The International Monetary Fund (IMF) says it has encouraged the government, in recent discussions, to closely monitor crude price developments to ensure that domestic fuel prices remain in line with market trends.
Observing that cost-recovery pricing of energy products is crucial for sound fiscal management, the Fund said it welcomed the early-January adjustment of domestic pump prices and the move to quarterly cost-based reviews of electricity tariffs.
The Fund�s comments, contained in a statement issued after its executive board considered the report of a staff mission to Ghana earlier in the year, reflect a view that fuel prices may need to be adjusted when protection offered by hedging ends.
Retail fuel prices were increased by 30% in January after 14 months without change, and have since stabilised mainly because of the government�s resort to hedging against rapidly-rising prices, a policy that has saved the budget from unanticipated shocks even as global crude prices have risen.
When the last price-hike was announced, the price of Brent crude was just crawling above the US$90 per barrel mark, but breached US$120 as the spate of civil crises in the Middle East and North Africa intensified. The price has since settled within the US$110-120 range.
Since October last year, Ghana has been hedging half of its monthly crude imports -- about 1 million barrels -- at a guaranteed price, which changes month after month in line with movements in global crude prices.
Though the policy has offered some protection against price increases on the domestic market, not all imports are covered; and since hedging, being a form of insurance, itself involves costs which at some point may have to be recovered, some price-revision may be warranted at some point to avoid losses to the budget.
Last month, the public utilities� regulator held off an adjustment in tariffs because of consumers� persistent complaints about the poor quality of services. Its next announcement is expected at the end of August. Energy-price rationalisation is a key aspect of expenditure-management reforms proposed under the government�s wider fiscal programme under an IMF credit facility -- to scale-down the fiscal deficit after it shot up in 2008, and resolve financial-management difficulties in state-owned enterprises.
The Fund�s three-year Extended Credit Facility (ECF) arrangement with the government was approved by its board in July 2009, providing access to some US$613.1million, about half of which has been disbursed so far. The Fund applauded Ghana�s strong growth, but said it regretted that fiscal consolidation goals were not achieved in 2010, due partly to delays in fiscal reforms. While tax-revenue collections were broadly in line with the budget, non-tax revenues and grants fell short of their targets and capital spending was larger than anticipated. Additional payment arrears equivalent to 1.9% of GDP were discovered from spending commitments in 2010, the Fund said.
�The combined fiscal slippage in relation to the 2010 [fiscal] programme, taking into account both cash transactions (the fiscal deficit) and unpaid bills (arrears), was equivalent to 2.6% of GDP.� Fund directors welcomed parliament�s approval of the oil-revenue management law and the government�s intention to ensure that oil-related incomes, expenditures and savings are transparently and comprehensively recorded for dissemination, analysis and audit purposes.
They underlined the importance of maintaining the momentum of structural fiscal reforms, especially for tax administration, payroll management and expenditure control.
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