The move has become necessary owing to huge sums of money Government spends on fuel subsidy, such as the GH¢880 million it spent in 2012 and the projected GH¢1.2 billion this year.
This came to light when majority of the panelists addressing a day’s workshop organized for members of the Institute of Financial and Economic Journalists in Accra announced the imminent Government’s decision to remove fuel subsidies.
The theme for the workshop was “Communicating the Use of Fuel Subsidy for Social Protection Interventions-The Role of the Media”.
Mrs Grace Akrofi, Acting Head of the Research Department of the Bank of Ghana stressed that the benefits of subsidy removal far outweighed the short run inflation spikes.
She disclosed that though at the beginning of 2012, Government budgeted $470 million (which represented 0.7 per cent of Gross Domestic Product (GDP)) for utility and fuel subsidies, she stressed that at the end of 2012, the realised subsidies during the year was $809 million (representing 1.1 per cent of GDP), in excess of $339 million.
Mrs Akrofi said the total out turn of petroleum subsidies represented 33 per cent of total domestic financed capital expenditure for 2012.
She expressed the view that petroleum subsidies crowded out priority public spending, distorted resource allocation by encouraging high consumption, and exerted pressure on the balance of payments.
Mrs Akrofi added that the imposition of the subsidy also promoted smuggling to neighbouring countries with higher domestic oil prices.
“In addition, the benefits from the subsidies mostly accrue to the higher-income households,” she said, and observed that the challenge of removal of fuel subsidy was on how to limit such short term price increases from feeding through to inflationary expectations.
She said the unintended effects must be contained by appropriate monetary and fiscal policy responses, adding that, “this explains why a high degree of credibility and complementary monetary and fiscal policies are essential to contain oil price induced shocks to inflation”.
Speaking on the effect of the current fuel subsidy regime, Mrs Alpha Welbeck, Head of Pricing at the National Petroleum Authority, said importers incurred extra cost for securing foreign currency from the commercial banks at higher costs due to the fact that under recovery normally delayed.
She stressed that delay in under recovery payments consequentially resulted in nationwide shortage of petroleum products and award of emergency cargoes at very high spot market prices.
Dr Nii Kwaku Sowa, an Economic Consultant, called on Government to remove the subsidy to enable Ghanaians to pay realistic prices for fuel as well as to enjoy quality services from the utility service providers.
He noted that the targeted beneficiary group for fuel subsidy was not met.
Mr Dennis Nchor, an Oil and Gas Policy Analyst from ISODEC, however did not share the same view with the other panelists.
He expressed optimism that Government would soon abolish its intention to remove fuel subsidy.
Mr Nchor said the current fuel subsidy regime was ineffective and unsustainable and called for measures to be rolled out to cushion the poor and vulnerable from high prices of petroleum products.
“Unless we have put in place measures to cushion the poor, especially in the transport sector, we don’t have to remove fuel subsidy”, he noted.