After removal of fuel subsidies; Where are the interventions?

Ghanaians are still waiting for the social interventions the National Democratic Congress (NDC) government promised after it took away subsidies from the prices of some petroleum products; over two months after the National Petroleum Authority (NPA) withdrew the subsidies, leading to increases in the transport fares and food prices.

When trying to coax the people to accept the petroleum price increases, the government argued that it would implement social interventions programmes with the money that would accrue from the removal of the subsidies.

As the prices of goods and services in the country have skyrocketed and continue to increase, causing a high cost of living and accentuating poverty, the government is yet to make good its promises. Ghanaians do not know how much the withdrawal of the subsidies has swelled the public purse and the promised social interventions have not been offered.

In January, petrol and diesel prices went up by 20 per cent while that of kerosene upped by 15 per cent, with liquefied petroleum gas witnessing a 50 per cent jump. The price for premix fuel remains unchanged at GH¢0.5427 per litre. The NPA argued that, the subsidies on fuel cost the country about GHC2.4 billion cedis ($1.3 billion), and it was expected to rise by 140 per cent if nothing was done.

Alexander Mould, the NPA Chief Executive, said for premix fuel, the government maintained a subsidy of 73 per cent; 8.0 per cent subsidy on premium, 52 per cent on kerosene, 6.0 per cent on gas oil, 13 per cent on marine gas oil (local) and 35 per cent on residual fuel oil. Mould explicated that, without government intervention, the consumer would have to paying GH¢2.21 per litre for petrol instead of GH¢2.0496.

Perhaps, taking cognisance of the social cost of the removal of the subsidies on most Ghanaians, President John Dramani Mahama, in the State of Nation address on February 21, declared: “We believe that our people are our most treasured asset, and this is what informs our social development agenda. The thrust of our social policy and human development programme revolves around education, healthcare, social security and protection for the vulnerable– women, children, the aged and people with disabilities. We will focus on and emphasise the productive and reproductive capabilities of these social groupings while ensuring at the same time that the most vulnerable in our society are effectively protected.”

Furthermore, the Finance Minister, Seth Terkper, said in the 2013 budget that the increases in tax would not only help the government to expand its social intervention programmes but also ensure that the taxes aligned perfectly with existing trends in revenue mobilisation. The bones of the social intervention programmes outlined in the President's State of Nation speech and the budget are yet to be given flesh as price hikes biting majority of the people whose economic status has been worsened by the whittled subsidies.

Social intervention programmes that would lessen the plight of the poor, the unemployed, under-privileged, the disadvantaged and the vulnerable are a necessity that must not remain promises for such a long time. Thus, Professor Ernest Aryeetey, Vice-Chancellor of University of Ghana, stressed that the government's social intervention programmes needed to be integrated into the economy, to ensure their sustainability. “Social protection programmes should be sustainable. We can use some of the oil revenues to make it sustainable,” he said. Prof. Aryeetey called for active private sector participation in the intervention programmes.

The removal of the subsidies is seriously affecting the purchasing power of workers and the ordinary consumer since increased transport fares have had a rippling effect on the prices of goods and services, particularly food, leading to increased rates of inflation in February, March and April. Rent is above the roof. The providers of utilities are threatening to increase tariffs. Before the removal of the subsidies, the Integrated Social Development Centre (ISODEC), a policy think tank, had warned of the dire consequences of the withdrawal but the government went ahead with the assurance of social interventions.

“The new price increases of petroleum products announced last Saturday will translate into higher transport fares and take up a higher percentage of the poor's income than was the case before the increases. Food prices will also go up. Utility tariffs and prices of locally manufactured goods will go up as production costs rise in commensurate measure. These developments are likely to lead to wage-related agitations with their attendant and take up a higher percentage of the poor's income than was the case before the increases. Food prices will also go up. Utility tariffs and prices of locally manufactured goods will go up as production costs rise in commensurate measure. These developments are likely to lead to wage-related agitations with their attendant destabilising effect on the macro-economy,” ISODEC cautioned in a press statement.

The recent industrial agitations involving teachers, education workers, pharmacists and doctors have vindicated the prophetic warning that ISO-DEC proffered. Many more public sector employees are not satisfied with their remuneration and may clamour for a salary increase soon. When this occurs, the government may not be a position to meet the demands of the public and civil servants, in view of the complaint by President Mahama that the 2012 wage bill was exceptionally high. “A ballooning wage bill, if untamed, will bring debt to levels that could endanger the government's transformation agenda. The wage bill in 2012 rose by 47 percent, with much of the factors explaining the increase not yet quantified. In addition, deferred wage payments from the single spine salary reform were twice the level included in the supplementary budget. The mission urged the government to gain control over the wage bill. It recommended a thorough audit of the 2012 payroll,” noted a statement issued by an International Monetary Fund (IMF) delegation led by Christina Daseking to Accra on April 2-12.

The IMF mission indicated that, in spite of the hype, the country is not yet out of the woods. “Despite Ghana's strong economic potential, short-term stability risks have risen. Ghana's strong democratic institutions and favourable prospects for oil and gas continue to attract significant foreign direct investment (FDI). Yet, low external buffers and a rising domestic debt ratio expose the economy to risks, such as weaker terms of trade, reduced capital inflows, or unanticipated spending needs. Energy sector problems could curtail growth while excessive government domestic borrowing is raising the cost of credit to the private sector. Both factors have been identified as key growth constraints in Ghana.”