The
economy’s bright prospects, largely anchored in the expectation of an expansion
in the oil sector, appears to be in jeopardy as crude oil prices continue their
downward trend, the Institute of Fiscal Studies (IFS) has warned.
Executive
Director of the economic think-tank, Professor Newman Kusi, told B&FT 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 next year to 9.9
percent in 2017, and then to 9.3 percent in 2018.
The
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.
The
price of Brent crude has fallen from US$115 in June last year to about US$37
per barrel as at Thursday.
A
fall below US$36.20 will be the lowest since July 2004. Analysts said such a
move in the run-up to year-end will be likely.
Price
forecasts for the coming year show that the worsening trend is not likely to
rebound. Credit rating agencies like Moody’s have downgraded Brent crude oil
for 2016, adding that prices could average around US$43 per barrel in 2016, as
compared to previous estimates of US$53 per barrel.
The
ratings agency further stated that the price could reach as low as US$30 per
barrel in 2016, a situation that could spell doom for Ghana’s oil revenue
projections as well as prospects which hinge on expansion in the oil sector.
Apart
from its negative impact on the medium-term prospects, the low price of oil
could force government to cut its oil revenue expectation of GH¢2billion, which
is 1.3 percent of GDP.
Mr.
Terkper in presenting next year’s budget based oil revenue expectation on a
barrel of oil selling at US$53.05; but the price has since declined to about
US$37 -- more than 25 percent fall, prompting concerns that government will
head to Parliament to cut its oil revenue expectation.
The
Finance Minister made a similar cut earlier this year after prices of crude oil
had fallen by more than 50 percent. The revenue expectation was cut from GH¢4.2billion
(3.1 percent of GDP) to GH¢1.5 billion (1.1 percent of GDP).
Prof. Kusi told the B&FT the ministry’s
decision not to hedge the price of the country’s oil continues to have a
debilitating effect on the economy.
He
argued that apart from not hedging, the country’s petroleum benchmark pricing
is ineffective and does not reflect trends in the market, especially at a time
when the price of a barrel of oil predictably could reach US$20 -- only for it
to fix price at US$53.05 per barrel.
He
is confident that the recent oil price performance on the world market will
push government to cut its oil expectation revenue expectation in coming weeks,
but Mr. Terkper told the B&FT it
is too early to talk about cutting oil revenue expectation, adding: “The budget
is not even out of the House [Parliament] and the global situation is still
volatile”. Source:B&FT
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