The falling crude prices on the international market is undoubtedly going to affect Ghana’s expected revenue from oil sales. In 2014, Brent crude sold at $110 a barrel. By early 2016, that had plunged to $30.
Last year, when crude prices started sliding, the finance minister Seth Terkper scaled back revenue projection from GH¢4.2billion to GH¢1.5billion after crude prices fell by more than half.
At a press briefing Tuesday, President John Mahama revealed that due to the falling crude prices on the international market, the country has lost billions of cedis to the national treasury, although he didn’t quote figures.
He said, “From above $90 to 30 dollars, we have lost billions of cedis to the national treasury.” He also justified the recent utility, tax and fuel hikes, saying it is the only means government could use to tax (indirectly) the many Ghanaians who are not paying direct tax.
What is accounting for the price fall?
Basically it is an issue of demand and supply.
The oil market is witnessing over supply. In basic economics, when there is excess demand, prices rise, when there is over supply, prices plummet.
On the supply side, OPEC and Russia are pumping oil at record high. None is prepared to cut back production for fear of losing its market share. Iran is due to return to oil market after agreeing to a nuclear deal with world leaders. In addition. Oil production is the US has doubled over the years, pushing out exports to find a new home.
On the demand side, China is experiencing slow growth in its manufacturing sector. The economies of developing countries are weak. Vehicles are becoming energy-efficient. So demand for fuel is low.
How Ghana is affected
Ghana is heavily dependent on sale of commodities for revenue.
The finance minister is targeting a budget deficit of 5.3% after failing to meet previous targets. Fall in Gold and oil prices make it difficult to achieve the target.
In addition, government is going to find ways to generate revenue to fund projects by taxing more and more.
The cedi lost 18.75 per cent in value to the US dollar last year, making it one of the most underperforming currencies in Africa. However, an increase in revenue from oil, gold and cocoa helps boost the country foreign exchange reserves which helps stabilize the cedi. The falling commodity prices means the cedi could be unstable. Interest rates on foreign debt could rise as investors see our bonds as more risky.