The Bank of Ghana (BoG) has the first right of refusal for the purchase of all gold mined in the country as part of key measures to stabilise the cedi and ensure macroeconomic stability.
The government is also working to help acquire the necessary certification for gold refineries in the country, as well as help set up many more, in a bid to add value to the precious metal.
These were disclosed by the Vice-President, Dr Mahamudu Bawumia, when he launched three new high level information technology (IT) programmes at the Accra Business School (ABS) at Baatsona, near Accra yesterday.
After the central bank had purchased the gold at world market price, the mining companies could export the remainder, he added.
“Ultimately, once we accumulate enough gold, future borrowing and our currency can be backed by gold. This will stabilise the cedi, long term,” Dr Bawumia stated.
The Vice-President said the first right of refusal given the BoG to purchase gold mined in the country was backed by law to deepen the gold purchase programme the BoG started to build up the country’s reserves.
First comment on IMF
He was explaining the reasons that forced the country into talks with the International Monetary Fund (IMF) and measures outlined to transform the economy to make it resilient to withstand shocks.
In his first comment after the country decided to seek IMF support for the economy, Dr Bawumia explained that until the BoG started its gold programme this year, the country’s reserves of gold at the central bank was only 8.7 kilogrammes at the end of 2021, notwithstanding Ghana being one of the leading gold producers in the world.
Dr Bawumia said the decision to go to the IMF was premised on four crises he termed “quadruple whammy”, an unpleasant effect or a blow to the economy.
He named them as the excess capacity payments of GH¢17 billion to a legacy take-or-pay power generation contracts that saddled the economy with annual excess capacity charges of close to $1 billion; the banking sector clean-up, which cost GH¢25 billion; the COVID-19 expenditure estimated at GH¢12 billion and the impact of the Russia-Ukraine war.
While the war hiked energy and food prices globally, leading to high inflation around the world and disruptions in global supply chains, which led to a 1,000 per cent increase in shipping costs, he said, the three expenditure items cumulatively amounted to GH¢54 billion (about $7 billion), which was borrowed.
“The Ministry of Finance estimates that the interest payment on this borrowing for the three items amounts to GH¢8.5 billion annually. This is about 23 per cent of Ghana’s annual interest payments of GH¢37 billion,” he explained.
Contextualising the expenditure, Dr Bawumia said total releases on eight key flagship projects between 2017 and 2021 amounted to GH¢15.62 billion, compared to the GH¢54 billion on the three crisis-related expenses.
He mentioned the eight projects as the Free SHS, One-District, One-Factory (1D1F), Planting for Food and Jobs, the development authorities under the One-Constituency, $1-million initiative, the Ghana Card project, the Zongo Development Fund, the Nation Builders Corps (NABCO) and allowances for teacher and nursing trainees.
“In fact, the annual interest cost of borrowing the GH¢54 billion for the three exceptional items will pay for double the annual cost of all the flagship programmes referred to,” he argued.
Again, listing 11 outcomes of the Russia-Ukraine war pass-through effect, Dr Bawumia said “with challenges in accessing the international capital market, balance of payment support was needed to bridge the financing gap, stabilise the economy and create space to implement structural reforms and restore debt sustainability; hence the decision to seek IMF support”.
He said two of the four crises were external (COVID-19 and the Russia-Ukraine war), with the other two (the banking sector clean-up and the excess energy capacity payments) resulting from the policies of the previous government.
The Vice-President, therefore, posited that given the expenditures on the flagship programmes alone, the country’s debt levels would have remained sustainable within the threshold of about 68 per cent, instead of the 76.6 per cent at the end of 2021.
“If you ask a carpenter to roof your house and suddenly the roof collapses without any wind or rainfall, will you not blame the carpenter who did the roofing?” he asked rhetorically.
Dr Bawumia said the major lesson from the last two years was that the country must be more self-reliant, “but it will take hard work and difficult decisions”.
“It is important that we take decisions that will inure to the benefit of the country, regardless of whether we are going to the IMF for a programme or not,” he stressed.
To ensure that the country was never again hit by such quadruple whammy, the immediate task was to restore fiscal and debt sustainability, through revenue and expenditure measures and structural reforms, the Vice-President said.
As part of those measures, non-concessional borrowing would be curtailed to enhance debt sustainability, he stressed.
“Indeed, the reliance on international capital markets to fill the financing gap of about $3 billion annually exposed the vulnerability of the economy once the capital markets shut down to emerging economies,” Dr Bawumia stated, saying that that had heightened the need for the country to build foreign exchange reserve buffers to cater for unanticipated shocks.
He said the country must also deepen its industrialisation through value addition to gold and other minerals such as lithium and bauxite, which he said would be pursued in addition to the IDIF programme and the continued implementation of the automotive sector policy.
“We are also poised for a major reform of the energy sector. The energy sector has proved to be the Achilles’ heel of the economy. The reforms will make the sector more market based,” he stated.
He also enumerated a number of revenue mobilisaton measures which would be hinged on reforms and digitalisation, some of which had started.
Dr Bawumia said the focus of economic management by successive governments since independence had been on crisis management, mainly as a result of external shocks, at the detriment of building systems and institutions that underpinned economic activities in a modern economy.
That explained why, after 17 IMF programmes since independence, the underlying system and structure of the economy remained the same after each programme, he said.
Vice-President Bawumia commended the ABS for partnering the South East Technological University (SETU) in Ireland, United Kingdom, to introduce the three new programmes, namely: BSc. IT Management; BSc. Cybercrime & IT Security and MSc. IT Management.
The event attracted a number of personalities, including Members of Parliament (MPs), members of the business community, academia and the clergy, with notable faces including the MP for North Tongu, Samuel Okudzeto-Ablakwa; the MP for Abuakwa South, Samuel Atta Akyea, and a former President of the Chartered Institute of Accountants, Ghana, Professor Kwame Boasiako Omane-Antwi
The President of the ABS, Professor Cedric Bell, explained that the three new programmes were expected to be the means to expand information technology education in the country.
He noted that the diversification of the school’s existing tertiary provision into Computer Sciences would crucially facilitate a substantial expansion of the range of career opportunities for young Ghanaians in the digital economy and thereby strengthen the nation’s human capital.
“The fact that the SETU partnership was successfully concluded in just over six months and without any significant conditions is due to the excellent working relationship between the two institutions and the alignment and synergies as to our respective core values,” Prof. Bell said.
The Head of the Department of Computing at the Institute of Technology, SETU, Carlow, Professor Nigel Whyte, commended the Vice-President for his initiatives at digitalisation of the country.
The Founder of the ABS, Rev. Gideon Titi-Offei, said the school had recognised that ICT skills were the future, since COVID-19 had shown that it was basic IT skills that would take people out of poverty and secure their future.
“Again, Ghana’s drive to grow the digital economy requires that young people must have the skills to lead innovation, drive change and improve productivity, and these informed the introduction of the new programmes. We are hopeful that they will empower young people to compete globally,” he said.