the valuation of gold stocks.

The IMF has also expressed concerns about the central bank's growing reliance on foreign exchange intervention, which has contributed to a significant increase in the country's foreign exchange reserves. However, the Fund has warned that this approach poses significant risks to the central bank's financial stability and independence.

Broader Implications

The IMF's recommendation to discontinue quasi-fiscal activities has significant implications for the Bank of Ghana and the country's broader economic landscape. The central bank's reliance on quasi-fiscal activities has been a major contributor to the country's fiscal deficits, which have risen to 11.7% of GDP in 2020. The IMF's recommendation is aimed at reducing these deficits and improving the country's fiscal sustainability.

The recommendation also has implications for the country's gold mining sector, which has been a major contributor to the country's economic growth. The suspension of the gold purchasing programme has raised concerns about the impact on local miners and traders, who have benefited from the programme. However, the IMF's recommendation is aimed at ensuring that the central bank's gold purchasing activities are conducted in a transparent and accountable manner.

Looking Ahead

The IMF's recommendation to discontinue quasi-fiscal activities has significant implications for the Bank of Ghana and the country's broader economic landscape. The central bank's ability to implement these recommendations will be crucial in reducing the country's fiscal deficits and improving its fiscal sustainability.

In the short term, the suspension of the gold purchasing programme is likely to have a significant impact on local miners and traders, who have benefited from the programme. However, the IMF's recommendation is aimed at ensuring that the central bank's gold purchasing activities are conducted in a transparent and accountable manner, which will ultimately benefit the country's gold mining sector and the broader economy.