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Economy Can Contain Increase In Fuel Prices – Economists

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Two renowned economists have said the economy was robust and could contain the expected price adjustments in the petroleum sector as a result of the deregulation policy. This, according to them, would depend largely on how the policy of deregulation at the downstream sector would be handled.

The economists are Dr Ernest Addison, head of research of the Bank of Ghana and Dr Joe Abbey of the Centre for Policy Analysis (CEPA).

They were speaking at a workshop organised by the Institute of Financial and Economic Journalists with support from CEPA, Freidrich Ebert Stiftung and the Social Security and National Insurance Trust (SSNIT) in Accra on Tuesday.

The three-day workshop is on the theme “In search of a strategy for enhanced growth with poverty reduction.”

Speaking on the monetary outlook, Dr. Addison said the macro-economic environment for this year was quite different from what pertained in 2001 when petroleum adjustment led to spiraling of prices on the domestic market.

Dr Addison said “inflation is low, Government finances are now stronger and there are significant increases in exchange reserves.” He explained that there had been a decrease in domestic borrowing by the Government and this had been facilitated by additions from external inflows. He said the uncertainly as to the increases in fuel prices would not lead to a significant change in macro-economic outlook.

“Deregulation will deal decisively with the fiscal inconsistencies,” Dr Addison said.

Dr Abbey on his part said reserves amounting to four months of import cover was comfortable and ensured that the economy had the ability to take external shocks such as higher than expected petroleum price increases on the world market.

On Government expenditure, Dr Abbey noted that Government should ensure that its expenditure would lead to growth of the economy.

He called for transparency in Government expenditure to ensure that poverty levels were reduced, and called for the de-politicisation of the deregulation of the petroleum sector.

Dr Abbey cautioned that in seeking to undertake reforms in the petroleum sector, it was important that the Tema Oil Refinery (TOR) was not made to collapse. He said the case of inefficiency of TOR had not been established, and stated that the problem of TOR had been that of setting the right prices.

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