The International Monetary Fund (IMF) has asked government to strongly consider scrapping subsidies on energy and petroleum products in order to contain the country’s ballooning budget deficit.
The recommendation proffered after an IMF team led by Joël Toujas-Bernaté concluded its preliminary discussions with government on a possible intervention by the Bretton-Wood institution, could lead to an increase in energy and fuel prices.
Already, Senyo Hossi, CEO of the Ghana Chamber of Bulk Oil Distributors- the lobbyist arm of bulk oil dealers- has asked Ghanaians to brace themselves for the fallout of an IMF programme that will eliminate subsidies on fuel products.
Since the year began, prices of petroleum products have been adjusted upwards by four times, which sums up to about 40 percent as a result of the slide in the currency, which has fuelled inflationary pressures.
However, the IMF has observed that due to the untargeted nature of the subsidies, it will be prudent for government to do away with the subsidies through what it called a “front loaded fiscal consolidation.”
Mr. Toujas-Bernaté said: “A more ambitious and front loaded fiscal consolidation is needed to help place public debt on a sustainable path, and to allow monetary policy to be more effective in bringing down inflation, including by strictly limiting budget deficit financing by the Bank of Ghana.
“Front loaded adjustment should be realized through reductions in Ghana’s comparatively high public sector wage costs, the elimination of costly and untargeted subsidies for energy and petroleum products, and a better prioritization of capital spending.”
Ghana’s government reintroduced fuel subsidies in April this year, without announcing the action, and since then spent several hundreds of dollars in extra payments.
Ghana, which is a major exporter of oil, gold and cocoa is now struggling with a persistent budget deficit and rising public debt.
According to the Bank of Ghana, as at the second week of September this year, government’s total revenue and grants was GH¢13.3 billion as against its expenditure of GH¢19.3 billion.
At the same time, total public sector debt was 55.4 percent of GDP.
Mr. Toujas-Bernaté said there will be further talks on a possible program that could be supported by the IMF will continue at the annual general meetings of the World Bank and IMF in Washington DC in October.
Source: B&FT Online