The Bank of Ghana Governor, Dr. Ernest Addison, has disclosed that since inception of the Domestic Gold Purchase Programme (DGPP) in June 2021, the Bank has added over 7.70 tonnes of gold to its reserves as of June 30, 2023.
Before the DGPP, the total reserves stood at 8.77 tonnes but now stands at 16.67 tonnes, the Governor said.
Of volumes that have been added since implementation of the gold purchase initiative, he said large mining firms accounted for about 80 percent while the remaining 20 percent came from the artisanal small-scale mining (ASM) sector through an approved aggregator.
“Indeed, we are on course to more than double the level of central bank gold reserves by end of this year – well ahead of the target initially set,” he said.
He explained that the Gold Purchase Programme uniquely provides an avenue to organically grow the country’s foreign reserves through refining the purchased gold dore, without distorting incentives of local gold producers.
Over the medium- to long-term, he said, the programme has potential to support the central bank’s price stability mandate if the extra Ghana cedi liquidity through the gold purchases is mopped up through open market operations.
Also, he said, the DGPP supports the ASM sector as the Bank buys gold at competitive prices from them. This dore gold is stockpiled and shipped to London Bullion Market Association (LBMA) certified refineries that refines the gold dore to London Gold Refinery Base.
“The BoG, working with consultants Positive Impact Sarl (Geneva), Aurum Global Partners and Ghana Gold Expo Foundation, has developed a responsible sourcing and due diligence framework for the DGPP that is expected to drive the process forward by promoting responsible and sustainable mining in the domestic ASM sector,” he added.
Dr. Addison was speaking at the 4th edition of the Ghana Mining Expo 2023 in Takoradi, themed ‘Sustainable mineral resource development and well-being of mining communities’.
The Expo provides a multi-sectoral platform for the sharing and exchange of ideas, and investment opportunities and challenges in the Africa Gold sector. It also aims to implement strategies for accelerated growth in the mining sector, in addition to ensuring resilience on all fronts and at all times as Africa’s economic bedrock.
Dr. Addison added that the central bank’s increased gold reserves, set within a context of a well-defined strategic asset allocation (SAA) framework, will diversify reserve assets and help improve the risk-adjusted returns for the reserve portfolio.
Additionally, he said, the Bank will leverage these gold holdings to raise funds at competitive terms for foreign exchange liquidity management.
He pointed out that the DGP has the potential to catalyse investments in the gold mining sector: “Our local refineries are positioning themselves to take advantage of increasing investments in the sector, and enhancing revenue from higher value-addition in gold exports”.
Touching on government’s Gold for Oil (G4O) programme, he said the G4O is structured such that gold is purchased mainly through the Precious Mineral Marketing Company (PMMC) from licenced small-scale miners and community mining schemes to support the importation of petroleum products.
Introducing the G4O programme was critical during the recent economic crisis, especially in the last quarter of 2022.
The crisis, he said, affected the foreign exchange market and led to very large adjustments in the exchange rate – and distorted forward exchange rate quotes which were used to price petrol.
Government’s intervention to directly engage oil producers became critical in obtaining cheaper fuel from G4O arrangements. It became clear that leveraging the BoG Gold for reserves programme to support investment in oil would help.
“At the time, domestic ex-pump petroleum prices were changing rapidly with associated upward adjustments in transport costs – due mainly to the sharp currency depreciation and rising headline inflation,” he said
Dr. Addison continued that since its inception the G4O has yielded significant results. “Specifically, it has provided foreign exchange resources to meet petroleum products importation, led to increased competition among market players and lower ex-pump petroleum prices, and provided some stability in the foreign exchange markets.”
These positive developments, he noted, have contributed to easing price pressures; thereby supporting the central bank’s efforts to bring down inflation levels.
Outlook
The country, he explained, has made sustained progress and remains committed to addressing the menace associated with unlicenced miners who violate sustainable mining practices.
“It is our expectation that as benefits of the DGP programme become tangible to all players in the value chain, activities of these illegal operators will be reduced or made to align with responsible mining practices – as the economic and legal costs of operating outside the law will be prohibitively expensive. It is worth noting that the Ministry of Land and Natural Resources and other key stakeholders are collaborating to formalise activities in the ASM sector,” he added.
He mentioned that the Bank of Ghana has put into place a rigorous due diligence process for aggregators; including checking for criminal records, and site visitations to ensure registered mines are complying with relevant environmental standards. “It is our expectation that purchases by the PMMC will also be guided by a similar rigorous process.”
Dr. Addison said the increase in the Bank’s gold reserves – which provide an additional buffer to help the economy withstand future global economic shocks – helps the economy to build resilience and manage the impact of macroeconomic imbalances better.
“Looking ahead, the bank will gradually expand suppliers in the ASM sector under the responsible sourcing framework. The Bank will work closely with PMMC in adopting and integrating our responsible sourcing and due diligence framework in their operations geared toward the formalisation drive.
“We will also work with key stakeholders and the mining regulator to improve standards of the community mines to be an important gold supplier; and finally, the bank will also lend support to the current efforts toward LBMA certification for our local refineries,” he concluded.
