The Governor of the Bank of Ghana, Dr. Ernest Addison, has assured the public that the central bank is well-prepared to manage the anticipated demand for foreign exchange, driven by the need to import food due to the ongoing drought crisis. During the 120th Monetary Policy Committee (MPC) Press Briefing, Dr. Addison emphasised that Ghana’s foreign reserves are robust enough to withstand any shocks related to food imports, offering much-needed reassurance amid concerns over domestic food shortages.
“The Bank of Ghana has built up sufficient reserves to handle any pressures that may arise from the increased demand for foreign exchange due to food imports.” Dr. Addison said.
His comments come at a time when the country is grappling with the fallout from severe drought, which has resulted in a ban on grain exports and a significant drop in local agricultural output.
The country is now bracing for an inevitable increase in food imports to stabilise domestic supply, which could potentially place pressure on foreign exchange reserves.
The drought, which has severely affected crop yields, particularly in the northern regions of Ghana, has left the government with no choice but to rely on imports to meet the country’s food needs.
Dr. Addison contended that the central bank’s proactive management of country’s external reserves has left the country in a solid position to handle these challenges.
He pointed to the significant build-up in foreign exchange reserves, which have risen to $7.5 billion by the end of August 2024, representing 3.4 months of import cover.
“The current level of reserves provides a strong buffer, ensuring that we can meet any demand for foreign exchange to import food,” he noted.
According to Dr. Addison, the country has recorded a provisional trade surplus of $2.78 billion in the first eight months of 2024, a notable increase from the $1.66 billion surplus recorded during the same period in 2023.
This positive performance has largely been driven by a surge in gold exports, which rose by 62.2% to $7.27 billion, providing critical support to the country’s reserves.
“Gold exports have been a key contributor to the strong performance of our external sector. The growth in gold export revenues has significantly boosted our foreign reserves, helping to offset some of the challenges we face in other areas, such as agriculture,” Dr. Addison explained.
He acknowledged that while cocoa exports, a major contributor to the economy, have declined sharply due to the drought, the strong performance of other key export sectors, such as gold and crude oil, has helped maintain a positive balance of payments.
Crude oil exports, he added, also played a role in shoring up the external position, with export revenues increasing by 16.7% to $2.77 billion.
These positive trends in export earnings have helped Ghana, weather the adverse effects of the drought, particularly the sharp drop in cocoa exports, which fell by 42.7% in the same period due to the extreme weather conditions.
While the country’s food supply is expected to rely heavily on imports in the coming months, Dr. Addison reassured the public that the Bank of Ghana is closely monitoring the situation and is committed to maintaining the stability of the foreign exchange market.
“We are aware of the potential pressures on the foreign exchange market, but we have taken the necessary steps to ensure that the market remains adequately supplied,” he stated.
The Governor also highlighted that the exchange rate has stabilized in recent months, following earlier pressures.
From the beginning of the year to September 2024, the cedi depreciated by 24.3% against the US dollar, but the pace of depreciation has slowed to 7.1% in the second half of the year.
This stabilisation is attributed to the tight monetary policy stance and improved forex liquidity.
In terms of inflation, Dr. Addison noted that headline inflation has been on a downward trajectory, easing to 20.4% in August 2024 from 22.8% in June.
This decline has been driven primarily by lower food prices, as food inflation dropped to 19.1% in August from 24% in June. “We are seeing positive signs that the disinflation process is on track, and the reduction in food inflation has been a key factor in this,” he remarked.
Despite the challenges posed by the drought and the need for increased food imports, Dr. Addison expressed optimism about the country’s economic resilience.
He reiterated the Bank of Ghana’s commitment to maintaining stable macroeconomic conditions, particularly in the face of external shocks.
With Ghana’s foreign reserves holding strong and a solid external trade balance, the central bank is confident that the country can navigate the economic challenges posed by the drought and the need for increased food imports.
