News / Africa

    Analysts: Ghana Fuel-subsidy Cut Is Merely Quick Fix

    People walk past a vendor selling newspapers with its front page reporting about an Argentine naval vessel involved in a debt dispute, in Accra, Ghana, December 2012.People walk past a vendor selling newspapers with its front page reporting about an Argentine naval vessel involved in a debt dispute, in Accra, Ghana, December 2012.
    x
    People walk past a vendor selling newspapers with its front page reporting about an Argentine naval vessel involved in a debt dispute, in Accra, Ghana, December 2012.
    People walk past a vendor selling newspapers with its front page reporting about an Argentine naval vessel involved in a debt dispute, in Accra, Ghana, December 2012.
    Reuters
    Ghana's removal of fuel subsidies last week was designed to reassure investors ahead of a $1 billion Eurobond in July, but it carries risks. Analysts say more action will be needed to tackle a large budget deficit.

    Ghana - one of Africa's fastest-growing economies - began producing oil in 2010, ranks as the world's number two cocoa producer, and is Africa's second biggest gold miner. Though popular with investors, the government has seen its fiscal management criticized amid big wage demands from restive civil servants.

    Ghana's credit-worthiness was hit by a 2012 budget deficit of 12.1 percent, more than double the official target, analysts say. The announcement last month of a plan to issue a Eurobond in July to finance debt and capital projects has added to the pressure to curb the deficit.

    A 3-year bond auction last week, though oversubscribed, sounded a warning when yields climbed to 19.2 percent, up from 16.9 percent in March.

    It signaled that investors fear the government is failing in its attempt to pare the deficit to 9 percent this year. Analysts say scrapping fuel subsidies is a response.

    Friday's announcement has so far not sparked the strong opposition that has often greeted decisions to remove subsidies elsewhere in Africa. There was no immediate reaction from the opposition National Patriotic Party or from unions, and there were no signs of street protests.

    “There is definitely a positive on the fiscal front. The government will now be able to get some savings by not subsiding fuel,” said Edward Al-Hussainy, a sovereign risk analyst with Moodys ratings agency in New York.

    “The flip side is that it tells us that the government is having a tough time meeting its fiscal target,” he said.

    No opposition reaction

    Looking ahead, the risk of higher inflation from the removal of subsidies could leave the government vulnerable to renewed militancy by public sector unions over wages. Inflation stood at 10.6 percent in April.

    Ghana saw a weeks-long strike by doctors and other civil servants in March and April in a dispute over how to implement a salary structure the government inherited from its predecessors.

    That structure saw some civil servants' salaries jump by 240 percent, and the overall public sector wage bill rise by 47 percent in 2012.

    The impact on prices will be further exacerbated as the decision in February to partially remove fuel subsidies filters through to the economy, according to Razia Khan, regional head of research at Standard Chartered.

    “There is no fiscal room [to] maneuver especially with the public sector pay bill and some of those subsidies should have gone some time back,” said Khan.

    “It would have been better if there were gradual adjustment to prices. But having left it too late and having seen overruns in other areas, the authorities have little choice but to implement more dramatic action now,” she said.

    The International Monetary Fund said in April the ballooning wage bill threatens the economy's health, though public servants argue they have historically been underpaid and point to wasteful spending by politicians as a cause of their militancy.

    Questions for investors

    The nation of 25 million presents a paradox to investors. By some measures, it has the fourth biggest economy in sub-Saharan Africa and GDP growth in 2012 stood at 8 percent, making it one of the hottest economies on the continent.

    Oil production allows Ghana to join an elite group: an African state with petroleum, peace, stable democracy and a reputation for good governance.

    The deficit plus a current account balance clouds the picture. It is further darkened by international reserves which stand at just three months of imports as of the end of April.

    One key question facing Ghana is how far the deficit will weigh on investor confidence.

    “I do hope that Ghanaians will understand that we really cannot afford the large deficit,” said Joe Abbey, executive director of the Center for Policy Analysis think-tank in Accra.

    Shortly after Ghana announced that its budget deficit last year overshot its 6.7 percent target, Fitch ratings agency reduced the country's outlook to negative from stable.

    Carmen Altenkirch, a director at Fitch, said on Monday the removal of subsidies was the kind of action the government should be taking to combat high borrowing costs.

    “This is encouraging, but you are seeing high bond yields so significantly you would hope for more,” she said.

    The government should attempt to slow a rise in the public sector wage bill to below the rate of inflation and improve financial management in part by installing better IT systems, she said.

