ISSER Flags Gold Reserve Risks as Price Decline Challenges BoG Strategy

Ghana’s strategy of accumulating gold to strengthen its international reserves is entering a more challenging phase, with economists warning that the very asset credited with improving external stability could become a source of financial vulnerability if global bullion prices continue to retreat.

The caution, delivered by the Institute of Statistical, Social and Economic Research (ISSER), broadens the debate over Ghana’s post-crisis economic recovery by raising questions not only about reserve adequacy but also about the long-term sustainability of the Bank of Ghana’s monetary policy framework.

Speaking at the Post-Revenue Mid-Year Budget Review Forum in Accra, ISSER Director Professor Robert Darko Osei said the central bank’s gold accumulation programme had undoubtedly strengthened Ghana’s reserve position at a time when rebuilding investor confidence was critical. However, he warned that concentrating a larger share of reserves in gold leaves the country’s external buffers increasingly exposed to swings in international commodity markets.

“The use of gold for reserves poses some risk given the drop in gold prices on the international market,” Professor Osei said, stressing that reserve strength should not be measured solely by the quantity of assets held but also by their resilience to market shocks.

The warning comes as Ghana continues to rely on gold purchases under the Bank of Ghana’s domestic gold acquisition programme, a policy introduced to reduce dependence on foreign exchange purchases, improve reserve adequacy and support exchange rate stability. While the strategy has helped boost gross international reserves and underpin confidence in the cedi, a sustained decline in gold prices could reduce the market value of those assets and weaken the central bank’s financial position.

Economists note that central banks traditionally maintain diversified reserve portfolios—including foreign currencies, government securities and gold—to minimise concentration risk. An overreliance on any single asset class, they argue, increases exposure to external price movements beyond the country’s control.

Professor Osei also questioned the cost of Ghana’s recent disinflation, arguing that the impressive decline in inflation has been achieved through expensive policy interventions that may not be sustainable over the medium term.

According to him, fiscal consolidation alongside the Bank of Ghana’s aggressive monetary sterilisation programme has played a significant role in reducing inflationary pressures, but the strategy has imposed considerable financial costs on the central bank.

“The fiscal consolidation and monetary sterilization have helped to contain inflation, but this has come to Bank of Ghana at a very high cost,” he said.

Sterilisation operations, which involve absorbing excess liquidity from the banking system through the issuance of central bank instruments, often require the payment of high interest rates, increasing the Bank’s operating losses. Analysts say prolonged reliance on such measures could constrain the institution’s balance sheet and limit policy flexibility in future economic shocks.

Professor Osei argued that Ghana should avoid treating the current approach as a permanent solution to inflation management.

“This approach is certainly not the long-term solution to inflation considering its implications on the Central Bank’s finances,” he noted.

He further cautioned policymakers against pushing inflation significantly below the Bank of Ghana’s medium-term target band of 8 ± 2 per cent, warning that excessive monetary tightening could suppress economic activity, discourage investment and affect employment without delivering proportionate economic benefits.

Instead, he suggested that policymakers focus on maintaining inflation within the target range while supporting sustainable economic growth.

ISSER also identified emerging external risks that could complicate the inflation outlook. Rising global crude oil prices, Professor Osei warned, threaten to increase imported inflation through higher fuel and transportation costs, potentially reversing part of the progress made in stabilising consumer prices.

“The recent increase in oil prices has implications for inflation expectations and prices,” he said.

The assessment comes as investors continue to monitor Ghana’s macroeconomic recovery following the Mid-Year Budget Review, with attention increasingly shifting from short-term stabilisation measures to the durability of reforms.

For financial markets, the debate highlights a broader policy dilemma. While stronger reserves, lower inflation and improved fiscal discipline have restored confidence after Ghana’s economic crisis, sustaining those gains will require careful management of reserve composition, monetary costs and external commodity risks.

The challenge for the Bank of Ghana is therefore evolving from rebuilding stability to preserving it—ensuring that the country’s reserve assets remain sufficiently diversified while maintaining price stability without imposing excessive financial burdens on the central bank or slowing the broader economic recovery.