The International Monetary Fund (IMF) has raised concerns about the Bank of Ghana’s definition of the country’s gross international reserves, saying the inclusion of oil revenue makes the figure overvalued as it cannot be readily available to cushion the economy from external shocks.

In the Bank of Ghana’s Statistical Bulletin report for the third quarter of 2019, the gross international reserves stood close to US$8billion and 3.8 months of import cover.

However, in the IMF’s Article IV report, the projected reserves for end of 2019 will hit US$5.1billion with an import cover of 2.4 months – a difference of nearly US$3billion, and also falls short of the 3-months rule-of-thumb benchmark.

What this essentially means is that should there be any external shocks or excessive demand for foreign currency by importers or foreign investors, the economy will not be able to withstand such shocks for three consecutive months: a situation that would cause the cedi to depreciate further.

“The authorities’ definition of reserves is higher, as it includes additional assets such as oil funds that may not meet the requirement of being readily available for use in staff’s definition. Reserves are projected to remain below both benchmarks over the medium term. This low level of reserves would seem to point to an overvaluation of the exchange rate given the central bank’s FX intervention policy,” the IMF said.

Commenting on this, Professor of finance at the University of Cape Coast-Prof. John Gatsi, said the position of the IMF is right, as the Petroleum Revenue Management Act (PRMA) does not allow oil revenue to be made readily available for use if there is an urgent need for forex.

“The reason why capturing oil funds as part of international reserves for the purposes of demonstrating that your international reserves are capable of covering your imports over a period of time – an average of 3-months – is not acceptable for the IMF is that such money won’t be available for government if there is need to use the reserves to cater for immediate use.

“If you take the Petroleum Management Act, it states that the Stabilisation Fund and Heritage Fund are such that they cannot be used unless certain conditions exist.

For example, the only condition under which we can use the Heritage Fund is 15 years after the coming into force of the Petroleum Revenue Management Act. And this Act came into force in 2011, which means we can only touch the funds in 2026.
“But even in that 2026, the part of the Heritage Fund we can use is the accrued interest on the Fund and not the actual fund itself.

And even with that, there is a condition which states a two-thirds majority resolution in parliament must agree to the use of that money.

So, what it actually means is that money is not readily available until after 2026. So even if you add it as part of your reserve, assuming there is a turbulence today and you want to shore-up the currency, you cannot quickly make that money available for use,” he said in an interview with the B&FT.

He added: “If you come to the Stabilisation Fund, it is such that it can be used during times of economic turbulence emanating from weak oil production and weak prices which was not anticipated in the budget.

So, two things must occur: it should be very clear that crude oil prices have gone down significantly, and the revenue you are going to get is so low it will affect execution of the budget.

“To use that money, you must meet the withdrawal criteria. So, it is clear that money is not readily available should something happen and you want to trigger use of the Stabilisation Fund.”

Credit: B&FT online

(By Obed Attah Yeboah)