Following the withdrawal of the Bank of Ghana’s (BoG) financing for the Ghana Gold Board, it is emerging that any attempt by Goldbod to shift to borrowing from the open domestic financial market could have unintended consequences for businesses on the credit market.
This is according to Professor of Finance at Andrews University in the United States, Prof. Williams Kwasi Peprah.
The finance professor explains that should Goldbod turn to the open market for funding, the move could trigger a crowding-out effect in Ghana’s financial system.
Speaking on the likely implications of the central bank’s withdrawal, Prof. Peprah said the government should instead consider adequately capitalising GoldBod through equity injections to enable it to continue its operations without competing aggressively with the private sector for funds.
According to him, financial institutions are naturally more inclined to lend to an institution such as GoldBod because of its strategic role in buying and exporting gold, making it an attractive borrower compared with many private businesses.
That preference, he explained, could divert available credit away from businesses that rely on bank financing for expansion, production and day-to-day operations.
“My fear is that if Gold Board goes to the open markets to borrow, we may see a little bit of crowding out because all central banks will prefer to deal with a company that buys and sells gold,” he said in an interview monitored by The High Street Journal
In practical terms, this means that if banks and other lenders channel a significant share of their funds to GoldBod, fewer resources may remain available for manufacturers, traders, farmers and small businesses seeking loans, potentially tightening credit conditions across the economy.
Prof. Peprah, however, stressed that the withdrawal of direct financing by the Bank of Ghana should not be interpreted as a weakening of support for GoldBod.
He noted that the central bank still has an important advisory and technical role to play in the institution’s operations, particularly because developments in the gold market have significant implications for monetary policy and exchange rate stability.
He observed that GoldBod’s operations have played a crucial role in strengthening the Ghana cedi by boosting the country’s gold purchases and export earnings.
“The GoldBod model is what has been able to strengthen our currency,” he noted.
Prof. Peprah added that although the Bank of Ghana may no longer provide direct financing, its continued representation on GoldBod’s governing structure would facilitate policy coordination and ensure that decisions taken by the gold-buying agency remain aligned with the country’s broader macroeconomic objectives.
He expressed hope that the Finance Minister would clarify how GoldBod intends to finance its operations going forward, particularly whether government equity support would replace the central bank’s funding and help avoid unnecessary pressure on the domestic credit market.
