Gross International Reserves calculation is right - BoG

The Bank of Ghana says its definition of Net International Reserves include the petroleum funds, and therefore disagrees with the International Monetary Fund argument that Ghana’s foreign exchange reserve level remains relatively low.

According to the Central Bank, it was bounded by the IMF's Extended Credit Facility programme then, not to include the petroleum funds in the Gross International Reserves, but has every right to include the petroleum funds in the GIR now that the programme has been completed.

The IMF had said Gross International Reserves stood at 2.7 months of imports in 2018, lower than the three-month rule-of-thumb benchmark and the norm of 3.6 months estimated by the model for resource-rich LICs (Lower Income Countries) with a flexible exchange rate, the IMF said in a report.

But responding to the argument, the Governor of the Bank of Ghana, Dr. Ernest Addison, said “In terms of performance under the Extended Credit Facility (ECF) programme, the IMF would set a target on what they call the Net International Reserves (NIR) for the country to meet, so we had some common definitions of these targets.”

He added: “However, now, we are no longer under the Fund programme and therefore not bound by the IMF’s definitions of NIR. The Bank of Ghana has its definition of NIR in which we include the petroleum funds. I think this has been the source of the debate over the past year or so. The argument has been that the petroleum funds are not readily available for use but you and I know that if the country has an emergency, we would have to use the petroleum funds.”

The Bank of Ghana’s Monetary Policy Report quote the country’s Gross International Reserves increased by US$1.67 billion to US$8.093 billion in October 2019 from a stock position of US$7.02 billion at the end of December 2018. This was also equivalent to 3.9 months of imports cover compared.

But the IMF figures indicated that Ghana’s gross international reserves for 2019 was US$5.1 billion, about 2.4 months of imports cover and forecasted to reduce to US$5.01 billion in 2020 but increase slightly to US$5.06 billion next year. This is equivalent to 2.3 months of import cover.

Under any serious emergency, the Governor emphasised “we cannot say that because these are petroleum funds we would allow the local currency to depreciate excessively. This is really the source of diversion between the Fund and the Bank of Ghana, but of course, under the Fund programme we were bound by their definition but now that we are not on the Fund programme, we are not bound by those definitions.”

Explaining further, the Governor said reserves are held for use when times are not good and then built up as buffers when things improve.

He added “In 2020, developments on the foreign exchange market reflect the opposite of what happened a year ago with the country building reserves by US$1.4 billion at the end of 2019 compared to the drawdown of over US$600 million same period last year. So, this really is the one of the policy tools that we have in terms of trying to manage the exchange rate and its impact on inflation.”

Gross International Reserves at the end of December 2019 stood at US$8.4 billion, providing cover for 4.0 months of imports of goods and services, the Bank of Ghana said in its January 2020 MPC report.