Benjamin Boakye
THE AFRICA Centre for Energy Policy (ACEP) has projected revenue from Ghana’s oil production could drop to US$743 million from the US$1.567 billion targeted in the 2020 Budget, representing a shortfall of about 53%.
The drop in revenue, which is based on the average price prediction of US$40 per barrel, owing largely to current developments in global oil industry and the COVID-19 pandemic, is expected to have severe implications for Ghana’s budget—particularly her physical infrastructure and debt servicing.
“In the 2020 budget, Ghana’s infrastructure development programme is heavily dependent on oil revenues; about 80% of government’s domestic revenue for its capital budget was to be sourced from the Annual Budget Funding Amount (ABFA),” it stated in a release issued recently and signed by Benjamin Boakye, Executive Director of ACEP.
However, Brent Crude oil price has declined dramatically from US$66.25 to US$26 per barrel between January 2, 2020 and March 21, 2020.
ACEP said its estimates showed that maximum allocation to the ABFA for the year in line with the Petroleum Revenue Management Act (PRMA) would significantly drop from US$761 million to about US$273 million, representing a shortfall of about 64%.
“This shortfall of US$488 million cannot be smoothened by the Ghana Stabilisation Fund (GSF) established by the PRMA. At a standing balance of US$300 million, the maximum withdrawal from the GSF compliant with the PRMA will be about US$243 million. Though this provides support and reduces the price shock on the ABFA component of the budget, the inadequacy of the GSF to offset the entire deficit exposes the failure of the capped balance of US$300 million to provide enough support to the budget in periods of a quantum drop in oil price as being experienced currently.
“This is the second time the inadequacy of GSF has been exposed by oil price shocks since commercial oil production started in Ghana a decade ago. Government’s projected transfer into GSF in 2020 is US$228 million. Given that GSF is capped at US$300 million, the US$228 million would have been excess over the cap and available for debt service and/or contingency, in compliance with the PRMA,” it stated.
It added that “over the years, excess over the cap has been used largely for debt service which indicates that the US$228 million, which is about 5.7% of the programmed expenditure for interest payment in 2020, will not be available for debt service. This creates additional pressure on the government to look for other revenue sources to offset the gap in debt service allocation.”
Recommendations
ACEP has therefore recommended to government to ensure the transmission of the lower oil price to supported industry and consumers of petroleum products.
“In Africa, the effect of the COVID-19 outbreak could be harsh for emerging SMEs and industries that are struggling to compete in the global space. Increased unemployment as a result of layoffs on the back of the pandemic is possible to occur. In a low oil price era, the temptation for many countries could be to increase taxes on downstream consumption to offset the revenue losses upstream.
“This will be injurious to many businesses in Africa, particularly in the face of inadequate incentives and stimuluses compared to developed countries. A full transmission of the lower price of oil is therefore required for businesses and consumers in general to boost economic activity. This minimises production and service delivery costs to reduce the burden on consumers.
It added that a new budget that accounted for the extraordinary drop in oil prices was required for oil producing countries in Africa.
BY Samuel Boadi