By Edwin Alfred Nii Obodai PROVENCAL (PhD) & Emmanuel ABBEY (PhD) In 2022, the government of Ghana introduced the Gold for Oil (G4O) program to address multiple economic objectives, mainly to stabilise fuel prices in the domestic market, reduce pressure on Ghana’s foreign exchange reserves and ensure a stable supply of petroleum products. The program allows Ghana to exchange its gold reserves for imported petroleum products to reduce the excessive pressure on the demand for foreign currency for oil imports. The program operates through a cyclical process involving key institutions: the Bank of Ghana (BoG), the Precious Minerals Marketing Company (PMMC), the National Petroleum Authority (NPA), the Bulk Oil Storage and Transportation Company (BOST) and the Bulk Oil Import, Distribution and Export Companies (BIDECS). Under the program, BoG purchases gold in cedis and uses it to secure oil imports for BOST, which are then distributed through the domestic supply chain via the Bulk Distribution Companies (BDCs) to the market, thus bypassing the need for foreign currency ($). PMMC handles the gold acquisition and processing side, while BOST manages the oil importation, storage and distribution aspects of the initiative (see Figure 1 for a graphical representation of the cyclical process) The Gold for Oil (G4O) program was intended to lessen the pressure on Ghana’s foreign exchange reserves and reduce the demand for dollars in the market. The program can thus be useful in stabilising the value of the Ghanaian cedi against major currencies, particularly the US dollar, by decreasing the country’s reliance on foreign currency for essential oil imports, which contributes almost 32% of Ghana’s imports (see Figure 2). Using the pump prices of two oil marketing companies in the country – Goil and Star Oil, this report shows that the program has been successful in stabilising fuel prices, as the average price of petrol and diesel being quite lower during the program than before. Similarly, not much deviation was observed between the pump prices for diesel and petrol as well as the foreign exchange. Motivation for the study For over two years, the Gold for Oil (G4O) program has been the subject of ongoing debates among stakeholders, who question its effectiveness in stabilizing fuel prices and curbing the depreciation of the Ghanaian cedi, particularly against the U.S. dollar. The primary motivation for this study is to address and resolve the ongoing debates and doubts surrounding the effectiveness of this innovative program. Additionally, since no academic research has been conducted on this or similar interventions, this study aims to contribute to the existing body of academic knowledge. The theory behind the Gold for Oil (G4O) Program It is instructive to note that Ghana is the first country to practice the Gold for Oil (G4O) program. The concept of exchanging gold for oil was, however, practised in response to the 1973 oil crisis (Birjandi, 2003). The economics underpinning the programme is intuitive. A good starting point in justifying the relevance of the program is the emergence of the COVID-19 pandemic and the Russian- Ukraine conflict and their impact on the economy of Ghana with weak fundamentals. These two global shocks significantly disrupted global supply chains with dire implications for food security, energy production and economic growth. This necessitated fiscal response from almost all countries in the world and particularly for Ghana, plunging the economy further into a debt distress situation. This is not to say Ghana has not had issues with debt management, as there have been lingering issues with Ghana’s public debt, which has been soaring over time. The events implied a shrinking international reserve position for Ghana and loss of access to the international capital market. Coupled with declining reserves, this excessively affected the depreciation of the local currency in a country. This triggered an inflation crisis because Ghana is dependent on imports for most of its critical supplies, especially petroleum products and inflation soared to 54% by November 2022. Certainly, there was a need to be innovative about addressing the inflation crisis and the excessive depreciation of the local currency. It is not difficult to show that mineral fuels, oils and distillation products constitute a very high share of the country’s imports and have been one of the major drivers of the depreciation of the local currency. The pressure from these imports certainly has pass-through effects on energy prices and particularly inflation. Ghana needs almost US$4.8 billion annually to finance 100% of petroleum imports. This is where the Gold for Oil (G4O) program becomes relevant if a huge chunk of this financing can be retained or replaced with Gold. Indeed, the 2023-2024 annual review of the Gold for Oil program showed the program imported 56 cargoes (1.84 million metric tons (MT) of products representing 30% market share over the period) at a cost of almost $2 billion. The rest of the market was served by the BDCs. Theoretically, it is again not difficult to show that the determinants of petroleum prices in Ghana are shaped by a complex interplay of global, macroeconomic, and institutional factors. Key drivers include global crude oil prices, exchange rate volatility, taxes and regulatory levies, deregulation and subsidy policies, local refining capacity, inflation, market structure, cross-border smuggling, energy demand, and political factors. Global oil prices directly impact import costs, while the depreciation of