Ghana Gov't Bows to Pressure from IMF

Some keen observers of the energy sector believe the Ghanaian government has finally bowed to pressure from the International Monetary Fund (IMF) to remove subsidies from petroleum products if the government must receive any economic assistance from the Fund. Petroleum prices at the retail pumps last Saturday jumped 30% in line with price developments at the global crude market front.

A release by the Ghana Road Transport Co-ordinating Council (GRTCC) last Friday signed by its Chairman, Mathew Hayford, said a litre of diesel and premium petrol would now be sold for Gh¢1.1206 and Gh¢1.1141 respectively. The GRTCC has consequently announced a review in road transport fares. Explaining what necessitated the review in prices on an Accra based radio station last Friday, Kwabena Donkor, Deputy Minister of Energy stated that since the last review in April 1, Free on Board Price of crude has jumped from $447 per metric ton to $666.

According to him, between May 1 and May 15, the Finance Ministry had to pay Gh¢ 7 million in subsidy to the Tema Oil Refinery (TOR) to ensure fuel prices were kept unchanged. “This cannot be sustained”, he said. “The past government had left behind two billion dollars debt in the sector in a number of project contracts awarded”, he observed, adding that this already put much strain on government.

Following the review, a number of economic analysts and social commentators have expressed concern about recent developments in the utilities sector, pointing accusing fingers at the IMF in pushing government to drop subsidies on utilities, especially in the energy sector. According to a professor in Economics at the University of Ghana, government, in its determination to secure over a one billion dollar facility from the IMF to support its budget and to shore up the cedi, has succumbed to the dictates of the IMF.

This to him was a step backwards in our development agenda after the nation had successfully entered the capital market where issues of conditional ties would have become history. As soon as the current government took office the IMF warned that any assistance they would offer the country in order to help shore up the economy would hinge on certain preconditions which include the removal of subsidies from utilities.

Speaking to the Financial Intelligence Bright Simons of IMANI Ghana, a policy Think-tank remarked that any attempt not to increase local petroleum prices would have sent the nation’s economy back. This, he said would be so because the nation now imports the bulk of its petroleum from Europe and the Middle East which are not on concessionary terms, leaving only a negligible percentage coming from Nigeria on concessionary terms.

According to him there are two basic reasons government could not resist the need to adjust the prices upwards. “The first reason is that the government does not have the money which it would have used to subsidise”, he noted. “Government which is currently looking for budgetary support from the IMF needed to demonstrate to the development partners that it is spending its resources prudently and would spend whatever the IMF gives out in the same manner”, he suggested, adding that but if you prove through subsidisation that you have some resources elsewhere for subsidies, why would you then be looking for any support fro m them?”, he quipped.

Secondly there is a supply crunch since we are now importing on less concessionary terms from Nigeria but more on unconcessionary from Europe and the Middle East. He said due to this there was a supply crunch in the market as the independent companies were beginning to feel the weight of government subsidies and many were becoming apprehensive about further investments in the market when government support for the subsidies were not guaranteed. “Independent importers must not feel that the weight of under recovery and government’s payments is not forthcoming” he urged.

Mr. Simmons calls for a sustaining of the rate of deregulation of the market since at the moment independent importers import the bulk of oil in the market, leaving the government room for working on strategic reserves. He observed that more of the infrastructure in the market today is being built by independent importers and they can no more build their infrastructure because of fears of curtailing of the market-based process in pricing formula.

He noted that government had no choice but to increase the prices since strategic reserves are currently depleting, while the IMF would like to see the NPA move gradually away from price fixing, allowing the market to determine its own prices. A Social commentator, Mr. Kwasi Prat has also advised the government to realign its foreign policy, under the current circumstances, such that it can attract more affordable petroleum products from Latin America and the Persian Gulf instead of pushing prices upwards.

source: Financial Intelligence