The government through the Minister for Finance, Ken Ofori Atta is seeking approval from Parliament to amend the Petroleum Revenue Management Act, PRMA, to allow a withdrawal from the Ghana Heritage Fund to close the fiscal gap which has been caused by the outbreak of the Covid 19 virus.
By law, the country’s Heritage Fund is supposed to serve as an endowment fund to support the development of the future generations when the country’s petroleum reserves have been depleted but in the wake of the economic impact of the Covid 19 virus, the government believes it was appropriate to fall on the fund to mitigate the fiscal impact of the virus.
The Minister disclosed this while making a statement on the floor of Parliament on Monday, March 30, 2020. The statement was on the “Economic Impact Of The Covid-19 Pandemic On The Economy Of Ghana”.
Currently, the estimated amount in the Ghana Heritage Fund is US$591.1 million.
The Minister also asked that the cap on the Ghana Stabilisation Fund, GSF, be lowered from the current US$300 million to US$100 million under section 23 (3) of the Petroleum Revenue Management Act, PRMA.
He explained that this” measure will enable the excess amount in the GSF account over the US$100 million cap to be transferred into the Contingency Fund, consistent with Section 23 (4) of the PRMA. The amount transferred into the Contingency Fund will be used to fund the Coronavirus Alleviation Programme, CAP. Through this process, an estimated GHȼ1,250 million will be transferred into the Contingency Fund to finance the Coronavirus Alleviation Programme.”
If the withdrawal from the Heritage Fund and the transfer of money from the Stabilisation Fund to the Contingency Fund to fund the Coronavirus Alleviation Programme are allowed, the money will be used to alleviate the impact on Ghana’s economy.
How is the Coronavirus Alleviation Programme going to help Ghana’s economy?
The Coronavirus Alleviation Programme will be used to minimize the huge threat of job losses and the impact on businesses by supporting businesses through the process of disbursing the funds, immediately the amount is approved by parliament to targeted businesses and households, this will include those in the health sector, education sector, hospitality industry, SMEs, and households hard hit by the Coronavirus pandemic. “Promotion of selected industries to shore up production for export and import substitution” will also be implemented.
Shortfalls in Petroleum Revenues
Government, earlier this year, programmed a crude oil price of US$62.60 per barrel for the 2020 Budget, consistent with the Petroleum Revenue Management Act, PRMA (Act 815). The global crude oil price has, however, dropped significantly since the outbreak of the Coronavirus.
As of Monday, March 30, 2020, crude oil prices (Brent) were down to around US$22.9 per barrel as compared to the December 2019 price of US$65.9 per barrel.
Initial analysis shows that at an average crude oil price of US$30 per barrel for the year 2020, the government will, therefore, record a shortfall in crude oil revenues amounting to GHȼ5,679 million.
Therefore, the corresponding projected shortfall in Annual Budget Funding Amount (ABFA) is GHȼ3,526 million; while shortfalls in the Ghana Stabilisation Fund and the Ghana Heritage Fund are GHȼ1,058 million and GHȼ453 million, respectively. Projected shortfalls in transfers to Ghana National Petroleum Corporation, GNPC is GHȼ642million.
The impact of the Coronavirus pandemic on Commodity Prices so far
Since the outbreak of the coronavirus, a significant decline in the international price of crude oil, as a result, to fall in demand has been observed.
Crude oil prices have declined from US$63.21 a barrel in November 2019 to US$22.9 per barrel as of Monday, March 30, 2020. Though the sharp decrease in crude oil prices will result in significant shortfalls in petroleum revenue for the 2020 fiscal year, consumers of petroleum products across Ghana are, however, likely to benefit from the decline in the international price of crude oil as the ex-pump price of petroleum is likely to continue reducing.
Meanwhile, the increased demand for gold as a safe haven as a result of the coronavirus outbreak “will likely impact positively on the balance of payments and receipts from mineral royalties.”
Gold prices have increased from US$1,479/toz in December 2019 to US$1,621.6/toz, an increase of 9.6% as of Monday, March 30, 2020.
A decline in Cocoa prices from US$2,440 MT in December 2019 to US$2,253 MT as of Monday, March 30, 2020, has also been witnessed.