Blame Terkper for US$700m oil revenue loss – IFS

An economic policy think-tank, the Institute for Fiscal Studies (IFS), has blamed the loss of US$700million following the slump in crude oil prices solely on the Finance Minister’s reluctance to hedge the country’s oil exports -- even at a time analysts predicted a severe price fall.

Executive Director of the IFS Prof. Newman Kusi told the media in Accra that the minister’s inaction “dangerously exposed the country to avoidable risks”.

“The drop of GH?2.7billion in this year’s expected oil revenue is a financial loss that clearly could have been avoided. Ghanaians are demanding an explanation from the Finance Minister for causing such serious financial loss to the state,” he added.

The Finance Minister when presenting the 2015 budget last November told Parliament the petroleum benchmark revenue price had been fixed at US$99.38 per barrel -- however, the price of the commodity has seen a record drop, falling to as low as US$47 per barrel.

The sharp fall in the crude oil price pushed Seth Terkper to cut government’s revenue projections from its 102,033 barrels per day-Jubilee Field. The loss, which translates into about GH?2.7billion, also made government cut expenditure by GH?1.5billion as well as revise upward its budget deficit from 6.5 percent of GDP to 7.5 percent.

According to Prof. Kusi, the falling oil price will thus not only undermine government’s efforts at reducing the fiscal deficit, but also increase the current account deficit... “The revised fiscal deficit target for this year has also gone up by 1 percentage point of GDP, and the long-term outlook is murkier if oil prices do not recover”. The shortfall in oil revenue also led to Mr. Terkper announcing that government will be relying on the Stabilisation Fund to shore-up the budget.

Avoidable loss But Prof. Kusi questioned why government allowed the Finance Ministry to watch unconcerned as the oil price fell, only for the minister “to dig deep into the Stabilisation Fund” and also adjust downward expenditures, including the already low and much-needed capital expenditure. He maintained that the loss was avoidable if Mr. Terkper had taken appropriate steps to mitigate the impact the price slump would have on the local economy.

According to him, government has in the past hedged crude oil prices as part of measures to reduce the impact of oil shock on the economy.

“Ghana’s hedging programme [2012-2013] was tremendously successful, and together with other prudent policy measures…brought about one of the longest periods of monetary and fiscal stability in the country’s history of economic management.

“Considering the tremendous success of the hedging programme, it is difficult to understand why government discontinued the programme in 2013 -- and has refrained from resuming it despite the current situation,” he added.

Prof. Kusi further described government’s reluctance to hedge against oil price shocks to the local economy as “baffling”. “This is so because the country has a team of people with the technical capacity and understanding of how the hedging process works. Not only that, but also the country has the counterparty banks available and willing to underwrite hedging arrangements.”

Hedging performance Recounting the country’s performance in its brief period of hedging, the IFS boss said in the first two months marginal losses were made, but thereafter the programme recorded significant net surpluses which rose to US$98.4million in August 2011.