Ghana’s End to Fuel Subsidies Credit Positive, Moody’s Says

The elimination of fuel subsidies in Ghana will result in credit-positive fiscal savings, Moody’s analyst Edward Al-Hussainy said.

The assistance accounted for 4.15 percent of government spending last year as the West African nation struggled to narrow a budget gap that soared to 12.1 percent of gross domestic product by the end of 2012 following a presidential election, according to the e-mailed report.

Ghana’s national petroleum company raised fuel prices on June 1, completing a fuel subsidy reform that began in February. Gasoline prices have increased by more than 24 percent this year, according to the report.

At the same time, Moody’s expects the budget deficit to remain elevated at 10 percent of GDP this year due to high wage and interest costs. The wage bill may reach 9 percent of GDP, down from 9.3 percent in 2012, the report said. Interest payments are forecast to rise to about 3.6 percent of GDP from 3.4 percent in 2012.

Finance Minister Seth Terkper said in an interview last month the government wants to reduce the wage bill to between 30 percent and 35 percent of tax revenue by 2015. Salaries accounted for 72 percent last year, according to budget data.

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