The fall in crude oil prices to about US$32 per barrel could mean that government runs the risk of losing close to US$200million (approximately GH¢800million) in benchmark petroleum revenues after government had used US$53.02 as price per barrel as its benchmark price for this year.
This year government estimated it will receive more than US$500million, or approximately GH¢2billion, from petroleum revenues.
Since Finance Minister Seth Terkper presented the 2016 budget to Parliament, the price of crude oil on the world market has consistently declined and the new price of below the US$35 per barrel mark is unprecedented in the last decade.
Oil prices have dropped more than 65 percent since their peak 18 months ago due to a global supply glut brought about by weak demand and record inventory levels.
Using government’s benchmark of US$53.02, the price of crude oil has deviated by almost 40 percent from the set benchmark price — prompting concerns that government will cut its petroleum revenue expectation sooner rather than later.
One analyst who spoke to the B&FT on the issue said it has become a question of when government will act to cut its losses, rather than whether such a move is prudent.
The Finance Minister made a similar cut earlier last year after prices of crude oil fell by more than 50 percent. The revenue expectation was cut from GH¢4.2billion (3.1 percent of GDP) to GH¢1.5billion (1.1 percent of GDP).
Government had to make a withdrawal of more than GH¢480million from the Ghana Stabilisation Fund to shore-up its budget as the fall in price of crude oil took full effect on government revenues.
It remains to be seen whether government will make a similar withdrawal from the Stabilisation Fund should it announce a cut in petroleum revenue expectations following the continuous fall in world crude oil prices.
Impact on medium-term prospects
According to the Institute of Fiscal Studies (IFS), the economy’s bright prospects — largely anchored in the expectation of an expansion in the oil sector — could be jeopardised by the decline in crude oil prices.
Executive Director of the economic think-tank, Professor Newman Kusi, speaking to the B&FT argued that the persistent fall in price of black gold could act as a disincentive to oil exploratory activities — and to some extent ongoing works such as the Tweneboa, Enyerra and Ntomme (TEN) oilfields.
The country’s GDP growth is expected to move from 5.4 percent this year to 9.9 percent in 2017, and then to 9.3 percent in 2018.
This massive leap in the GDP performance the Finance Minister has attributed to the coming on-stream of new oil projects. Presenting the 2016 budget, Seth Terkper said: “We are implementing several programmes to secure the bright medium-term prospects of the economy, notably through substantial investments in the oil and gas sector among others”.
As the price of crude oil continues its decline, Prof. Kusi explained that this will severely impact the country’s growth prospects.
“The implication is that the medium-term prospects are completely undermined because the medium-term prospects are based on these new oil projects. Of course, some of these projects will slow down due to the low prices. The TEN Project [expects its first oil in mid-2016], though they have started, may not have the enthusiasm they had.
“Also, this price fall means that investment in new exploration is not likely to come,” he said.