The head of Energy, Oil & Gas Unit of the Real Sector of the Ministry of Finance, Dr Joseph Asenso, has cautioned against basing budget allocations on projections for revenue inflows, from the oil and gas industry.
Experience from other oil-rich countries over the years, he said, had shown that countries that conditioned their budgets on revenue from oil and gas liftings had to go through some challenging times trying to balance their budgets.
That, he said, was because projections that were made regarding expected income, failed to happen and thus threw their budgets out of gear.
Dr Asenso gave the caution when he delivered a lecture in Accra last Thursday. It was on the theme “The Impact of Oil Price Volatilities on the Ghanaian Economy.”
The lecture was organised by the Institute of Chartered Accountants, Ghana (ICAG).
Dynamics of demand and supply
Dr Asenso said the oil and gas industry would continue to be affected by the dynamics of demand and supply and that the higher the demand, the possibility of the price of crude inching up but in the situation where demand was low and the product was in abundance, there was bound to be challenges in revenue projections and actual income.
He gave the example of 2015, where projections made per oil revenue in the annual budget had to be reviewed downward by the Minister of Finance.
He said even with the review, what finally came in as revenue was still lower than the reviewed projection, and added that it was indicative of the effect of the volatility of oil prices on the national economy.
Dr Asenso said crude supplied about 40 per cent of the world’s energy needs and had been one of the most geopolitically significant issues in the past five decades.
Effects of oil price hikes
The President of ICAG, Mr Christian Sottie, said despite Ghana having joined the League of Nations in oil production, it was still greatly impacted by price hikes, even of a small margin.
“It is one of the reasons, for instance, that resulted in our achieving a higher budget deficit for 2015, the downward spiral of oil prices last year. This resulted in a budget deficit of 7.3 per cent of Gross Domestic Product (GDP) from its previous target of 6.5 per cent,” he said.
He, however, said oil price hikes were uncontrollable forces that affected not only Ghana, but also global economies.
Mr Sottie pointed out, “For countries, an oil price roller coaster can blow a hole in government budget, prompt wholesale economic reform, or alter geopolitical priorities seemingly overnight.”
He, therefore, urged the technocrats present to find workable solutions to the challenge.
“The onus lies on us to brainstorm and bring up helpful suggestions to help mitigate an uncontrollable factor,” he urged.
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