Ghana dodged Sri Lanka-style crisis through gold-for-oil strategy, Bawumia reveals

Ghana narrowly avoided an economic catastrophe similar to Sri Lanka's 2022 crisis, according to Dr Mahamudu Bawumia, the New Patriotic Party's presidential flagbearer, who has disclosed the severity of the country's foreign exchange emergency during the Russia-Ukraine war.

Speaking at a public event, Dr Bawumia explained that Ghana faced a critical shortage of dollars to fund essential imports, including food, with the potential to spark the same kind of street protests and humanitarian distress that devastated the South Asian nation.

"In Sri Lanka, people were out on the streets facing shortages of food because they didn't have the foreign exchange to pay for food," he said, warning that Ghana faced identical vulnerability as its reserves dwindled and access to international capital markets closed.

The forex crisis explained

The core problem, Dr Bawumia outlined, was structural. Ghana's monthly demand for foreign exchange far exceeded the Bank of Ghana's capacity to supply it. The central bank was constrained to monthly interventions of approximately $80 million—a fraction of what the economy required to function normally.

"When demand exceeds supply, prices go up," he noted, explaining how this imbalance triggered daily depreciation of the cedi against the dollar, compounding Ghana's ability to import goods, fuel and food at predictable costs.

The restrictions on the Bank of Ghana's forex market intervention stemmed from limited reserves, creating a vicious cycle: without sufficient dollars to stabilise the exchange rate, import costs spiralled upward, driving inflation and eroding purchasing power across the economy.

Gold-for-oil: the emergency lifeline

To address this crisis without depleting Ghana's remaining foreign exchange reserves further, the government introduced the Gold-for-Oil programme alongside Gold-for-Reserves initiatives. Rather than selling gold on international markets for dollars that would be subject to central bank spending limits, Ghana arranged direct barter: exchanging its precious metal for petroleum products needed domestically.

"The purpose of the programme was to stabilise the currency and build reserves," Dr Bawumia explained, noting that this approach bypassed the bottleneck limiting dollar interventions in the forex market.

The strategy proved effective. By the close of 2024, Dr Bawumia stated that Ghana had accumulated significant foreign exchange reserves through gold transactions, reversing the acute shortage that had threatened economic stability.

Why this matters for Ghana

The revelations provide context for understanding Ghana's recent economic history and the policy decisions that shaped the country's recovery from a balance-of-payments crisis that had triggered an International Monetary Fund bailout programme.

Sri Lanka's 2022 economic collapse—which forced its government to default on external debt and triggered severe shortages of food, fuel and medicine—served as a stark warning of what uncontrolled currency depreciation and forex depletion could produce. Ghana's proximity to that scenario underscores how precarious the country's position had become.

The gold-for-oil arrangement represents an unconventional but pragmatic policy response that drew criticism from some economists but credited by policymakers with preventing deeper crisis. As Ghana continues rebuilding its forex position and managing its IMF programme, the experience highlights the strategic importance of commodity wealth—in this case, gold—as a buffer against external shocks.

Understanding this background is essential for evaluating Ghana's current economic trajectory and the policies proposed by competing political movements as the country heads toward future elections.