Government earnings from oil for the first eight months of the year have risen above the end-year target while that of cocoa and gold have slumped, further intensifying fears that the country is inching closer to the much dreaded Dutch Disease.
Latest data from the Bank of Ghana (BoG) showed that total merchandised imports of gold and cocoa within the first eight months of the year was US$3.4 billion and US$1.4 billion respectively. That represented a corresponding 12.6 per cent and 21.4 per cent decline from the period before.
However, that of oil, which is the country’s newest addition to the stream of foreign exchange earners, registered a 46.9 per cent growth within the eight-month period. Total merchandised exports of petroleum, according to the BoG, rose from about US$1.3 billion in the first three quarters of 2012 to US$2.8 billion in the same period in 2013.
This translated to GH¢1.15 billion in real income for the government.
Given that government budgeted to collect GH¢1.12 billion from oil in 2013, the eight-month period earnings of GH¢1.15 billion meant that the country had already exceeded its end-year target from petroleum by about 2.68 per cent.
It was also about 145 per cent higher than the eight-month target of GH¢788.1 million, the Minister of Finance and Economic Planning (MoFEP), Mr Seth Terkper, confirmed on October 2.
This development came in the wake of shortfalls in total revenue and grants resulting mainly from delayed disbursement of grants from development partners (DPs) and lower-than anticipated domestic tax collections.
These, together with rising expenditures, have put government budget off gear while reigniting the debate on the existence or otherwise of the Dutch Disease.
The disease is an economic ailment that boosts growth in the petroleum sectors of oil-rich countries thus causing them to limit investments and attentions to the non-oil sectors. That often leads to a contraction in the agriculture and manufacturing sectors.
Why the high oil revenues
Although the country commenced commercial production of oil in late 2010, it was not until the fourth quarter of last year that partners of the Jubilee Field started paying corporate income tax to the government.
For the past three fiscal years, the companies, led by Tullow Ghana, have had to recover the cost incurred in the run-up to the start of oil production at the Jubilee Field in December 2010.
That put them in a position not fit to pay corporate tax as almost all profits made from their operations were plowed back as cost.
That notwithstanding, government continued to budget for corporate tax from oil and that, together with other challenges, caused it to miss its targets from the sector in two years running.
But the trend is now changing, thanks to huge inflows of corporate tax from the Jubilee Partners.
Data from the GRA showed that total corporate tax payments amounted to GH¢264 million in the first half of the year compared to the year-end target of GH¢107.81 million.
Also, prices of crude have risen above projections and that has led to excess revenues for the country.
And while these happened, production figures at the field also continued to improve, rising from about 90,000 barrels of oil per day (bopd) in the first part of the year to over 120,000 bopd in the third quarter.
Although these factors played to the revenue advantage of the country and the partners as well, the Public Interest and Accountability Committee (PIAC) believes the reported excess revenue from the oil, as against target, is mainly due to under projections by the government.
“For your eight-month earnings to exceed the entire year target, then it shows that we didn’t get the forecasting right and that is what we at PIAC are concern for,” a member of the committee, Mr Michael Edjuekuhene, told the paper on October 9.
Oil to the rescue?
News of oil revenue in the first eight months of the year running above the entire year’s target come at a time that total revenue and grants are lagging behind target.
Hon Terkper said at his recent media briefing that revenue and grants from January to August, this year, was GH¢11.9 billion against a target of GH¢14.18 billion.
“The shortfall in the total revenue and grants was mainly as a result of low disbursement of grants from our development partners and partly due to lower than anticipated domestic revenue collection by the Ghana Revenue Authority (GRA),” the minister explained.
This development in the oil revenue fuels positive passions that the increased revenues from petroleum, resulting from increased crude oil prices, higher production figures and inflows of corporate income taxes, could help mitigate the impact of the entire revenue shortfalls expected to be experienced in the year.
Given that oil production figures, corporate income tax and prices of crude are continuing to show a positive improvement, indications are that the trend in the revenue side from oil will continue well into the end of the year and government could, as well, earn in excess of 50 per cent of its budgeted amount from petroleum for the year under review.
That would be good news for the country and the MoFEP in particular, especially given that earnings from cocoa and gold, the two main revenue earners for the economy, are already lagging behind. Their respective prices on the international market have been dipping since January and that has translated into low revenue inflows to the national kitty.
The September 2013 report of the Monetary Policy Committee of the Bank of Ghana showed that while total merchandised export of gold for the first eight months was US$3.4 billion, about 12.6 short of target, that of cocoa was US$1.4 billion, representing a shortfall of 21.4 per cent.
Implications on national revenue
Although the excess revenue from oil is good news to the country, its impact will barely be felt in the economy due to the law guiding the disbursement of inflows from the petroleum sector.
The Petroleum Revenue Management Act (PRMA), which dictates how oil revenue should be applied, states that all excess revenues shall be paid into the Ghana Stabilisation Fund (GSF).
The fund is one of two such mediums introduced by the act to hold revenues from the nascent oil sector for difficult times and posterity.
But with the country’s revenue appetite running beyond its revenue generation ability, it may just be right to ask if it makes sense saving money in return for arguably low rates while borrowing at higher interest rates.
Source: Daily Graphic
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