    It was also important to improve the tax net, according to Altenkirch and other analysts.

    You May Like

    California Republicans Mull Choices in Presidential Race

    Ted Cruz tells state's Republican Convention delegates campaign will be 'battle on the ground, district by district by district,' ahead of June 7 primary

    Video Kurdish Football Team Helps War-Torn City Cope

    With conflict still raging across much of Turkey’s predominantly Kurdish southeast, many Kurds are trying to escape turmoil by focusing on success of football team Amedspor

    South African Company Designs Unique Solar Cooker

    Two-man team of solar power technologists introduces Sol4, hot plate that heats up so fast it’s like cooking with gas or electricity

    By the Numbers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Turkish Kurd Islamist Rally Stokes Tensionsi
    X
    April 29, 2016 12:28 AM
    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Turkish Kurd Islamist Rally Stokes Tensions

    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Pakistani School Helps Slum Kids

    Master Mohammad Ayub runs a makeshift school in a public park in Islamabad. Thousands of poor children have benefited from his services over the years, but, as VOA's Ayesha Tanzeem reports, roughly 25 million school-age youths don't get an education in Pakistan.
    Video

    Video Florida’s Weeki Wachee ‘Mermaids’ Make a Splash

    Since 1947, ‘mermaids’ have fascinated tourists at central Florida’s Weeki Wachee Springs State Park with their fluid movements and synchronized ballet. Performing underwater has its challenges, including cold temperatures and a steady current, as VOA’s Lin Yang and Joseph Mok report.
    Video

    Video Somali, African Union Forces Face Resurgent Al-Shabab

    The Islamic State terror group claimed its first attack in Somalia earlier this week, though the claim has not been verified by forces on the ground. Meanwhile, al-Shabab militants have stepped up their attacks as Somalia prepares for elections later this year. Henry Ridgwell reports there are growing frustrations among Somalia’s Western backers over the country’s slow progress in forming its own armed forces to establish security after 25 years of chaos.
    Video

    Video Bangladesh Targeted Killings Spark Wave of Fear

    People in Bangladesh’s capital are expressing deep concern over the brutal attacks that have killed secular blogger, and most recently a gay rights activist and an employee of the U.S. embassy. Xulhaz Mannan, an embassy protocol officer and the editor of the country’s only gay and transgender magazine Roopban; and his friend Mehboob Rabbi Tanoy, a gay rights activist, were hacked to death by five attackers in Mannan’s Dhaka home earlier this month.
    Video

    Video Documentary Tells Tale of Chernobyl Returnees

    Ukraine this week is marking the 30th anniversary of the world's worst nuclear accident, at the Chernobyl nuclear power plant. Soviet officials at first said little about the accident, but later evacuated a 2,600-square-kilometer "exclusion zone." Some people, though, came back. American directors Holly Morris and Anne Bogart created a documentary about this faithful and brave community. VOA's Tetiana Kharchenko reports from New York on "The Babushkas of Chernobyl." Carol Pearson narrates.
    Video

    Video Nigerians Feel Bite of Buhari Economic Policy

    Despite the global drop in the price of oil, Nigerian President Muhammadu Buhari has refused to allow the country's currency to devalue, leading to a shortage of foreign exchange. Chris Stein reports from Lagos businessmen and consumers are feeling the impact as the country deals with a severe fuel shortage.
    Video

    Video  Return to the Wild

    There’s a growing trend in the United States to let old or underused golf courses revert back to nature. But as Erika Celeste reports from one parcel in Grafton, Ohio, converting 39 hectares of land back to green space is a lot more complicated than just not mowing the fairway.
    Video

    Video West Urges Unity in Libya as Migrant Numbers Soar

    The Italian government says a NATO-led mission aimed at stemming the flow of migrants from Libya to Europe could be up and running by July. There are concerns that the number of migrants could soar as the route through Greece and the Balkans remains blocked. Western powers say the political chaos in Libya is being exploited by people smugglers — and they are pressuring rival groups to come together under the new unity government. VOA's Henry Ridgwell reports.
    Video

    Video Russia’s TV Rain Swims Against Tide in Sea of Kremlin Propaganda

    Russia’s media freedoms have been gradually eroded under President Vladimir Putin as his government has increased state ownership, influence, and restrictions on critical reporting. Television, where most Russians get their news, has been the main target and is now almost completely state controlled. But in the Russian capital, TV Rain stands out as an island in a sea of Kremlin propaganda.

    Special Report

    Adrift The Invisible African Diaspora