Due to a number of indications that the Gold-for-Oil (G4O) program has served its purpose and is no longer considered necessary, Ghana intends to phase it out.
The G4O policy was put into effect in February 2023 as a crisis management tactic with the dual goals of addressing severe currency depreciation and stabilizing fuel prices.
The justification for continuing the program has reduced as the nation’s economic circumstances have improved, with the cedi strengthening versus the US dollar and inflation rates decreasing.
The G4O initiative has also come under fire for problems with transparency and financial management. The lack of formal agreements governing important transactions, like the Bank of Ghana’s dealings with the Precious Minerals Marketing Company (PMMC) for the purchase and sale of gold, has been brought to light in reports.
Concerns regarding possible financial irregularities and program mismanagement have been raised by this lack of formalization.
The program has also been linked to socioeconomic and environmental issues. Under the G4O policy, the demand for gold has increased, which has unintentionally encouraged illicit mining practices known locally as “galamsey.”
These unregulated operations have led to significant environmental degradation, including deforestation, water pollution, and health hazards due to the use of toxic chemicals.
In light of these developments, the Bank of Ghana has announced plans to gradually phase out the Gold-for-Oil policy, acknowledging that the programme was a temporary measure during a period of economic crisis and that its continuation is no longer justified under current conditions.
The policy aimed to use domestically mined gold to purchase oil directly from international suppliers, rather than relying on the U.S. dollar for such transactions.
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The objectives of the G4O programme was to:
• Stabilize Fuel Prices – By bypassing the need for foreign exchange reserves, Ghana hoped to control fuel price volatility and reduce inflationary pressure.
• Strengthen the Cedi – Since fuel imports were one of the biggest drains on Ghana’s foreign exchange reserves, paying with gold instead of dollars aimed to reduce demand for USD and support the Ghanaian cedi.
• Reduce Dependency on Foreign Currencies – The programme was designed to improve Ghana’s foreign currency liquidity by keeping more of its USD reserves intact.
How It Worked:
The Bank of Ghana (BoG) purchased gold from local miners and traders. The gold was then sold to international oil suppliers. The oil received through this exchange was distributed by the Bulk Oil Storage and Transportation (BOST) company and other fuel importers in Ghana.
Criticism:
• Transparency Issues – Reports indicated that some transactions lacked clear contractual agreements, raising concerns about accountability.
• Illegal Mining (Galamsey) Surge – The increased demand for gold allegedly fueled illegal mining activities, leading to environmental degradation.
• Limited Long-term Impact – While it helped stabilize fuel prices initially, economic improvements, such as the cedi’s appreciation, made the programme less necessary over time.
