Reduce Fuel Prices to Improve the Economy

Thu, 12 Feb 2015 Source: Baafi, Alex Bossman

By Alex Bossman Baafi

From some time last year, there has been a constant decline in the price of Oil on the international market. From around $110 per barrel, it is now around $45 per barrel on the international market. This is almost 60% fall in the price of the black gold commodity and has culminated in drastic reduction in fuel prices in most countries around the world but not in our country.

Many opinion leaders, economists, political scientists, opposition political parties and other civil society organisations have made several appeals to the government to reduce fuel prices in line with its Automatic Adjustment Formula (AAF); yet, the Mahama-led administration has turned a blind eye and assumed a deaf ear to that public outcry.

The explanation offered by the government is that it has to save money to pay debt owed the suppliers of fuel but many think the explanation is not reasonable and therefore unacceptable. To them, the government perhaps does not care about the current hardships and sufferings of the people.

I personally am confidence that a reduction in the prices of fuel will afford the government the great opportunity to improve the economy. Currently we have high utility tariffs, high taxes, high cost of credit, high cost of raw materials, high cost of doing business and high cost of living all in the face of a declining fortune of our national currency, the Cedi. The combine effect of these had led to huge social cost leading to the suffering of the majority of our people.


Our economy is contracting as result of low investments in the productive sectors of the economy. This is due in part of the factors enumerated above. What has compounded the problem is the Dumsor-Dumsor or power crisis, in our country for at least three consecutive years. It has led to mass job losses and increased production cost rendering many companies in our country uncompetitive.

From the macroeconomics point of view, the gains that will be accrued to the nation as result of the reduction of fuel prices in accordance with the AAF will far outweigh the wisdom of the government’s determination to cheat cleverly the good people of our country. After all one cardinal duty of the government is to work hard to improve for the better the living conditions of the people. Therefore, to ignore such a windfall that has the key to turn the economy around beats the comprehension of many well-meaning people of our country.

There is Akan adage that says “Se wotwa wo ketereme totowea, na wonwee nam biara” which means, “When you cut your tongue, roast it and chew it you have chewed no meat at all”. This wrong policy decision will surely come back to hound the government when it tries to seek re-election through the ballot box. When we are confronted with policy choices of this nature, we have to be pragmatic, intentionally deviate from theories and let common sense come into play. I would have preferred the government to diplomatically negotiate the debt with Bulk Distributing Companies (BDCs), pay the debt, if true, in installments, and reduce the fuel prices now to enjoy the benefits effect. When you owe you do not starve your children to death for that matter. You negotiate with your debtor and be able to feed your children. You do not have to sacrifice your children’s lives in the interest of debt. This is common sense.


The required reduction in fuel prices will reduce production costs, inflation will come down to reduce food and transportation costs. Consumer confidence will increase to push aggregate demand up to stimulate economic growth. Unemployment will go down because job creation will increase in the process.

Exchange Rates

The declining fortune of our national currency, the Cedi, will improve because of direct relationship between inflation, exchange rates and interest rate. As inflation drops, it pulls down exchange rates with it. We must know that our economy could be strongly influenced by the interplay among inflation, interest rates and exchange rates. A drastic reduction in fuel prices will have a positive impact on these three important macroeconomic variables (Inflation, Interest Rates and Exchange Rates) and they will affect the economy positively to stimulate economic growth all other thing remaining the same.


On the part of the government, revenue will increase. It will improve the image and the goodwill of the government at home and abroad because such a fuel reduction will reduce unnecessary civil confrontation with the government in the form of protests or demonstrations. It will portray the government as a listening government that has the welfare of the ordinary people at heart. Above all the government will win enough civil society confidence and trust which very much essential in smooth democratic dispensation in the country. I humbly appeal to the government to have a second look at its stance not to reduce fuel prices in the face of the continuous fall in the price of oil on the international market. A word to a wise is enough.

Columnist: Baafi, Alex Bossman