Ghana’s reliance on accumulating gold to rebuild its international reserves could expose the economy to new financial risks if bullion prices weaken, the Institute of Statistical, Social and Economic Research (ISSER) has warned. The institute also stated that the high cost of monetary operations used to reduce inflation may prove unsustainable for the Bank of Ghana (BoG).
Professor Robert Darko Osei, ISSER Director, acknowledged that the Bank of Ghana’s domestic gold acquisition programme has significantly restored Ghana’s external buffers. This programme has also strengthened confidence in the Ghana cedi following the country’s recent economic crisis. However, Professor Osei cautioned that increasing gold’s share within the reserve portfolio could make the central bank’s external position more sensitive to international commodity market movements.
This warning shifts focus from the overall size of Ghana’s reserves to their composition and resilience. A fall in international gold prices can reduce the market value of bullion held by the central bank. This can occur even if the physical quantity of gold remains unchanged. Such a decline could weaken reserve valuation, affect the Bank of Ghana’s balance sheet, and reduce the buffer available for external shocks.
The domestic gold acquisition programme allows the central bank to purchase locally produced gold. This reduces dependence on foreign exchange purchases and improves reserve adequacy. The policy also supports exchange rate stability and retains more of Ghana’s mineral value within the formal economy. ISSER’s concern is not to remove gold from the reserve portfolio, but that excessive concentration in one asset creates vulnerability to price movements beyond Ghana’s control.
Central banks typically hold a combination of gold, foreign currencies, and highly liquid securities. This strategy balances safety, liquidity, and return. A diversified portfolio reduces the risk that a sharp decline in one asset materially weakens the overall reserve position. Professor Osei specifically noted, “The use of gold for reserves poses some risk given the drop in gold prices on the international market.”
Professor Osei also questioned the financial sustainability of policies used to achieve Ghana’s sharp decline in inflation. He stated that fiscal consolidation and the central bank’s monetary sterilisation operations have helped contain price pressures. However, these operations have imposed substantial costs on the Bank of Ghana. “The fiscal consolidation and monetary sterilisation have helped to contain inflation, but this has come to Bank of Ghana at a very high cost,” he explained.
Sterilisation involves withdrawing excess liquidity from the financial system. This is often done through issuing Bank of Ghana bills or other interest-bearing instruments. While this process can reduce money supply growth and support inflation targets, the central bank must pay interest to institutions holding these instruments. Prolonged and large-scale sterilisation can generate significant expenses and weaken the Bank’s financial position. Professor Osei concluded, “This approach is certainly not the long-term solution to inflation considering its implications on the Central Bank’s finances.”
His comments highlight an increasingly difficult policy trade-off. Ghana’s inflation rate has declined substantially, restoring household purchasing power and improving investor confidence. However, maintaining an exceptionally tight monetary stance after inflation has fallen could suppress credit growth, investment, and employment. Professor Osei cautioned against pushing inflation significantly below the Bank of Ghana’s medium-term target of 8.00% with a tolerance band of plus or minus 2.00 percentage points. This framework implies an acceptable range of 6.00% to 10.00%.
Inflation persistently below the lower boundary could indicate unnecessarily restrictive monetary conditions. This is particularly true where economic growth and private-sector credit remain fragile. ISSER therefore urged policymakers to focus on maintaining inflation within the target range. They advised against pursuing the lowest possible rate irrespective of the economic cost. The institute also identified rising global crude oil prices as an emerging threat to the disinflation process. Higher international oil prices increase Ghana’s petroleum import bill and can quickly feed into domestic fuel prices, transport fares, electricity costs, and the prices of goods distributed across the country.