Government to remove petroleum subsidy

As part of an International Monetary Fund (IMF) bailout plan reached with government, subsidies on petroleum products totaling GHS50million are expected to be scrapped off. The scrapping of these subsidies is likely to push up petroleum prices for 2015, irrespective of changes in the price of petroleum prices on the international market.

The 3-year bailout plan for a $1billion loan which they hope will restore fiscal stability to an economy will see Ghana’s government spend less, collect more through taxes and engage in inflation targeting. This will see Ghana’s economic growth record a historic low of 3.5 percent.

“The program rests on three pillars; restraining and prioritizing public expenditure with a transparent budget process; increasing tax collection; and strengthening the effectiveness of the Central Bank monetary policy”, said the government.

The government aims to use the IMF programme to propel deeper economic changes in a country long reliant on the export of natural resources and the import of consumer goods. It is also seeking to end a power crisis that has affected growth and angered many voters due to lengthy electricity cuts.

The general posture of the IMF which favours public spending cuts will test President Mahama’s social infrastructure plan to build more schools, affordable housing, hospitals and roads.

For years Ghana’s economy grew at around 8 percent on the back of gold, cocoa and oil exports and it was rated one of the most attractive countries in Africa for investors because of its stable democracy and middle income status.

However, economic growth fell to 4.2 percent in 2014 as the government grappled with macro-economic instability and lower global commodity prices. Under the new deal, the IMF sees growth of 3.5 percent in 2015, rising to about 6 percent in 2017. By contrast, the Fund expects average GDP growth in sub-Saharan Africa to stand at 4.9 percent in 2015.

The IMF board should ratify the agreement by April and under its terms Ghana will receive $664 million in Special Drawing Rights to be disbursed in tranches, conditional on the government meeting a series of targets.

These targets include cleaning up government payrolls, whose ranks have been swelled by the addition of ‘ghost workers’, and to curb public sector wages so the total bill falls to 7 percent of national output from 8.5 percent within three years.

“We expect this agreement to lead to policy certainty and make markets to react more positively, (and) donors to react more positively in their support,” Finance Minister Seth Terkper said.

Ghana’s budget deficit surged to nearly 12 percent of gross domestic product (GDP) before 2012 elections. Some economists say it will be hard to maintain the terms of the new deal ahead of 2016 polls in which Mahama is expected to seek re-election.

FRANK UZUEGBUNAM