Ghana’s economy may be recovering from the economic mess; however, the stability and sustenance are still tied to the movement of gold prices, turning it into a major risk for the country.
This is the observation of policy analyst Bright Simons, who believes the country’s economic recovery is highly exposed to a risk that has little to do with domestic policy, which is a sharp fall in gold prices.
Bright Simons says Ghana’s growing dependence on gold, particularly through the government’s GoldBod model, could become one of the biggest threats to the country’s recovery from the 2022 debt crisis. His concern is that Ghana is increasingly tying currency stability, foreign exchange reserves and even the strength of the central bank’s balance sheet to the continued strength of the gold market.
For him, if gold prices fall sharply, the consequences could extend well beyond the mining sector and extend to the general economy.
Ghana’s Recovery Is Becoming a Gold Price Bet
In a commentary on the situation, Simons argues that the GoldBod model has created an unusually close link between Ghana’s economic stability and gold prices.
GoldBod was established to purchase gold from artisanal and small-scale miners and a portion of large-scale mining output, with the gold then contributing to foreign exchange inflows and reserve accumulation.
The Vice President of IMANI Africa indicated that the government has defended the strategy on the grounds that the benefits, including currency stability, lower inflation and potentially lower interest rates, outweigh the costs of operating the system. However, he questions whether some of those benefits are actually coming from GoldBod itself or simply from the surge in international gold prices.
“At any rate, the government has long argued that the benefits of the policy in the form of a stable currency (with implications for inflation and interest rates) far outweigh the costs. The question is whether these “benefits” are due mostly to the hike in gold prices and thus would have manifested anyway without the GoldBod,” he remarked.
If gold prices are doing most of the heavy lifting, Bright Simons argues, Ghana could be mistaking a favourable global commodity cycle for the structural strength of its economic strategy.
A 30% Gold Price Fall Could Test the System
The vulnerability becomes clearer when the potential impact of a gold price correction is considered.
He reveals that modelling suggests that a 30% decline in gold prices could wipe about $1.65 billion from the Bank of Ghana’s gold holdings and push the GoldBod operational model towards breaking point.
He adds that an IMF stress test paints an even more difficult scenario. If gold prices fell by 45% to about $2,283 per ounce, with gold accounting for half of Ghana’s reserves, the Bank of Ghana’s equity could fall to about negative 9% of GDP.
To put it simply, this means that a major fall in gold prices could mean weaker foreign exchange inflows, pressure on the cedi, reduced reserve buffers and greater difficulty for the central bank in supporting currency stability.
That could eventually feed into the prices of imported goods, inflation and interest rates. In other words, the same gold that is currently helping Ghana accumulate reserves could become a source of pressure if the global price reverses sharply.
Bank of Ghana Cannot Afford Another Shock
Bright Simons further reveals a deeper concern about the situation and how it affects the Bank of Ghana itself. He points to the central bank’s equity swinging from a positive $1 billion at the end of 2021 to about negative $8 billion by the end of 2025.
At the same time, the GoldBod model has generated significant costs. According to the IMF, the Bank of Ghana incurred an average cost of about 17 cents for every dollar of foreign exchange inflow generated through the model in 2025, amounting to roughly $1.7 billion.
There are also sterilisation costs associated with absorbing the cedi liquidity created when gold is purchased, which Simons says have approached 3% of GDP.
“Our modelling suggests that a 30% correction would wipe out roughly $1.65 billion from the BoG’s gold holdings and stretch the GoldBod operational model to breaking point. The IMF’s stress test shows that at a 45% decline (to $2,283/oz), with gold at 50% of reserves, BoG’s equity will fall to -9.0% of GDP,” he added.
The result, he argues, is an increasingly intertwined system in which gold prices, gold volumes, foreign exchange reserves, currency stability and the financial health of the central bank are becoming closely connected.
The Bottomline
Bright Simons indicates that Ghana’s 15-month import cover target through the GANRAP, which is also a state-controlled gold export, is evidence of an economy becoming excessively dependent on one commodity.
The problem, he says, is not that Ghana has gold. However, the problem is building too much of the country’s economic stability around the assumption that gold prices will remain exceptionally high.
Given this dependence and vulnerability to gold prices, Bright Simons is praying that, just as the sun stood still over Gibeon for Joshua to defeat his enemies, he is praying that gold prices continue to hold high; otherwise, the economy will become a casualty.
“For all our sakes, gold prices better hang up there in the skies. Like the sun above Gibeon in the biblical days of Joshua,” he prayed.
However, the irony is that resilient and stable economic recovery should ideally not depend on the hope that a commodity price never comes back down.
