Create a Gold Stabilisation Fund Now, or Pay Later: A Strategic Imperative for Ghana

Ghana stands at a critical economic crossroads. Buoyed by a surge in gold prices and ambitious new legislation to formalize and expand its gold sector, the nation has a rare opportunity to secure long-term fiscal stability. However, a leading international finance academic has issued a stark warning: without establishing a dedicated Gold Stabilisation Fund immediately, Ghana risks severe economic pain when the current gold price boom inevitably subsides. This article breaks down the expert advice, the economic mechanics at play, and a clear path forward for policymakers.

Introduction: A Timely Warning from an International Expert

In a candid interview on Joy News’ PM Express, Prof. William Kwasi Peprah, an Associate Professor of Finance at Andrews University in the USA, provided a crucial masterclass on commodity economics for Ghana’s policymakers. His message was direct and urgent: while the new Gold Board Act is a legislative triumph, its success hinges on a single, missing institutional component—a sovereign gold stabilization fund.

Prof. Peprah’s analogy is powerful: Ghana already understands the value of stabilization mechanisms through its established Cocoa Stabilisation Fund and frameworks for petroleum revenue management. To treat its most significant new commodity windfall differently is a profound strategic error. This article translates his advice into a clear, actionable framework for understanding why this fund is non-negotiable, how it should function, and what happens if it is ignored.

Key Points: The Professor’s Core Arguments

The expert’s analysis can be distilled into several critical, interconnected points:

• Urgency is Paramount: The current period of high gold prices is a “windfall” and a “unique opportunity” to save. Waiting until prices fall is too late.
• Fund Distinction is Critical: A revolving fund for the Gold Board’s operational cycle is NOT a stabilisation fund. The latter is a sovereign savings account for macroeconomic buffering.
• Price Volatility is Inevitable: Gold’s current high price is driven by temporary global factors (fear, inflation hedging, USD weakness). Assuming permanence is a dangerous fallacy.
• Implementation Over Legislation: The law is sound, but the operational details—especially financing and fund architecture—will determine success or failure.
• Systemic Risk: Failure to stabilize could throw Ghana’s trade balance and overall balance of payments into a “very struggling position” during the next downturn.

Background: Ghana’s Gold Sector Transformation

The New Gold Board Act: A Foundation, Not a Complete Structure

Ghana’s Gold Board Act (passed in 2025) represents a major policy shift. Its goals are to:

• Centralize and formalize gold purchases, especially from small-scale miners.
• Boost local refining capacity to add value and retain more revenue domestically.
• Improve transparency and state control over gold exports.

This is a positive step toward capturing more value from the nation’s rich gold resources. However, as Prof. Peprah notes, it primarily addresses the supply-side and marketing of gold. It does not, by itself, solve the age-old problem of commodity-dependent economies: how to manage boom-and-bust revenue cycles.

Historical Precedents: The Cocoa and Petroleum Models

Ghana’s experience with cocoa provides the most direct analogy. The Cocoa Stabilisation Fund is designed to smooth farmer incomes and government revenues when global cocoa prices fluctuate. Similarly, frameworks exist for managing petroleum revenues, often with savings components (like Ghana’s own Petroleum Holding Fund). These models recognize that commodity revenues are inherently volatile. Prof. Peprah argues that gold, now a major fiscal revenue source, demands the same prudent institutional treatment.

Analysis: The Economic Logic of a Gold Stabilisation Fund

Why Gold Prices Are High—And Why They Will Fall

To understand the need for a fund, one must understand gold’s price drivers. Prof. Peprah correctly identifies the three core global perspectives on gold:

1. Fear (Safe-Haven Demand): Geopolitical tensions, economic uncertainty, and market volatility drive investors and institutions toward gold as a store of value. Current global instability is a key driver.
2. Inflation Hedging: When real yields on bonds fall or inflation expectations rise, gold’s appeal increases as a hedge against currency devaluation.
3. Currency Movements (USD Hedge): Gold is priced in US Dollars. A weakening USD makes gold cheaper for holders of other currencies, boosting demand. The professor’s point about the devaluing US dollar is central.

The crucial insight: These drivers are cyclical and often temporary. The “fear” premium can recede. The USD can strengthen. Inflation can be tamed. Assuming today’s $2,000+/oz gold price is the new permanent floor is a bet against centuries of commodity market history.

The “Pay Later” Consequence: Fiscal and Macroeconomic Shock

If Ghana uses current high gold revenues for immediate expenditure without saving, a price collapse would cause:

• Revenue Shock: A dramatic drop in government income from gold exports and corporate taxes.
• Balance of Payments Crisis: Lower export earnings would worsen the current account, potentially draining foreign reserves.
• Currency Depreciation Pressure: Reduced USD inflows would weaken the Ghanaian Cedi, fueling inflation.
• Fiscal Austerity: The government would be forced into abrupt, painful spending cuts or debt accumulation to fill the gap—the literal “pay later” scenario.

A stabilisation fund acts as a fiscal buffer. During booms, excess revenues are saved. During busts, funds are drawn down to support the budget, maintain public investment, and stabilize the macroeconomy, smoothing the cycle.

