Economic prospects bright despite fall in crude oil prices — Terkper

The Minister of Finance, Mr Seth Terkper, yesterday presented a statement on the effects of the fall in crude oil prices on the economy, saying that in spite of the challenge, the medium-term prospects of the economy were bright.

He said the bright prospects were underpinned by expected additional oil and gas production, enhanced services sector performance and improvement in agriculture.

Mr Terkper affirmed the government’s resolve to continue to work towards ensuring that macroeconomic stability and socio-economic objectives were not derailed by external and domestic shocks.

He said the government was convinced that the measures put in place to address the impact of the shocks would yield the intended benefits and contribute to the achievement of the short-to-medium-term fiscal consolidation objectives.

His earlier attempt to present the statement had been blocked by the Minority, which insisted that his statement should have come to the House as a motion, not as a statement.

Sitting was then suspended for about three hours to allow the leadership of the House to thrash out some issues related to the presentation, after which members were called back to the House for the presentation.

After submissions by the Majority Leader, Mr Alban Bagbin, and the Minority Leader, Mr Osei Kyei-Mensah-Bonsu, the Speaker of Parliament, Mr Doe Adjaho, relied on precedent to conclude that the Finance Minister be made to present the statement.

Mr Terkper told the House that following his appearance before Parliament in November 2014 and the subsequent approval of the 2015 budget, the sharp decline in crude oil prices had posed and continued to pose a challenge to the achievement of the 2015 economic programme.

Impact of the crude oil decline

He said the petroleum benchmark revenue (PBR) price in the 2015 Budget, based on the formula stipulated in the Petroleum Revenue Management Act (PRMA) 2011 (Act 815), was estimated at $99.38 per barrel and a volume of 102,033 barrels per day.

He said based on those assumptions, the estimated total petroleum receipts in the 2015 budget amounted to GH¢4.2 billion and indicated that of that amount, GH¢2.5 billion was allocated as annual budget funding amount (ABFA) to finance specific projects and programmes in the budget.

He said GH¢1.1 billion was estimated to be transferred into the Ghana Petroleum Funds and GH¢697.7 million to the National Oil Company.

The Finance Minister said following global developments and market sentiments which had led several international institutions to revise their oil price projections, it was not likely that the benchmark price estimated for 2015 would be realised, hence the government’s decision to examine the estimates of petroleum revenues in the 2015 budget and assess the likely impact of such an examination on the budget.

Consequently, he said, the government’s assessment was based on a price of US$52.8 per barrel, which was consistent with the International Monetary Fund (IMF) forecast.

However, he said following discussions with the oil production companies, oil output was expected to remain unchanged at the 102,033 barrels per day used in the 2015 budget.

“The practical implication is that the periodic ceilings given to ministries, departments and agencies (MDAs) and metropolitan, municipal and district assemblies (MMDAs) are being revised downwards on account of the likely shortfall in petroleum revenue,” he said.

Mr Terkper said based on the new revenue assumptions, total petroleum receipts for 2015 were estimated at GH¢1.5 billion (1.1 per cent of Gross Domestic Product (GDP), compared with the 2015 budget estimate of GH¢4.2 billion (3.1 per cent of GDP).

He said the difference of GH¢2.7 billion was 64.4 per cent lower than the 2015 budget target and indicated that of the projected total petroleum receipts, GH¢468.9 million would be transferred to the National Oil Company, in line with the PRMA.

“Hence, the remaining amount of GH¢1.0 billion (0.8 per cent of GDP) will not be sufficient to cover the ABFA of GH¢2.5 billion in the 2015 budget,” he said.

The minister said the revenue yield from the special petroleum tax was estimated to reduce by GH¢185.6 million.

Domestic revenue

Mr Terkper said the fall in crude oil prices, as well as the current energy situation and the rapid depreciation of the cedi in 2014, could also have a negative impact on overall output.

As a result, he said, taxes on domestic goods and services, as well as non-oil taxes on income and property, could be lower than what the 2015 budget estimated by GH¢358.7 million.

“Due to these factors, total domestic revenue for 2015 is now expected to be GH¢27.8 billion, resulting in a shortfall of GH¢3.1 billion,” he said.

The minister said a factor that was expected to minimise the impact of the decline in crude oil prices was the enhancement of grant disbursements following staff-level agreement reached with the IMF for a $940-million facility.

He said the country’s development partners had pledged to disburse additional grants totalling GH¢381.1 million to fund programmes in the 2015 budget.

“Therefore, on a more positive note, this could result in an increase in the estimate for grant disbursements from GH¢1.6 billion to GH¢1.9 billion,” he said.

Mr Terkper said total revenue and grants for the 2015 fiscal year were now expected to be GH¢29.7 billion (22.3 per cent of GDP), instead of GH¢32.4 billion (24 per cent of GDP), resulting in a shortfall of GH¢2.7 billion (1.7 per cent of GDP).

Precautionary measures

The minister said the key precautionary measures included an across-the-board reduction in expenditure ceiling on goods and services and capital by GH¢344 million and GH¢868.4 million, respectively, as well as a draw down from the Ghana Stabilisation Fund.

Similarly, he said, transfers to the Ghana National Petroleum Company (GNPC) from government’s carried and participating interests in oil would be reduced to GHc468.9 million.

“Based on these expected changes in total revenue and grants, as well as total expenditure and arrears, the fiscal deficit for 2015 was estimated to be GH¢10 billion (7.5 per cent of GDP), up from the 2015 budget of GH¢8.8 billion (6.5 per cent of GDP),” he said.