The ‘potential loss’ of US$214m due to the G4R Programme of BoG: A counterfactual analysis

By Kwame Nyame, PhD.

At an early stage in learning, we were told that economics is a science. However, the aspect that economics is a dismal science only dawned on us in the later stages of the profession. The subject matter is full of policy trade-offs, demonstrating the fact that there are costs to everything (opportunity cost). Some wish to express this conceptualisation in its simplistic terms that there is no free lunch anywhere, and indeed not even in Freetown!

As a nation, we must count the costs and benefits of every policy decision or choice within the context of optimal outcomes.  In fact, when it comes to taking a policy decision, the policymaker is faced with a spectrum of choice options with varied outcomes. It could be said that not doing anything is one of the options. But to the extent other decisions could be made within the spectrum of options, the focus for the policy maker would be on the policy outcome that either maximises the optimal social welfare or minimises some social loss function.

Against this background, I attempt a brief static and dynamic counterfactual analysis of the ‘potential loss’ of US$214 million due to the G4R programme of the Bank of Ghana.

The overarching policy objective of the Bank of Ghana is that of price stability consistent with favourable and benign external conditions. Exchange rate stability for a small open economy like Ghana, predisposed to the vagaries of global boom and bust conditions, is a key prerequisite for achieving price stability with a minimal sacrifice ratio.

One of the policy options opened to the government to improve foreign exchange liquidity in the economy, which had been exploited in the past, was for the government to go to the external capital market to borrow.  Those resource inflows were indirectly used to shore up the value of the domestic currency. One thing to be said was that the option was a debt-creating approach with a quid pro quo. In other words, there was bound to be a future obligation on the country in terms of both the amortisation of the principal and the debt servicing costs, with myriad adverse macroeconomic consequences flowing from the resource outflows.

Within a static context, assume the government went to the Eurobond Market to borrow US$3 billion with a coupon rate of 8.35% per annum. The debt service costs per annum alone would amount to US$250.5 million and someone had to pay. In a relatively dynamic context where the need to service this debt interacts with other domestically pressing needs for foreign exchange to meet essential import bills and repatriation of profits by investors among others, extreme exchange rate pressures leading to both volatility and depreciation of the domestic currency are unavoidable.

Indeed, the situation would have demanded the mobilisation of huge already limited domestic resources in local currency to meet such an obligation. Not to talk of the loss of confidence and downgrading from sovereign rating agencies, uncertainty due to exchange rate volatility and implications for financial sector stability.

Another counterfactual example may help to home in this discourse.  According to data from official source, the government of Ghana from the beginning of the year 2025 to November, has cumulatively paid some US$3,210,750,071.55 to both external creditors and the Independent Power Purchasing firms (IPPs).

Specifically for the period January to November 2025 the external creditors were paid US$1,105,460,000. And the rest was for the IPPs^[1].  For this discussion, let us use an average exchange rate of the cedi to a dollar of GH¢16 by the end of 2024 and GH¢12 by the end of 2025. At an average exchange rate of GH¢16/$, the total debt payment for 2025 amounts to GH¢ 51,372,001,146.56. On the other hand, at an average exchange rate of GH¢12/$, the total debt payment amounts to GH¢ 38,529,000,859.92.

This leaves us with a difference of GH¢12,843,000,023.89 (US$1,070,250,023.89 at an average exchange rate of 12 cedis/$). The almost US$1.1 billion is the gain from the G4R policy option that succeeded, coupled with other prudent policies, in stimulating an exchange rate appreciation from an average of GH¢16 /$ to an average of GH¢12 /$, though with a potential loss of US$214 million. A critical point to be noted is that this option is a non-debt creating approach. In other words, there is no quid pro quo.

Within a dynamic context, under the previous option where the government resorted to the Eurobond Market, this could have been a loss to the system. This is because the temporary palliative relief to the exchange rate market due to the initial external resource inflow will be replaced with a steep and volatile depreciating exchange rate in the face of resource reversals to pay for amortisation and debt service in conjunction with other equally important demand for exchange rates. The government’s fiscal space will be squeezed with limited resources to address challenging social, health, and national security issues.

From the foregoing, it is evidently clear that whether the policy maker resort to the option of using the G4R, a non-debt creating approach to indirectly shore up the value of the domestic currency with the view to achieving some stability in the exchange rate or resort to external borrowing for the same purpose with the potential adverse consequences as already highlighted, there is a cost to be incurred. The next stage is that, should the policymaker decide to go for the lesser of these two evils (where most clearly the costs of the G4R dwarfs before its benefits), who should bear the social costs for the larger good? GoldBod, Bank of Ghana, or Ministry of Finance?

As an Economist, I will be inclined to shield the Bank of Ghana from any quasi-fiscal operations. However, since as a country, we find ourselves in a transitional period, where measures are afoot to extricate the Bank of Ghana from such quasi-fiscal operations from January 2026, I am inclined to say that as we wait patiently for the auditors of Bank of Ghana to give us a true and fair picture of the ‘potential loss’ of US$214 million, the conversation should focus on how we deepen the gains from the G4R programme under the sole management of the GoldBod. This is because the associated significant dividends portend well for the economy in terms of laying the solid fundamentals for sustainable growth.

It should be noted that this discussion does not overlook the broader issue of exploiting our natural resources in an environmentally sustainable manner.

 The writer is an Economist

 

[1] Source : Bank of Ghana

The post The ‘potential loss’ of US$214m due to the G4R Programme of BoG: A counterfactual analysis appeared first on The Business & Financial Times.

Read Full Story