"Broke" Ghana cuts spending on "luxuries"

According to a report by the Reuters news agency, Ghana is halving government spending on cars, computers, carpets and other "luxuries" as the West African nation struggles with escalating costs due to high oil and food prices.

Africa's second largest gold and cocoa producer, like the rest of the continent, has been hit by the surge in food and oil prices. The government says that has thrown its budget "out of gear".

Ghana holds a presidential and parliamentary elections in December, and management of soaring prices is likely to be central to campaigning in the run-up to the poll to see who replaces President John Kufuor, who will step down in December.

"We have started slowing down on investment expenditures. We are not allowing them (the government offices) to use all their development allotments -- about half is retained," Deputy Finance Minister George Gyan-Baffour told Reuters.

The ministry has targeted various purchases seen as "luxuries" and said others may be added to the list.

"For now, it is government's belief that such items, and many others, can wait," Gyan-Baffour added.

However, he stressed that investment in infrastructure, such as road construction, would not be hit by the cuts.

Gyan-Baffour gave no figure for the amount the government believed it could save through its cuts.

Unveiling a financial package in May to ease the impact of price hikes on consumers, Kufuor said the country's oil import bill had leapt from $500 million in 2005 to $2.1 billion at the end of last year.

Even though crude oil prices have dropped from records near $150 per barrel, they are still well above the $85 per barrel price anticipated by Ghana's government and this year's oil bill is expected to cost the country $2.5 billion.

The country of 23 million is due to start commercial oil production in 2010.

Gyan-Baffour said the cut in purchases was also partly to raise money to make up for reduced taxes and other parts of the president's package.

"It's an ongoing process and we intend to keep to it until the oil prices get to levels that our economy can cope with," he said.

Annual inflation in Ghana surged to 18.4 percent in June, more than double the central bank's original 2008 target band of 6-8 percent, and the central bank warned it would accelerate in the coming months due to the high prices. (Editing by David Lewis)