Practical Advice: Designing Ghana’s Gold Stabilisation Fund

Based on Prof. Peprah’s interview and international best practices, here is a blueprint for action:

1. Legal and Institutional Separation

The fund must be established via a separate, robust law or parliamentary act, distinct from the Gold Board Act. It should be managed by an independent, transparent board (potentially with oversight from the Ministry of Finance, Bank of Ghana, and civil society) to prevent political interference. Its mandate must be explicitly for macroeconomic stabilization and intergenerational equity.

2. Clear Funding Rules

The law must define exactly what revenues feed the fund. Prof. Peprah suggests: “Whatever amount of gold sales that is coming… we create that fund just for gold.” A common rule is to direct a fixed percentage (e.g., 30-50%) of all windfall revenues—revenues above a long-term average price or a conservative budgeted price—into the stabilization fund. This ensures consistent saving during high-price periods.

3. Clear Withdrawal Rules

The fund must have pre-defined, rules-based triggers for withdrawal to avoid ad-hoc spending. For example, funds could be released if:

• The actual gold price falls below a referenced benchmark price for a sustained period (e.g., 6 months).
• The overall fiscal deficit exceeds a certain threshold.
• There is a significant negative shock to the balance of payments.

Withdrawals should be channeled directly to the central budget to finance deficits or key investments, not to specific projects, to maintain macroeconomic focus.

4. Investment Strategy: Capital Preservation First

The fund’s assets should be invested in ultra-safe, liquid instruments—primarily high-grade sovereign bonds (like US Treasuries or German Bunds) and deposits at reputable international financial institutions. The goal is capital preservation and low, stable returns to protect against inflation, not high-risk profit-seeking. The Bank of Ghana could manage this or hire a professional international manager.

5. Transparency and Public Communication

Regular, detailed public reports on fund size, investment holdings, inflows, and outflows are essential. This builds public trust and creates a deterrent against misuse. Publishing the fund’s performance alongside the national budget is a best practice.

6. Addressing the Gold Board’s Financing

Prof. Peprah’s concern about the Gold Board’s financing is valid. The Board needs a sustainable operational model that does not rely on perpetual government subsidies or become a fiscal drain. A well-designed Gold Stabilisation Fund is separate, but a healthy Gold Board (which generates its own revenue from margins on gold sales) is a prerequisite for a healthy gold sector that contributes to the fund. The professor’s note about the Bank of Ghana exiting financing makes the Gold Board’s commercial viability even more urgent.

FAQ: Common Questions About a Gold Stabilisation Fund

Q1: Isn’t this just a savings account? Why do we need a special “fund”?

It is far more than a savings account. It is a counter-cyclical fiscal tool with legally binding rules on saving and spending. This removes ad-hoc decision-making, ensuring discipline during political pressure to spend windfall revenues. It signals to international markets that Ghana has a prudent macroeconomic management framework, potentially lowering borrowing costs.

Q2: Where will the initial money come from?

The initial capitalization can come from the windfall profits of the first few years of high gold prices, assuming the Gold Board is operational and generating revenue. A portion of the first significant surplus from gold exports should be dedicated as seed capital.

Q3: How is this different from the existing Ghana Stabilisation Fund?

Ghana has a broader Stabilisation Fund under the Financial Sector Stability Levy. However, a commodity-specific fund like one for gold is considered a best practice because it creates a direct, transparent link between the volatile revenue source (gold) and the savings mechanism. It allows for more precise rules and clearer public accounting. It can complement the broader fund.

Q4: What about inflation? Won’t saving all this money in USD assets cause problems?

The fund’s investments are in foreign assets to avoid competing with the domestic economy for credit (which could cause inflation). The fund’s purpose is to manage external volatility (exchange rate, balance of payments). When funds are withdrawn and spent in Ghana, the central bank must manage the domestic monetary impact carefully, but that is a separate, well-understood monetary policy operation.

Q5: Could this fund be used for development projects?

Its primary mandate is stabilization. However, some models (like Norway’s Government Pension Fund Global) have a secondary, long-term savings objective for future generations. Ghana could design a dual-purpose fund: a stabilization account (with short-to-medium-term rules) and a separate “future generations” sub-account for long-term development, with stricter withdrawal rules. The priority, per Prof. Peprah, is stabilization.

Conclusion: The Choice is Clear—Prudence or Pain

Prof. William Kwasi Peprah’s message is not a theoretical exercise; it is a practical warning rooted in the harsh realities of commodity economics. Ghana’s new Gold Board can successfully formalize the gold trade and increase state revenue. But without the accompanying institutional firewall of a Gold Stabilisation Fund, those revenues will flow directly into the national budget, fueling expenditure that becomes politically entrenched.

When global factors shift and gold prices decline—as they inevitably will—the government will face a stark choice: implement severe austerity, explode public debt, or deplete foreign reserves, triggering a currency crisis. The cost of managing that crisis will be exponentially higher than the cost of saving today. The phrase “pay later” is not hyperbolic; it is a mathematical certainty of volatile commodity dependence.

The path of wisdom is to act now. Parliament must move swiftly to draft and pass a separate Gold Stabilisation Fund Act. The Ministry of Finance must design the precise, rules-based saving and withdrawal mechanisms. This is not about pessimism; it is about responsible optimism. It is about using this period of strength to build a fortress against future weakness, ensuring that Ghana’s golden moment translates into lasting economic resilience, not a fleeting boom followed by a painful bust.