Government will have to cut expenditure on projects as well as cancel others it intended to embark on this year. This is as a result of failing commodity prices, mostly oil prices.
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Govt hot over falling oil prices; projects to suffer
Oil prices for the past three months have been falling drastically leading to a reduction in projected ABFA target from $213.6 million to $147.26 million.
As the country is struggling to meet its revenue targets from chief exports, donor funds have not come in as expected. The Ghana Revenue Authority also missed its target for the first half of 2015.
Oil prices for the past three months have been falling drastically leading to a reduction in projected ABFA target from $213.6 million to $147.26 million.
The ABFA is a predetermined percentage of the Benchmark Revenue but the actual allocation is determined by the Minister of Finance and approved by Parliament.Currently, the ABFA covers four key priority areas namely, Roads and other infrastructure, agriculture modernization, expenditure and amortization of loans for oil and gas infrastructure, and capacity building including oil and gas.
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But the drop in world oil price from $110 in March last year to as low as $54 as of March 19 2015, and a further drop to $42 this week means that, the ABFA funding may suffer as Ghana government had to reduce its oil revenue projection by as high as 64.46 per cent, equivalent to GHC2.7 billion.
It also means that reduction in revenue forecasts from oil exports from an initial estimate of GH'4.2 billion to GHC1.5 billion. Seth Terkper Finance Minister has already dropped the hint that there won't be sufficient funding to cover the ABFA for 2015.
In his supplementary budget for 2015, Seth Terkper stated that , of the projected total petroleum receipts, GHC'468.9million will be transferred to the National Oil Company in line with the Petroleum Revenue Management Authority, but the remaining amount of GHC1.0 billion will not be sufficient to cover the ABFA of GHC2.5 billion in the 2015 Budget.
Chairman of the parliamentary select committee on finance, James Klutse Avedizi has revealed government's expenditure on projects "clearly there are revenue generation issues. There's a gap between projection and actual revenues. Government will not spend as intended on projects, especially social projects.
Head of research at Policy think-tank Imani Ghana, Patrick Stevenson in an exclusive interview with says the impact of falling oil prices on the economy expose government's expose government modelling of petroleum revenue for 2015.
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" So the global prices for crude oil will continue to decline, and will significantly impact Ghana's revenue streams through decline in direct taxes on corporations' bottom lines, as well as governments share from the liftings off the FPSO"
According the economist, oil prices may continue to fall.
"The changes in the geo- political landscape with sanctions for instance being lifted of Iran , who holds what is arguably one of the largest reserves, will shift the supply upwards when production commences. I'm not sure such a position was factored into the modeling/ baseline study for the projections."
Patrick Stevenson concluded that the shortfall in revenue generation will spell doom in 2016, and will negatively impact the country's economic outlook.
" So going into the next fiscal year, the overruns from the current fiscal period following from the seeming faulty modeling will have to be captured somewhat. This will in principle increase the pressure on the fiscal space momentarily in 2016. And with a decline in the returns of our Petroleum Funds (Stabilisation Fund and Heritage Funds) there could be implications for the country's attempt to smoothen investment of the revenues for sustainable development. The outlook should not be projected as good as the government has done when the actual market economics dictate otherwise. Let's pray we get it right somewhat in 2016"
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Meanwhile, Oil and Gas experts are charging government to use petroleum funds more strategically.
They say, currently, the allocation of revenue to these priority areas are invariably spread thinly across several projects and this does not augur well for optimal impacts in the selected sectors.In the area of roads for instance, they argued that it's not acceptable for the ABFA to cover 149 roads in 2013 alone, 86 in 2012 and 55 in 2011.
The Public Interest and Accountability Committee (PIAC) have already expressed similar sentiments over the ABFA allocations. Speaking to Journalists in Accra on the Committee's mid year report, Professor Kwaku Appiah-Adu, an Oil and Gas expert, said it may be beneficial for the minister to focus on fewer key major projects under a sector and rather pump in the available funds, which were originally meant for other projects on the selected projects for maximum impact and efficiency.
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