Vice President Bawumia’s Gold for Oil Policy faces implementation challenges

In 2022, Vice President Dr. Mahamudu Bawumia introduced the Gold for Oil (G4O) policy to tackle Ghana’s dwindling foreign currency reserves and the increasing demand for dollars by oil importers.

These issues were causing the Cedi’s depreciation and driving up living costs. The G4O programme aimed to stabilize the Cedi by leveraging Ghana’s gold reserves to secure competitively priced oil.

Two years later, the 2023 Auditor-General’s report has unveiled significant issues with the implementation of the G4O programme.

The report highlighted the lack of a formal agreement between the Bank of Ghana (BoG) and the Precious Minerals Marketing Company (PMMC), the entity responsible for purchasing the gold.

The absence of a formal agreement meant that crucial terms of engagement, such as fees or commissions paid to PMMC, were not confirmed.

The Auditor-General stressed that transactions of this nature must be formalized to ensure clarity and mutual understanding between the involved parties. “Without a formal agreement, both parties might lack the certainty of common understanding as to the terms which govern the business relationship,” the report stated.

The BoG responded by explaining that forex reserves came under pressure in 2022 due to a challenging macroeconomic environment influenced by the COVID-19 pandemic, the Russia-Ukraine war, and pre-existing vulnerabilities.

“Fiscal and debt sustainability concerns, coupled with a sovereign downgrade, hindered the ability to secure external financing from international capital markets,” BoG added.

To combat the depreciating Cedi and rising inflation, the BoG implemented innovative strategies, including the G4O policy. The BoG noted that it obtained approval to purchase gold from eligible small-scale miners through PMMC for onward sale overseas to acquire forex and facilitate domestic gold purchase agreements.

Although a Memorandum of Understanding (MoU) was signed between the BoG and PMMC to establish operating procedures, a formal agreement had yet to be finalized.

The Auditor-General has urged the BoG management to ensure a formal agreement is established for gold purchase and sale transactions with PMMC.