Ghana’s recently achieved macroeconomic stability remains highly vulnerable to global commodity price fluctuations, particularly gold, according to a report by Fitch Solutions, an international credit rating agency.
The report warns that the sustainability of the nation’s economic rebound is “highly dependent on persistently high gold prices,” creating a critical and volatile risk factor for the economy.
The financial commentary outlines a severe sequence of events that could swiftly reverse the current positive trends in inflation and currency stability if the price of the precious metal were to decline sharply.
It suggested that a significant fall in gold prices potentially triggered by a de-escalation of global geopolitical tensions would immediately hit Ghana’s foreign exchange market and fiscal health.
“A gold price dip would significantly reduce Ghana’s dollar earnings from its largest export,” the report said.
“This reduction in foreign currency inflows would subsequently deflate its international reserves, eroding the country’s external buffers and placing renewed pressure on the cedi, leading to a potentially sharp depreciation of the local currency.”
It said the cedi depreciation would then fuel a sharp rebound in inflation by increasing the cost of imports.
To counter resurgent inflation, the rating agency said the Bank of Ghana Gould be prompted to maintain a tighter policy stance than currently anticipated by markets, likely through higher interest rates.