the Ghanaian cedi increases expenses. Limited local refining capacity forces reliance on expensive imports, and high inflation escalates operational costs. The oligopolistic market structure, cross-border smuggling, and inconsistent policy implementation further complicate pricing dynamics. Addressing these multifaceted issues requires a comprehensive approach, including enhancing refining capacity, stabilising the currency, and implementing targeted subsidies to protect vulnerable populations Have there been some gains from the G4O Programme? To commence the commentary on whether there have been some gains or otherwise, we obtained data on the local pump prices for petrol and diesel from Goil and Star Oil starting from 1^st November 2022 and ending on 3^rd February 2025 (69 observations). A simple comparison of the average pump prices for these products is produced in Table 1. It can be observed that the average pump prices for both diesel and petrol from the two OMCs were much lower during the periods of the Gold for Oil program (January 17, 2023) relative to the periods before. These differences were found to be statistically significant except the pump price for petrol from the Star Oil Company. The average global price of petrol increased during the period that the government was undertaking the Gold for Oil program. The average global price of diesel, however, declined during the same period and came to $795.1. We again computed several correlations between the foreign exchange and the different fuel prices (i.e. pump prices for Goil and Star oil as well as international prices). There are two important observations to be made from these correlations. First, the correlation between the foreign exchange and local pump prices for petrol and diesel are all positive. For pump prices (Star and Goil), their correlations with foreign exchange are positive before G4O, indicating that as the cedi tended to weaken or depreciate, pump prices increased. These correlations are generally strong (0.76 to 0.87). During G4O, these correlations are still positive, but the magnitude is smaller (0.57 to 0.66), suggesting that the relationship between pump prices and foreign exchange has weakened during G4O. This potentially indicates a stabilizing effect, where pump price increases are less strongly linked to cedi depreciation due to the anchoring of the forex by G4O. Second, there is a striking change between foreign exchange and global market prices of diesel and petrol. Before G4O, there was a positive correlation. But during G4O, the correlations become negative. This suggests a shift where increases in global petrol/diesel prices are now associated with a strengthening of the Cedi. A possible interpretation is that the G4O program may have somewhat stabilized the forex rate by reducing the demand for USD to import petroleum products. Intuitively, if the G4O program is pursued vigorously, when global prices rise, the forex rate may not be as strongly affected (as indicated by the decreased positive correlations for pump prices) or may even move in the opposite direction (as indicated by the negative correlations for global prices). Note here that the G4O program intends to create more forex availability and stability. A look at the trends for foreign exchange and the local pump prices of both petrol and diesel somewhat confirms our initial findings. In the case of petrol prices (Figure 3), forex and petrol prices initially exhibited a similar trend (moving together), but over time, forex stabilises while petrol prices fluctuate. The stabilization effect of forex is visible, aligning with the reduced correlation observed in Table 2. In the case of diesel prices (Figure 4), forex exhibits stability while fuel prices continue to respond to global market fluctuations. The observed trend aligns with the negative correlation shift for global diesel prices in Table 2, reinforcing the idea that forex reacts differently to global fuel price movements under G4O. Clearly, the G4O program seems to be effective in weakening the link between forex and fuel price volatility, potentially stabilizing the Cedi when global fuel prices increase. A More Robust Evidence As explained earlier, the transmission mechanism for the gold for oil programme is to ease the pressure on the demand for forex, which in turn is expected to result in the appreciation [1] of the Cedi against the Dollar and other major currencies. The appreciation or reduction in the rate of depreciation will also lead to a reduction in pump prices of petrol and diesel, as the formula for calculating the pump price has the exchange rate depreciation embedded in it. An understanding of how this practically occurred during the Gold for Oil programme is discussed by employing two techniques: the ordinary least squares (OLS) approach and a decomposition technique.  The intention is to determine the effect of the policy on pump prices. Using a dummy variable as a measure of the policy, we will attempt to establish an econometric link between the policy and pump prices. The period from the first lifting of oil under the policy is assigned the value 1 (i.e., January 17, 2023, to 3^rd February 2025), and the period before the policy was assigned 0. This assists in ascertaining the effectiveness of the policy. Table 3: OLS estimation of pump prices of petrol and diesel

VARIABLES	Goil Petrol Price	Star Petrol Price	Goil Diesel Price	Star Diesel Price
Exchange rate (GHC to $)	0.442***	0.555***	0.530***	0.564***
	(0.050)	(0.056)	(0.055)	(0.059)
Global Price of Petrol	0.210***	0.169**
