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Business News of Friday, 20 July 2012

Source: B&FT

Government ramps up subsidies

Government will spend some GH¢697.7million on fuel, power and water subsidies this year in a move that rebuffs calls by the International Monetary Fund (IMF) for such subsidies to be eliminated.

These unbudgeted subsidies, together with top-ups on the public wage bill, extra debt-service outlays and commitments carried over from 2011, will require additional spending of GH¢2.6billion in 2012 by the government, Finance Minister Dr. Kwabena Duffuor told Parliament on Wednesday when he presented the ministry’s supplementary budget to the House.

“An analysis of developments in both the domestic and global environment since the beginning of this year has necessitated some revisions in the assumptions which underlined the 2012 budget and economic policy,” he said.

He asked Parliament to approve GH¢290million in subsidies on petroleum products for the rest of the year, on top of GH¢228million already spent between January and May. Retail fuel prices were selling at 15% below cost-recovery rates by May despite an upward review in December 2011, he said.

Another GH¢179.7million will be spent on utility subsidies over the next six months, according to Dr. Duffuor. Utility tariffs were last adjusted in December 2011, and the planned subsidy is likely to leave the rates frozen for the rest of the year.

Executive Director of the Centre for Policy Analysis (CEPA), Dr. Joe Abbey, told the B&FT that while the decision to ramp-up subsidies a few months before elections is not unexpected, some petroleum products should have been exempted.

“Our view is that we should maintain the prices of kerosene and perhaps diesel -- because of the popular perception that diesel is used in vehicles for public mass-transport. But for premium [fuel] -- which is mostly used by the middle-classes -- LPG and premix, we should tell ourselves that we can’t subsidise everything.”

The IMF in May urged “an elimination of costly subsidies on fuel and energy consumption”, which it said often tend to be captured by the higher-earning segments of the population. The Fund also asked for the fast-tracking of the ongoing public-sector payroll audit, which coupled with the subsidy removal would yield GH¢160million in savings.

Last week, the Fund’s Executive Board approved the release of US$178.74million to the government -- under the Extended Credit Facility (ECF) pact that the two entered into in July 2009 -- and reiterated its warning over subsidies and rising expenditure on public wages.

“Spending overruns at the end of 2011, large public wage increases, and re-emergence of energy subsidies have created the need for corrective actions to achieve fiscal targets,” Mr. Naoyuki Shinohara, Deputy Managing Director of the Fund, said in a statement.

In his presentation to Parliament, the Finance Minister revised the budget deficit target to 6.7% of GDP from a previously estimated 4.8%, and said an extra GH¢1.1billion will be spent on wages and salaries to cover the cost of an 18% hike announced in the first quarter of the year. The total wage bill will therefore exceed GH¢6billion in 2012.

While the additional cost of wages will be met partly through savings of GH¢512million from plugging leakages in the pensions payroll, the revision of the deficit target will require additional borrowing of GH¢1.3billion, mostly from domestic banks, Dr. Duffuor said.

Government will spend some GH¢697.7million on fuel, power and water subsidies this year in a move that rebuffs calls by the International Monetary Fund (IMF) for such subsidies to be eliminated.

These unbudgeted subsidies, together with top-ups on the public wage bill, extra debt-service outlays and commitments carried over from 2011, will require additional spending of GH¢2.6billion in 2012 by the government, Finance Minister Dr. Kwabena Duffuor told Parliament on Wednesday when he presented the ministry’s supplementary budget to the House.

“An analysis of developments in both the domestic and global environment since the beginning of this year has necessitated some revisions in the assumptions which underlined the 2012 budget and economic policy,” he said.

He asked Parliament to approve GH¢290million in subsidies on petroleum products for the rest of the year, on top of GH¢228million already spent between January and May. Retail fuel prices were selling at 15% below cost-recovery rates by May despite an upward review in December 2011, he said.

Another GH¢179.7million will be spent on utility subsidies over the next six months, according to Dr. Duffuor. Utility tariffs were last adjusted in December 2011, and the planned subsidy is likely to leave the rates frozen for the rest of the year.

Executive Director of the Centre for Policy Analysis (CEPA), Dr. Joe Abbey, told the B&FT that while the decision to ramp-up subsidies a few months before elections is not unexpected, some petroleum products should have been exempted.

“Our view is that we should maintain the prices of kerosene and perhaps diesel -- because of the popular perception that diesel is used in vehicles for public mass-transport. But for premium [fuel] -- which is mostly used by the middle-classes -- LPG and premix, we should tell ourselves that we can’t subsidise everything.”

