Roundup: Ghana hints at revising 2015 budget on falling world crude prices

The Ghanaian government has hinted it will revise portions of its 2015 budget statement to reflect current trends of global crude prices.

This, it said, was important to prevent a negative impact of falling world crude prices on the economy.

Ghana is both a net importer and exporter of crude.

The government used 99.3 dollars per barrel as its Petroleum Benchmark Revenue to set its expected petroleum revenue target for the year.

These prices, which continued falling from September, had plummeted to 48.80 dollars per barrel by Thursday, January 15.

"With the continuous decline in crude prices since September 2014, the estimated Benchmark Revenue of 99.376 dollars per barrel for 2015 may not be achieved and this can have negative implications for the budget execution," Seth Terkper, minister of Finance, told journalists here on Friday.

He continued that the falling crude prices would have a mixed impact on the economy, affecting trade balance with negative implications for current account and reserves.

The Petroleum Revenue Management Act of 2011 provides that in case of petroleum prices plunging beyond the set limits in the benchmark revenue targets for a particular year, government would have to present a proposal to parliament for approval to fall on the Stabilization Fund (SF) to compensate for the shortfall in revenue.

"The required adjustments will be done through the necessary procedures to ensure that the continuous fall in crude prices does not derail our fiscal consolidation measures," he stated.

Commenting, John Gatsi, economist at the University of Cape Coast, considered government's proposed revision of the budget numbers very critical to achieving some of its targets.

He projected that, with the falling crude prices, government could lose as much as 50 percent of its expected revenue from petroleum export by the end of the first quarter (Q1).

This, he believed, would drastically affect the execution of certain projects that were tied to the petroleum revenue.

The economist said in an interview with Xinhua that if the necessary adjustments were not done, government might have to borrow from the market to execute its projects.

This, he noted, would end up creating an unrealistic economic environment with a fiscal problem for the economy which did not paint a good picture of the Ghanaian economy.

He added: "Most of these projects that are funded from the petroleum revenue are works in progress and a delay in their completion also has a life cycle and cost factor challenges for the country."

Gatsi opined that the dependence on the SF would also mean that Ghana would have to cash out from some of its foreign investments, thereby "reducing your international reserves".

On the domestic front, the economist recognized the positive effect the falling crude prices would have on some economic indicators.

"Businesses which depend heavily on petroleum products in their production would have the flexibility of budget which is good for business," he observed.

Additionally, he said since petroleum pricing, transportation and utilities constituted a major portion of the inflation basket, an imminent reduction in the ex-pump price of petroleum products and the resultant effect on transport fares and utility prices would force inflation to fall.

The economist however considered it prudent for government to first pay its debts to the Oil Marketing Companies (OMCs) and Bulk Distribution Companies (BDCs) from the windfall from the falling crude prices before considering a drastic reduction in the ex-pump prices.

The debts were the result of under-recoveries created by government's petroleum subsidy regime which had created a debt burden of over 400 million Ghana Cedis or 125 million dollars for the country.

"The continuous fall in the crude prices however pose serious threat to petroleum revenue and investments in the upstream sector of the petroleum industry," the economist added. Endi