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19.02.2013 Opinion

The Truth Surrounding Fuel Subsidy In Ghana

By Bill Mahmood
The Truth Surrounding Fuel Subsidy In Ghana
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The wisdom behind the implementation of fuel subsidy by government in developing countries and emerging economies has always been laudable, in that, it is meant to cushion the effect of high fuel taxes and ultimately cost at the pumps, which directly or indirectly affects the prices of goods and services in any society, and in the end the standard of living of the greater majority of the citizenry. When the prices of goods and services are allowed to escalate because of very high fuel price at the pumps, it is the millions of struggling homes trying to make ends meet who bear the brunt.

According to National Petroleum Authority, NPA, fuel subsidy should be scrapped because of its impact on the economy, and in so doing this burden be passed unto the consumer - the ordinary citizen in most cases who feels this effect most - who has continually deviled with a lot of tax burdens. NPA argued that the subsidy on fuel is costing the Republic of Ghana 2.4 billion cedis ($1.3 billion) and it is expected to rise 140 percent, hence its position to advise the government of Ghana to remove the subsidy and pass it unto the consumers. Despite the numerous outcry by the entire country, the leadership of Ghana has gone on to implement very huge increment of fuel taxes at the pumps. The wisdom in this opinion by NPA is flawed in the sense that the idea of the subsidy is meant to help the poor in society as a social responsibility of central government. So for the office of NPA to make such a suggestion is preposterous. One school of thoughts may ask, “What about the impact of the general state of the welfare of the ordinary citizens who are the engine of growth of the economy as a result of the rippling effect of this huge fuel price increment on prices of goods and services?”

Furthermore, this position by NPA has been supported by the Ag Governor Bank of Ghana with his argument that, the current high subsidies on fuel are unsustainable and too risky to the economy; warning that the pressure related to fuel subsidies, utilities and wage/salary settlements could offset the gains made in macroeconomic stability. This argument is equally outlandish from the point of view of CAC, a committee within CPAG. The argument for this fuel taxes increment claims that, last year the government spent close to GHc1.2 billion on fuel subsidies, and that amount is expected to climb to GHc2.4 billion this year if the subsidies were not removed. It further stated that, coupled with a high wage bill that will cost GHc7.5 billion instead of the target amount of GHc5.6 billion, this is deemed to present a major challenge to the economy.

These submissions are very interesting. In as much as we appreciate roles being played by NPA and BoG to justify this unpopular move by the government of Ghana, we believe that their attitude towards external influences leaves much to be desired. It may look like a mere coincidence that the call for the removal of subsidy from the economic point of view is being giving prominence after statements made by leaders of global financial institutions like the IMF in recent times. For instance, in 2012, Christina Daseking, the Head of the International Monetary Fund (IMF) Mission in Ghana, urged countries across West and Central Africa to cut fuel subsidies because they are not effective in directly aiding the poor and they promote corruption and smuggling and benefit the high income people.

In the light of this pronouncement, we believe that in implementing the removal of the subsidy, we should rather look at the matters arising from the pronouncement and address them. The issues of corruption, fuel smuggling and the rich benefiting from this help by government should rather be addressed. When fixing a problem creates a larger problem, then the solution is flawed and should be aborted. Or has government now decided it is unnecessary to help struggling low income families in the form of fuel subsidies? What other measures is government going to put in place to still help low income families who are going to feel the impact of this withdrawal of fuel subsidy most?

We will like to bring to the fore the issue of the rich making meals meat out of the subsidy and suggest that from the presidency , legislature , judiciary and all government functionaries, could and should - as a matter of urgency – forfeit about ₵2,000.00 out of their monthly salary towards cushioning the system for at least one year. This initiative by 275 MP committing to this, will mean a total revenue of ₵550,000 multiply by 12 months will amount to ₵6,600,000 in addition to that of the Presidency, Ministers and their deputies, Board members of state institutions , DCE's, Head of state institutions etc. Secondly, the judiciary and the security personnel along the borders must be encouraged expediting court actions on arrested smugglers of fuel and be giving tougher sentences.

Finally, we wish to highlight that the global call for the removal of subsidy is towards promoting sustainable renewable energy approaches and so we call on the government and its official to think through this very carefully and ensure that decisions taking are purely based on approaches to enhance the betterment of our people, not being influenced by external powers.

In the end, the question we like to ask the government is:

“HOW CAN A SMALL ECONOMY LIKE GHANA BE BUYING FUEL AT THE PUMP AS EXPENSIVE AS THE USA IF NOT MORE EXPENSIVE?

Long Live the Struggle for Better Governance.

God Bless Ghana and the People.

Bill Mahmood
Chair, Consumer Advocacy Committee (CAC), CPAG.
Email: [email protected]

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