Government and the International Monetary Fund (IMF) are now locked in discussions on government’s response to the fall in crude oil prices, as bailout talk progresses.
Crude oil price, which reached US$115 a barrel in July, last year, has plummeted to about US$58 — threatening government’s budget programme and fiscal consolidation efforts.
The 2015 budget estimates petroleum prices at US$99.37 per barrel using the Petroleum Revenue Management Act, which is calculated using a 7-year moving average that leads to total estimated oil revenue of US$1.2billion — and the fall in the crude oil price is expected to have serious negative implications for the budget and the weak economic recovery.
The Director of Communications at the IMF, Gerry Rice, explained that the IMF team and government delegation are close to finalising a budgetary support programme for Ghana, after making strides in cleaning up the country’s payroll and medium-term reforms.
He said: “The Ghanaian authorities and the IMF team are finalising the details of the measures to support Ghana’s economic programme, which as usual will be agreed at the staff level before being proposed to our Board for consideration.
“I can furthermore say that we believe good progress has been achieved in recent weeks on the plan to clean up the payroll, finalise the remaining details of government’s medium-term reforms, as well as firm-up financing assurances for the possible programme.
“The IMF team and the Ghanaian authorities are also now discussing the policy response needed, in view of the recent large decline in oil prices.”
Already, the President John Mahama is confident a deal with the IMF will be reached by March-ending — amidst concerns that the country could lose almost US$700million in oil revenue due to the fall in oil prices, a figure that could put government’s budget deficit target of 6.5 percent of GDP out of range.
Government, which entered into formal negotiations with the IMF in October last year, wants to boost tax revenue and cut spending to reduce the budget deficit more quickly.
The IMF also wants government to reduce the wage bill by workforce reduction in overstaffed areas of the public sector; and ensure a decrease or elimination of oil-revenue transfers to the Ghana National Petroleum Corporation (GNPC).
Many economists expected an agreement to be reached with the Fund by end of this month, but negotiations have dragged on due to a number of challenges including the payroll structure — with rating agency Fitch warning further delays in agreeing terms will affect investor confidence and send the local currency – the cedi — tumbling.