Despite incurring massive losses from its gold stockpiling initiative, Africa's leading gold producer has seen its international reserves swell to an impressive $119 billion.
In 2025, the Ghanaian government formally established the Ghana Gold Authority, the sole entity authorized to purchase unrefined gold from domestic artisanal and small-scale miners for export. This move aims to combat gold smuggling, restore official channel cash flows, and ensure that more value from the industry remains within Ghana.
The domestic gold purchasing plan, designed to bolster foreign exchange reserves, was initially financed by the Bank of Ghana. By buying gold with the local cedi currency and subsequently selling it for foreign exchange, Ghana increased the domestic supply of US dollars, thereby stabilizing the local currency and curbing inflation. However, this advance funding arrangement, independent of regular gold buying operations, severely impacted the central bank's financial health.
According to a report from the International Monetary Fund, the Bank of Ghana suffered a staggering loss of 220 billion cedi (approximately $1.9 billion) from the program in 2025. The IMF attributed the substantial losses to high service fees, gold testing costs, and transaction spreads. As reported by Bloomberg, these high-cost transactions significantly undermined the Bank of Ghana's overall financial stability, expanding its negative equity to 6.7% of GDP. In terms of specific gold transaction deficits, the central bank's gap widened sharply from 57 billion cedi in 2024 to 90 billion cedi last year. The IMF expressed concern that the quasi-fiscal nature of the operation could weaken the central bank's independence and strongly recommended terminating the arrangement.
Shifting Financial Responsibility
To avoid continued central bank losses, the financial responsibility for the gold purchasing plan was officially transferred to the Ghana Gold Authority in July this year. Currently, the Ghanaian government and the Authority bear all operational costs, fully ending the central bank's exposure to this quasi-fiscal operation. In Ghana's revised 2026 budget, 50 billion cedi (about $430 million) has been explicitly allocated to fund the Ghana Gold Authority's reserve gold purchasing program. As the purchasing agency incurred trading losses last year, this fund transfer exposes the national budget to potential financial drains.
As Ghana recovers from its 2022 debt default crisis, the deteriorating financial situation has sparked market concerns. Fears are mounting that the new cost burden from gold buying could erode the country's hard-won fiscal consolidation gains. To support economic recovery, President John Mahama has slightly increased spending for the current year, pushing the projected budget deficit for 2025 from 1% of GDP to 2.2%. To protect budget targets from the impact of gold purchasing allocations, the revised budget shows the government will cut planned capital expenditure from 57.5 billion cedi to 52.5 billion cedi. At the same time, the government has taken steps to reduce the program's operating cost ratio from the previous 14.5% of total gold purchases to 5%. Following the management change, the Ghana Gold Authority will hold regular auctions to directly sell US dollars to the market. The Bank of Ghana will no longer provide advance funding, intervening only when necessary to manage the foreign exchange market.
Reserve Growth Aids Economic Cooling
Despite the heavy financial cost, the program has achieved notable macroeconomic results. In 2025, Ghana's gold export revenue doubled from $10.3 billion in 2024 to $21 billion. The gold buying initiative directly boosted the Bank of Ghana's international reserves by $3.9 billion by the end of 2025, reaching $11.9 billion. This reserve accumulation trend has continued, with the country's foreign exchange reserves hitting a record high of $14.5 billion in February this year. As global oil price increases raised import costs and the government repaid some debts, Ghana's foreign exchange reserves had fallen back to $12.9 billion by the end of June.
Strong reserve growth provided core support for stabilizing the local currency. In 2025, the Ghanaian cedi appreciated 41% against the US dollar, ranking among the best-performing global currencies tracked by Bloomberg. Although the cedi subsequently gave back some of its gains, the earlier currency strengthening effectively reduced import costs. This helped drive Ghana's inflation rate down sharply from 23.8% in December 2024 to 5.3% in June this year. The significant easing of inflationary pressure created room for a shift in monetary policy. The Bank of Ghana was able to implement aggressive interest rate cuts, reducing the benchmark rate from 29% in 2024 to its current level of 14%.
Comments