	(0.066)	(0.074)
Global Price of Diesel			0.246***	0.259***
			(0.074)	(0.077)
Gold for Oil Dummy	-0.130***	-0.104***	-0.270***	-0.239***
	(0.025)	(0.020)	(0.027)	(0.025)
Constant	0.197	0.092	-0.093	-0.345
	(0.489)	(0.553)	(0.583)	(0.610)
Observations	69	69	69	69
R-squared	0.525	0.534	0.771	0.734

Robust standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1 We initially conducted a pre-estimation test to establish the suitability of the data for econometric analysis. A unit root test was conducted using the Augmented Dickey-Fuller Test, and all the variables were found to be stationary. First, we test the relationship using OLS estimation techniques. The results reveal that foreign exchange has had a positive and significant effect on pump price. What this means is that any depreciation of the Ghana Cedis is reflected in increased pump prices for diesel and petrol and vice versa. Specifically, a one percentage depreciation of the Ghana Cedis resulted in a rise in pump prices of petrol by 0.44% and 0.56% in the case of Goil and Star Oil, respectively. A similar finding exists for the prices of diesel advertised by the two oil marketing companies (0.53% and 0.456%, respectively). The Gold for Oil dummy variable, which is our main variable of interest, is negatively related to pump prices of diesel for both Goil and Star Oil (see Table 1). This is a key finding related to the Gold for Oil (G4O) program. The negative sign suggests that the introduction of the G4O policy is associated with a decrease in pump prices for both petrol and diesel at both Goil and Star Oil. The decline is more pronounced on the pump price advertised by Goil relative to that of Star Oil, while the effect of foreign exchange is relatively pronounced on Star Oil’s pump price compared to that of Goil. Altogether, the policy accounted for almost 10 – 24% reduction in pump prices for petrol at the two oil marketing companies. It is crucial to note that the exchange rate’s continued substantial influence implies that the G4O policy has not entirely protected the market from exchange rate volatility. This is comprehensible, as there are still components of the petroleum pricing mechanism that are susceptible to currency fluctuations. The policy’s abandonment would result in the loss of these price reductions already realised. The most effective strategy is to enhance and refine the policy, address the remaining vulnerabilities, and investigate complementary measures to achieve greater stability in the petroleum market. It would be premature to abandon the policy. The report also conducts a decomposition analysis to ascertain the policy’s contribution to the reduction in pump prices. The results confirm our earlier findings that the average pump price for petrol and diesel at Goil Filling Stations was reduced, whereas the story is different for petrol prices at Star Oil. This implies that the Gold for Oil intervention significantly influenced the pump price of petrol and diesel sold by Goil. Conclusion In conclusion, the Gold for Oil (G4O) program in Ghana appears to have had a positive impact on stabilising fuel prices, particularly for Goil, as evidenced by the lower average pump prices during the program period compared to before. The Program is indeed a bold and innovative move. The program’s innovative approach of swapping gold for imported petroleum products to bypass the need for foreign currency is a clear deviation from traditional methods. The gains observed showed that average pump prices were lower during the program compared to pre-G4O figures, which means the program is working. There are even potential more gains against international fuel prices. This is because the G4O program can be effective in weakening the link between Forex and fuel price volatility, potentially stabilizing the Cedi when global fuel prices increase. This makes the program more worthwhile than a costly gamble. The program has helped reduce Ghana’s reliance on foreign currency for oil imports, contributing to a more stable exchange rate. However, the exchange rate’s continued influence on pump prices suggests that the G4O policy has not fully insulated the market from currency volatility. These findings imply that while the G4O program is a step in the right direction, further refinements are needed to enhance its effectiveness and address remaining vulnerabilities. Abandoning the policy prematurely would negate the price reductions already achieved. A more strategic approach would involve strengthening the existing framework, exploring complementary measures to bolster stability in the petroleum market, and continuously monitoring and adapting the program to evolving economic conditions. This will ensure that Ghana can fully realise the benefits of its gold reserves in securing a stable and affordable fuel supply for its citizens. 2  Bibliography Acheampong, T. (2022). A beginner’s guide to petroleum pricing in Ghana. Conversation (retrieved from https://theconversation.com/a-beginners-guide-to-petroleum-pricing-in-ghana-179402 Antwi, A. (2021). The impact of crude oil price changes on output, inflation, and the exchange rate in Ghana (Master’s thesis, Norwegian University of Life Sciences, Ås). Anyars, S. I., & Adabor, O. (2023). The impact of oil price changes on inflation and disaggregated inflation: Insights from Ghana. Research in Globalization, 6, 100125. Birjandi, H. S. (2003). Energy and globalization. Illinois State University. [1] Appreciation of the Cedi refers to the rise in value of the Cedi against the Dollar and depreciation is fall in value.