Ghana Fuel Subsidies to Cost $1.3 Billion, Agency Says

Ghana, West Africa’s second-biggest economy, will see its fuel-subsidy costs jump to 2.4 billion cedis ($1.3 billion) this year, according to the state petroleum-industry regulator, which wants the caps scrapped.

The value of subsidies in the country, where exports of crude oil began in December 2010, “is expected to rise 140 percent,” Alexander Mould, chief executive officer of the National Petroleum Authority, also known as NPA, said in an interview in the capital, Accra, yesterday. “We expect government to reduce or totally scrap the subsidy so we can pass on the full cost to the consumer.”

There’s currently a subsidy of about 20 percent on gasoline and diesel and 66 percent on liquefied petroleum gas, he said. “Subsidy payments have cost the government a fortune, and have consequently stifled other sectors of developmental funds.”

Ghana’s $39 billion economy was designated as lower middle-income by the World Bank in 2009 after it revised how output is measured. Growth led by rising exports of oil is forecast at 7.8 percent this year, faster than the sub-Saharan African outlook of about 5.3 percent, according to the International Monetary Fund.

While cutting subsidies will add pressure on inflation, the rising costs of the caps have the “potential of crippling the budget,” Sampson Akligoh, head of research at Accra-based Databank Financial Services Ltd., said by phone today. “Ghana doesn’t have enough fiscal space to absorb subsidies.”

Crude Earnings

An increase of 15 percent or more in fuel price adds 2 percentage points to inflation, according to Akligoh. The rate fell to 8.8 percent in December, the lowest in nine months, the Ghana Statistical Service said last month. The January rate will be released tomorrow in Accra.

A liter of premium gasoline sells for 1.708 cedis, according to the NPA’s website. The rate has been held since February 2012, when it was cut by 2.7 percent.

Ghana’s crude exports in the nine months through September were worth $2.1 billion, according to the Bank of Ghana. The country’s budget deficit widened to 7.3 percent in the nine months to September from 1.9 percent a year earlier, the central bank’s data showed. The spending plan for 2013 will be announced later this month or early in March, Finance Minister Seth Terkper said on Jan. 30.

After weakening 14 percent against the dollar in 2012, the cedi has gained 0.1 percent so far this year and traded at 1.9025 by 2:48 p.m. in Accra.

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