Government’s plans of receiving more cash from crude oil production this year to fund its activities have failed to materialize.
According to Seth Terkper, Finance Minister, at a news conference in Accra yesterday, the failure to achieve revenue estimates detailed in this year’s budget would led to negative implications.
“With the continuous decline in crude oil prices, the original and revised estimate of Petroleum Benchmark Revenue for 2015 may not be achieved and this can have negative implications for the budget execution.
“The Ministry of Finance is taking necessary steps to control spending to ensure that the continuous fall in the crude oil prices does not derail the achievement of our fiscal deficit target for the year, as well as our medium term fiscal consolidation objectives. In this regard, MDAs that are funded from the Annual Budget Funding Amount (ABFA) are to control their expenditure within the Budget allotments provided by the Ministry of Finance.”
Eurobonds as the last resort
Asked what measures he would take to achieve his targets, the Finance Minister noted that government would resort to borrowing more money on the international market by issuing Eurobonds.
Mr Terkper pegged the price of a barrel of crude oil at $57 when he presented the 2015 budget to Parliament.
However, since the 2015 Mid-Year Review and Supplementary Budget Estimates presentation on July 21, 2015, revenue from crude oil production has plummeted even further.
The price of the Brent crude price now on the world market has fallen to US$45.70 per barrel.
Explaining further, he said although fiscal performance shows significant improvement, the economy experienced some challenges during the first half of 2015 mainly due to lingering energy sector problems, depreciation of the local currency and softening commodity prices.
“Inflationary pressures remained elevated, while increase in foreign exchange demand as against limited supply sources largely underpinned the weakening of the cedi against the major currencies.
“Hence the situation would have been much better but for the impact of these setbacks notably commodity (gold, cocoa, crude oil) prices and disruption in gas supply between 2013 and now.”
Reference to external factors
He explained that “oil prices which begun to rebound at the start of the second quarter have suddenly begun to plunge due to excess supply.
Other commodities prices such as gold and cocoa continue to decline due to soft global growth which is hurting the demand for these commodities.
Oil price shocks for net importer countries have already started experiencing terms of trade shocks, decline in growth, exchange rate instability and declining domestic revenue collection, among others.
In emerging market economies, he said the continued growth slowdown reflects several factors, including lower commodity prices and tighter external financial conditions structural bottlenecks, rebalancing in China and economic distress related to geopolitical factors.
According to the 15th August edition of The Economist, no single factor can explain what is going on.
By Samuel Boadi