The minority in parliament has advised government to prioritize, cut down on unnecessary expenditure and focus on what is essential, and to actively seek value for money investments, as oil prices are projected to fall to record lows.
US-based global investment bank Goldman Sachs reiterated last week that oil prices could hit a low $20 per barrel in 2016, the price that it believes would readjust the market.
In an interview with ghanabusinessnews.com, former deputy Finance Minister, Dr Anthony Akoto Osei did not rule out another budget review, and said $20 per barrel would compound an already existing crisis, given that oil is currently around $35 per barrel, significantly below the benchmark price of $53 in Ghana’s 2016 budget.
“The budget cannot remain the way it is. Some targets would not be met,” he said.
Dr Akoto Osei said some government programmes such as school feeding and scholarships, could be significantly affected hence government would have to prioritize and cut down on unnecessary expenditure, focus on what is essential, and actively seek value for money investments.
Although current low prices are expected to reduce America’s oil production in 2016 and bring some balance to the market, Goldman Sachs said last week, it believes $20 per barrel is the price that could force the real and necessary production cuts necessary to rebalance the oil market.
“Financial stress may prove too little too late to prevent the market from having to clear through ‘operational stress’, with prices near cash costs to force production cuts, likely around $20 a barrel,” the bank’s analysts said last week.
With a benchmark price of $53.05 per barrel for 2016, and a projected $502.10 million in petroleum receipts, Ghana’s 2016 budget and deficit target could come under pressure and face another reduction of over 60 per cent in petroleum revenues.
It will be recalled that falling crude prices resulted in a shortfall of GH₵3.1 billion in government’s 2015 domestic revenue and necessitated a budget review in the first quarter of the year, in which government revised a projected GH₵4.2 billion in petroleum revenue, down by about 64 per cent, to GH₵1.5 billion.
If Goldman Sachs’s prediction is to materialize, the finance ministry’s discretionary benchmark price of about $53 per barrel, which is lower than the seven-year moving average and considered prudent by some analysts, might prove to be otherwise.
Attempts to reach Ministry of Finance officials for comments were unsuccessful.
By Emmanuel Odonkor