Ghana’s net international reserves at risk of running dry in 2023

Ghana’s net international reserves are expected to end 2023 at a worrying three weeks of import cover, according to the 2023 International Monetary Fund Regional Economic Outlook Report (Sub-Saharan Africa).

This is a significant drop from the Bank of Ghana’s estimated 2.7 months of import cover, which was based on the country’s Summary of Economic and Financial Data. If foreign inflows were to stop suddenly, Ghana’s economy would be in severe trouble, as there are only a few dollars left in the reserves for balance of payment transactions.

As a result, the IMF bailout of $3 billion loan is deemed critical to the country’s economic stability going forward. The report highlights that Ghana’s reserves are expected to grow to about 1.7 months of import cover in 2024, but until then, the country remains vulnerable to external shocks.

Among Sub-Saharan African countries, Zimbabwe, South Sudan, and Ethiopia are the only nations expected to record import cover lower than Ghana. However, this is of little comfort to Ghana, as its reserves stood at a meagre $2.62bn in February 2023, which is equivalent to approximately 2.8 months of import cover.

Despite this, Ghana’s economy has shown some signs of improvement in recent months. In December 2022, the country’s net international reserves were estimated to be about 2.7 months of import cover, which is slightly less than the Bank of Ghana’s current estimate. However, the country’s balance of payment at the end of February 2023 stood at a deficit of $3.63 billion, which is approximately 5% of Gross Domestic Product.

Ghana’s economy is heavily reliant on exports, particularly of gold, cocoa, and oil. While the country has been successful in attracting foreign direct investment, it is also vulnerable to fluctuations in commodity prices and changes in global economic conditions. The COVID-19 pandemic has also had a significant impact on Ghana’s economy, with the country’s GDP contracting by 1.1% in 2020.

The IMF loan, which was approved in 2022, is aimed at supporting Ghana’s efforts to strengthen its external position, address balance of payment vulnerabilities, and build resilience against external shocks. However, some critics have raised concerns about the impact of the loan on Ghana’s debt sustainability, given the country’s already high debt levels.

Ghana’s net international reserves remain a cause for concern, and the country’s economy is vulnerable to external shocks. While the IMF loan provides some much-needed support, Ghana will need to implement structural reforms to address its underlying economic challenges and build a more resilient economy.