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.
Source:B&FT
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