EXPLAINER: State of Ghana’s reserves and import cover

Ghana’s current debt situation has been a huge source of worry for economic growth and development.

The rise in inflation and the depreciation of the Ghana cedi has put the economy in a tight corner with hopes of getting a bailout from the International Monetary Fund as soon as possible.

In the past week, concerns have heightened after an IMF economic outlook report showed that Ghana’s net international reserves are expected to reach a concerning level of only three weeks of import cover by the end of 2023.

A country’s import cover measures the number of months of imports that can be covered with foreign exchange reserves available with its central Bank.

Usually, a country must have eight to ten months of “import cover” to guarantee the stability of its currency.

Depreciation of the cedi becomes rife when there is more demand for the dollar and other foreign currencies than their supply.

Therefore, in Ghana’s case, if the country is not able to keep foreign currency coming into its reserves, this may pose grave challenges to its ability to import in the near future.

This is because the trading community, importers, and oil marketing companies depend on foreign currency to make their purchases.

The forecast by the IMF also sharply contrasts with the Bank of Ghana’s Summary of Economic and Financial Data, which estimated the country’s net import cover at 2.7 months.

This is because the country’s reserves currently hold only a few dollars for the balance of payment transactions.

Watch the latest edition of BizTech and Biz Headlines below:

SSD/FNOQ