Ghanaian Subsidy Policy

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Ghana's petroleum subsidy policy has undergone substantial changes since the mid-2000s, due mainly to subsidies' prohibitive cost.[1] Ghana spent about 450 million cedis ($276 million) on fuel subsidies in 2011.[2]

History

Prior to 2005, domestic petroleum prices had been subsidised by the government. In January 2003 prices were increased by 90 percent in an attempt to link the domestic prices to world prices, which sparked widespread domestic opposition. Facing an election in December 2004, though, the government unlinked domestic and international prices, and the total cost of subsidies increased sharply.[3]

In the same year, with the subsidy program becoming unsustainable, the government launched a poverty and social impact assessment (PSIA) for fuel. The PSIA was completed in less than a year and in February 2005 the government liberalised fuel prices, leading to a subsequent increase in prices of 50 percent. The price hike came together with a public relations campaign explaining the need for price increase and announcing measures to mitigate their impact. These measures included an immediate elimination of fees at primary and junior secondary schools, a program to improve public transport,[4] the allocation of extra funds for primary health care in Ghana's poorest areas, and an increase in funds to a rural electrification scheme.[5] Although there was opposition to the price hikes from trade unions, the policy was generally accepted and there were no large scale demonstrations against the increase.[3]

The government continued its policy of liberalised prices subject to price ceilings in line with world prices from February 2005 until May 2008; but a surge in oil prices led the government to freeze the price ceilings between May and November 2008. In the 2008 national elections, the victorious opposition party had pledged to halt the increase in domestic oil prices. According to IHS Global Insight, however, the incoming government resorted to an effectively ad hoc pricing approach, with increases coming in April, June and November 2009.[3]

Subsidy Reforms of 2011

In December 2011, Ghana cut fuel subsidies, with Alex Mould, CEO of Ghana’s National Petroleum Authority (GNPA) citing increases in crude oil prices and the depreciation of Ghana's cedi currency as the primary factors for the cuts. The cuts came as Ghana faced increasing pressure from the International Monetary Fund (IMF) to remove the subsidies, which the IMF contended were not effective in directly aiding the poor and promoted corruption and smuggling.[6]

The cut on subsidies for petroleum products was effective 29 December 2011 and resulted in fuel prices increasing by about 20 percent by 1 January 2012.[7] Civil society groups such as the Ghanaian Trade Union Congress promised indefinite nationwide strikes, and partially in response to this,[7] the government in early February 2012 proposed to effectively reverse this recent policy and cut prices by 20%, though the National Petroleum Authority had not yet signed off on the move as of 9 February 2012.[8]

References

  1. "Ghana: Petroleum Price Subsidy Unavoidable but Who Pays for It?" AllAfrica.com, 31 January 2012.
  2. "Fuel Subsidy Removal: Contrasting Reactions from Ghana and Nigeria" MyWeku.com, 13 February 2012.
  3. 3.0 3.1 3.2 "Subsidies in the Energy Sector: an Overview" World Bank Group Energy Sector Strategy, July 2010.
  4. "Phasing Out Subsidies" World Bank, August 2006.
  5. "Ghana’s Pathway to a Green Economy" UN Environment Programme, Retrieved 13 February 2012.
  6. "Fuel prices rise in Ghana as govt cuts subsidies" Sweet Crude Reports, 30 December 2011.
  7. 7.0 7.1 "How Ghana, Tanzania, Uganda tackle fuel subsidy" BusinessDay, 18 January 2012.
  8. "Ghana: mixing politics and fuel prices" Financial Times, 9 February 2012.