In a move that signifies a significant shift in foreign exchange policy, the International Monetary Fund (IMF) has directed the Bank of Ghana (BoG) to gradually phase out the special forex auctions designed to provide Bulk Oil Distributors (BDCs) with access to dollars at lower rates.
This decision, outlined in the details of a three-year $3 billion bailout programme with Ghana, aims to align the BoG’s forex liquidity provisions with prevailing market exchange rates.
The IMF’s stance stems from concerns over the emergence of multiple exchange rates caused by the BoG’s occasional provision of forex support at rates differing from those prevailing in the market. As part of the programme, the IMF expects the BoG to ensure that its forex liquidity is provided at market exchange rates, while also implementing measures to support the unification of exchange rates across the board.
The significance of this directive lies in its potential impact on BDCs, which require approximately $300 million per month to import finished petroleum products for public consumption. These distributors have been grappling with limited access to sufficient foreign exchange at affordable rates in the open market. The BDCs’ demand for $480 million from the open market has further exacerbated the pressure on the local currency.
To address the issue of inadequate US dollars for BDCs, whose activities directly influence the final price of fuel at the pumps, the BoG previously introduced a special foreign exchange forward auction programme exclusively for BDCs. These special forex auctions had a positive impact on the prices of petroleum products, providing some relief to consumers.
Under the framework of the special forex auctions, which are held bi-weekly, the BoG conducts the auctions no later than three working days before the 1st and 16th of each month. By ensuring a steady supply of forex at lower rates, the BoG aimed to curtail the influence of speculators and create a more stable market environment.
The absence of an active forward forex market for the petroleum industry had allowed speculators to exert significant control over the market. BDCs, forced to purchase dollars from commercial banks, forex bureaus, and occasionally the black market at higher rates, ultimately passed on the increased costs to consumers in the form of higher fuel prices at the pumps.
However, the IMF’s directive to phase out these special forex auctions implies a shift towards a more market-driven approach. In an open market where demand and supply dynamics significantly impact the depreciation of the Ghanaian cedi, the large-scale purchases of millions of dollars by BDCs from the open market can potentially exert additional downward pressure on the already depreciating currency.
The Chamber of Bulk Oil Distributors (CBOD), operational since 2012 and formally incorporated in January 2014, serves as the advocacy, lobby, and representative body for Bulk Import, Distribution, and Export Companies (BIDECs), Storage Depots, and other affiliated Petroleum Service Providers (PSPs) in Ghana’s downstream petroleum industry. It also functions as an industry research and strategy unit committed to enhancing the commercial viability and sustainability of the sector.
As an active and responsible industry player, the CBOD collaborates with allied agencies for national development while fostering healthy cooperation and competition among its members. Presently, the Chamber boasts a membership of 46 entities, including 36 BIDECs, 7 Storage Depots, and 3 other PSPs.
The IMF’s directive to the Bank of Ghana to phase out the special forex auctions for BDCs signals a significant policy shift in Ghana’s foreign exchange market. As the nation navigates these changes, market participants, including BDCs, investors, and consumers, are likely to closely monitor developments and assess the implications on fuel prices, exchange rates, and overall market stability.
Norvareports