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30.04.2008 Business & Finance

Govt says no to fuel subsidy

By B&FT
Govt says no to fuel subsidy


Ghanaians must brace themselves to bear the full brunt of any further increases in the price of crude petroleum on the international market.

This is because of government's dire financial circumstances that make it impossible for it to offer any form of cushioning in the like of a subsidy.

The Minister of Finance and Economic Planning, Kwadwo Baah-Wiredu who made this known in an interview with the B&FT said: "Our budget is already constrained by many other very important demands.

Salary increases, debt servicmg, water provision, road construction, health and sanitation and education demands.

I mean you are faced with different demands that each presents itself as a priority.

In the circumstances, the best you can do is to look for additional resources to meet them and not to cut down on some.

"Fuel subsidy is certainly not a feasible choice," the Minister said.

The Minister's explanation is evident by data available on the implementation of the 2008 budget.

For the first two months of the year, total revenue and grants excluding project grants stood at GH¢679.1 million. Government expenditure, excluding foreign financed capital expenditure amounted to GH¢985.9 million.

This resulted in a budget deficit of GH¢291.5 million, equal to 1.8 percent of gross domestic product (GDP) compared to 0.2 percent of GDP a year earlier.

He also expressed concern about the impact of the crude oil prices on the foreign reserves: "The crude oil is now hovering close to S 120 a barrel and according to the economist magazine, at least USS 150 will be recorded this year.

Have we considered the implication for the level of the reserves and hence import of goods and services?"

Mr. Baah-Wiredu said the way forward cannot be to look around for subsidies but rather to encourage the system to absorb more realistic pricing, such as the mining sector that currently pays less for electricity than the cost of generation.

Per unit generation of electricity by thermal means costs 12 cents but the mining firms pay between 6 and 8 cents.

With the historical trends in world crude oil prices, other quarters of government are of the view that central government should absorb part of the price increases in order to minimize the impact on the disposable income of the citizenry who are facing very difficult moments.

They argue that the price increases are also contributing to inflation which is eroding other macroeconomic gains.

They cited China and other countries in the world that face the same crude oil prices but have provided a cushioning for the citizenry.

Petro China, Asia's biggest oil and gas company on April 19 said the Chinese government would provide a subsidy against losses due to refining imported crude oil on a monthly basis starting from April 1. It would also get a refund from the amount paid on valued-added taxes levied on imported refined products in the second quarter of this year.

Source: B&FT

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