The Bank of Ghana (BoG) Governor, Dr. Ernest Addison, has revealed plans to reverse the foreign exchange (FX) control measures implemented last year in response to declining reserves at the time.
Those measures included the withdrawal of foreign exchange support for the importation of certain non-critical or essential goods – such as rice, poultry, vegetable oils, toothpicks, pasta, fruit-juice, bottled water and ceramic tiles. Going forward, the central bank will favor a unified FX market.
The decision to nullify those measures follows approval of a 36-month arrangement under the International Monetary Fund’s (IMF) US$3billion Extended Credit Facility (ECF), as stated in the IMF’s staff report. The Bank of Ghana is committed to implementing necessary actions and reforms to ensure a unified exchange rate market.
Speaking at a press briefing following the 112th meeting of the Monetary Policy Committee (MPC), Dr. Addison reaffirmed the central bank’s position on a unified foreign exchange (FX) market.
He explained: “When we implemented the foreign exchange control measures last year, to restrict access to FX for certain commodities, it disrupted the FX market’s unity. These measures were implemented as crisis management steps due to the environment we faced in 2022. However, as the situation normalizes we do not anticipate continuing with these restrictions, as the constraint on FX resources is expected to ease”.
According to the central bank’s summary of economic and financial data, gross reserves experienced a slight increase in April – rising from US$5.1billion in March to US$5.2billion. The MPC statement acknowledged this progress and noted that by May 19 reserves had further risen to US$5.7billion, equivalent to 2.6 months of import cover. However, this figure falls short of the IMF’s recommended threshold of three months.
The decline of Ghana’s reserves by nearly 17 percent since beginning of the year can be attributed to central bank interventions in the foreign exchange market. Those measures were implemented to mitigate depreciation of the Ghanaian cedi amid challenging fiscal and macroeconomic circumstances, worsened by a growing scarcity of the US dollar.
The report emphasizes that the Bank of Ghana will refrain from introducing policies which create market segmentation or multiple exchange rates. It highlights that FX auctions will be unified and serve as the primary mechanism for providing liquidity, with enhancements in design to support price discovery, efficient allocation, and deepening of the FX market.
“We will collaborate with Fund staff to achieve these objectives. We will phase-out the current temporary FX surrender requirement by mines to the central bank to facilitate deepening of the FX market. Meanwhile, the government of Ghana will engage key exporting companies to explore options for increasing voluntary domiciliation of export proceeds,” stated the report.
To manage exchange rate volatility effectively, the Bank of Ghana has committed to gradually limiting its FX interventions and adhering to a gross FX intervention budget aligned with reserve targets. The central bank also expressed its firm commitment to imposing a specified ceiling on monthly gross FX sales, providing FX liquidity at prevailing market exchange rates.
Dr. Addison emphasized the importance of unifying the FX market, stating: “As the situation normalizes, we aim to achieve a unified FX market, as this will address the issue at hand”. The FX market’s unification aligns with BoG’s goal of enhancing transparency, efficiency and price discovery within the market, thereby supporting economic growth and fostering investor confidence.
The Bank of Ghana’s decision to reverse its foreign exchange controls measures represents a significant step toward economic recovery and the establishment of a unified foreign exchange market. As the country strives to stabilize its reserves and implement necessary reforms, stakeholders will closely monitor the impact of these changes on the Ghanaian economy.