Government Already Drawing On Ghana’s International Reserve To Prop Collapsing Economy

The Ranking Member on the Finance Committee in Parliament, Dr Cassiel Ato Forson is hinting that the Akufo Ado administration may be tinkering with the idea of using the country’s reserves to solve the current hardships.

Apparently, the Akufo-Addo government has already been drawing the country’s international reserves to prop up the collapsing economy.

Following the central bank’s increment of its policy rate by 250 basis points to 17 per cent, which is expected to lead to the cost of loans going up Dr. Ato Forson warned the BoG not to give in to the government’s pressure of dipping its hands into the country’s foreign reserves and that a “disaster staring in the face of the country.”

“When the investors are to see that the reserves keep going down, then they would be rushing to exit and if they exit, and the currency is going to drop and drop and drop until it falls. That is what I’m worried about,” Ato Forson warned.

Already, the Akufo-Addo government is already leveraging some US$1billion in Special Drawing Rights (SDR) from the IMF.

Special drawing rights (SDR) are another form of international reserve.

Ghana received the equivalent of US$1 billion from the International Monetary Fund (IMF), being its share of the new Special Drawing Rights (SDRs) allocation to boost the post-COVID economic recovery of member countries.

On 2nd August 2021, the IMF Board of Governors approved a general allocation of SDR456.5 billion, equivalent to US$650 billion out of which about US$33.7 billion is for African countries, to boost global liquidity and economic recovery following the devastating impact of the Covid-19 pandemic on lives and livelihoods.

The new SDR allocation became effective on 23rd August 2021.

The IMF created SDRs in 1969 in response to concerns about the limitations of gold and dollars as the only means of settling international accounts. SDRs can enhance international liquidity by supplementing standard reserve currencies. Member countries’ governments back SDRs with their full faith and credit.

An SDR is essentially an artificial currency that some describe as baskets of national currencies. IMF member states holding SDRs can exchange them for freely usable currencies (such as USD or Japanese Yen), either by agreeing among themselves or via voluntary swaps.

In addition, the IMF may instruct countries with stronger economies or larger foreign currency reserves to buy SDRs from its less-endowed members.

IMF member countries are able to borrow SDRs from IMF reserves at good interest rates.