Governor of the Bank of Ghana, Dr Johnson Asiama, has highlighted the threat that the Middle East crisis poses to Ghana’s economy if it is prolonged.
He explained that the Strait of Hormuz handles about 30 per cent of shipping, including crude oil.
Therefore a closure will cause oil prices to surge above the notional US$100/barrel mark with adverse implications for Ghana’s energy import bill, foreign exchange reserves, exchange rate stability, and inflation.
He added that higher inflation can compress real incomes and dampen consumption and investment. Therefore, the prolonged conflict in the Middle East poses a significant risk of escalating crude oil prices.
“Should this materialise, Ghana would face a higher oil import bill alongside increased demand for foreign exchange, thereby exerting pressure on the domestic currency.
“Nevertheless, the country’s robust international reserve buffer offers some protection against potential exchange rate volatility and its impact on domestic prices.
“In a more adverse scenario, remedial measures could be implemented to mitigate the economic consequences of surging oil prices,” Dr Asiama said in a frequently asked questions.
In another development, Dr Asiama said that the central bank is fully aware that Ghana’s economic history has occasionally been characterised by policy slippages following the completion of stabilisation programmes.
For this reason, he said, both the Bank of Ghana and the Government remain strongly committed to maintaining prudent monetary policy, fiscal discipline, and sound macroeconomic management beyond the life of the programme.
The current International Monetary Fund (IMF ECF) programme will end sometime in the second quarter of this year.
There are concerns that, beyond the programme completion, Ghana may be tempted to go down the path of fiscal slippages and bring the economy to the brink of malaise. Our economic history is replete with economic lapses following a period of stabilisation after a Fund programme.
Asked whether in his opinion, the Government can stay the course of fiscal rectitude, monetary measuredness and overall economic prudence or will we need a post-programme arrangement, such as the Policy Coordination Instrument (PCI) or Policy Support Instrument (PSI) of the IMF, Dr Asiama said “our objective is to ensure that macroeconomic stability becomes embedded in the domestic policy framework, supported by the fiscal responsibility provisions, the operational independence of the Bank, and continued policy coordination between fiscal and monetary authorities.”
Regarding the impact of the Middle East Crisis on Ghana’s economy, Dr Asiama stated that Ghana is a net importer of petroleum products.
Therefore,he said, a surge in crude oil prices will increase the energy import bill and put pressure on the Balance of Payments (BOP) position.
“The increased demand for FX reserves for imports will put pressure on the exchange rate, with implications for inflation. As a result, the ongoing disinflation process may be paused or even reversed depending on the extent of the increase in crude oil prices,” Dr Asiama said.
As a proactive central bank, he added “we have carefully assessed the potential implications of the ongoing conflict in the Middle East on Ghana’s external sector. Our analysis incorporates a range of possible oil price scenarios, including a pessimistic case where prices could rise to as high as US$150 per barrel.
“The results of our sensitivity analysis indicate that across all scenarios, Ghana’s reserve levels remain sufficient to meet the needs of the economy. Furthermore, under the Ghana Accelerated National Reserves Accumulation Policy (GANRAP), reserves are projected to reach 15 months of import cover over the medium-term (2026-2028).
“This initiative, together with strong domestic fundamentals, provides a solid cushion against the adverse effects of rising oil prices. We are confident that the Ghanaian economy is now better positioned than ever to withstand external shocks and preserve stability for households and businesses alike. “
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