Ghana cut fuel subsidies on Sunday as its new government took measures to curb spending after the West African exporter of cocoa, gold and oil overshot its budget deficit target by almost 100 percent last year.
The National Petroleum Authority (NPA) said in a statement that fuel price hikes were necessary to cover the cost of an increase in crude oil prices and the depreciation of the local cedi currency by about 14 percent last year.
The new prices, which took effect on Sunday, saw premium petrol and diesel prices jump 20 percent per litre in cedi terms, while Liquefied Petroleum Gas (LPG) rose 50 percent.
Prices of kerosene, marine diesel and residual fuel oil also increased 15 percent per litre.
The decision to cut subsidies came days after Fitch rating agency revised the nation's outlook to negative from stable, citing the severe deterioration of its fiscal deficit.
"The government has funded the budget deficit mainly through borrowing at high interest rates on the domestic market, at 22.8 percent for 91-day T-bills," the agency said on Friday.
"While current expenditure has surged, the share of capital expenditure has fallen, which could harm longer-term growth prospects and worsen debt dynamics," Fitch said.
Decisions by governments in the region to cut fuel subsidies have previously led to social unrest. Nigeria's government was forced last year to reinstate some subsidies it had cut after several days of strikes and protests, while Ghana's last attempt to cut subsidies more than two years ago resulted in opposition-led street protests.
Ghana's 2012 deficit reached 12.1 percent of gross domestic product (GDP), almost double its target of 6.7 percent, due to excess public sector wages, shortfall in projected tax revenue and widening fuel subsidies, the central bank said last week.
Like several other countries in West and Central Africa, Ghana had planned to cut the swelling fuel subsidies last year following pressure from the International Monetary Fund and the World Bank, who see them as wasteful and inefficient.
But Ghana's government delayed taking the measures ahead of national elections in December which confirmed President John Dramani Mahama in office after he took over following the surprise death in July of his predecessor John Atta Mills.
NPA's chief executive Alex Mould said fuel subsidies for last year totalled one billion cedis ($526 million) and were expected to rise to 2.4 billion cedis this year.
Mould said that despite the new price hikes, the government was still maintaining a total fuel subsidy outlay of about $23 million, based on a crude oil price of $116 per barrel. The subsidy would target particular social programmes.
Finance Minister Seth Terkper, who is expected to present the new government's first budget to parliament on March 5, said it would aim to narrow the budget deficit through subsidy cuts and boosting tax revenue.
I knew that countries in Africa were generally worse off than other countries, but the fact that Ghana overshot its deficient but 100% is horrid. All of these horrible economic situations are sure to be remedied if the groups in each country could come to some understand and work together. Of course, that probably won't happen for several more years.
ReplyDelete-Emma H.