The IMF in May urged “an elimination of costly subsidies on fuel and energy consumption”, which it said often tend to be captured by the higher-earning segments of the population. The Fund also asked for the fast-tracking of the ongoing public-sector payroll audit, which coupled with the subsidy removal would yield GH¢160million in savings.

Last week, the Fund’s Executive Board approved the release of US$178.74million to the government -- under the Extended Credit Facility (ECF) pact that the two entered into in July 2009 -- and reiterated its warning over subsidies and rising expenditure on public wages.

“Spending overruns at the end of 2011, large public wage increases, and re-emergence of energy subsidies have created the need for corrective actions to achieve fiscal targets,” Mr. Naoyuki Shinohara, Deputy Managing Director of the Fund, said in a statement.

In his presentation to Parliament, the Finance Minister revised the budget deficit target to 6.7% of GDP from a previously estimated 4.8%, and said an extra GH¢1.1billion will be spent on wages and salaries to cover the cost of an 18% hike announced in the first quarter of the year. The total wage bill will therefore exceed GH¢6billion in 2012.

While the additional cost of wages will be met partly through savings of GH¢512million from plugging leakages in the pensions payroll, the revision of the deficit target will require additional borrowing of GH¢1.3billion, mostly from domestic banks, Dr. Duffuor said.

Government will spend some GH¢697.7million on fuel, power and water subsidies this year in a move that rebuffs calls by the International Monetary Fund (IMF) for such subsidies to be eliminated.

These unbudgeted subsidies, together with top-ups on the public wage bill, extra debt-service outlays and commitments carried over from 2011, will require additional spending of GH¢2.6billion in 2012 by the government, Finance Minister Dr. Kwabena Duffuor told Parliament on Wednesday when he presented the ministry’s supplementary budget to the House.

“An analysis of developments in both the domestic and global environment since the beginning of this year has necessitated some revisions in the assumptions which underlined the 2012 budget and economic policy,” he said.

He asked Parliament to approve GH¢290million in subsidies on petroleum products for the rest of the year, on top of GH¢228million already spent between January and May. Retail fuel prices were selling at 15% below cost-recovery rates by May despite an upward review in December 2011, he said.

Another GH¢179.7million will be spent on utility subsidies over the next six months, according to Dr. Duffuor. Utility tariffs were last adjusted in December 2011, and the planned subsidy is likely to leave the rates frozen for the rest of the year.

Executive Director of the Centre for Policy Analysis (CEPA), Dr. Joe Abbey, told the B&FT that while the decision to ramp-up subsidies a few months before elections is not unexpected, some petroleum products should have been exempted.

“Our view is that we should maintain the prices of kerosene and perhaps diesel -- because of the popular perception that diesel is used in vehicles for public mass-transport. But for premium [fuel] -- which is mostly used by the middle-classes -- LPG and premix, we should tell ourselves that we can’t subsidise everything.”

The IMF in May urged “an elimination of costly subsidies on fuel and energy consumption”, which it said often tend to be captured by the higher-earning segments of the population. The Fund also asked for the fast-tracking of the ongoing public-sector payroll audit, which coupled with the subsidy removal would yield GH¢160million in savings.

Last week, the Fund’s Executive Board approved the release of US$178.74million to the government -- under the Extended Credit Facility (ECF) pact that the two entered into in July 2009 -- and reiterated its warning over subsidies and rising expenditure on public wages.

“Spending overruns at the end of 2011, large public wage increases, and re-emergence of energy subsidies have created the need for corrective actions to achieve fiscal targets,” Mr. Naoyuki Shinohara, Deputy Managing Director of the Fund, said in a statement.

In his presentation to Parliament, the Finance Minister revised the budget deficit target to 6.7% of GDP from a previously estimated 4.8%, and said an extra GH¢1.1billion will be spent on wages and salaries to cover the cost of an 18% hike announced in the first quarter of the year. The total wage bill will therefore exceed GH¢6billion in 2012.

While the additional cost of wages will be met partly through savings of GH¢512million from plugging leakages in the pensions payroll, the revision of the deficit target will require additional borrowing of GH¢1.3billion, mostly from domestic banks, Dr. Duffuor said.

Government will spend some GH¢697.7million on fuel, power and water subsidies this year in a move that rebuffs calls by the International Monetary Fund (IMF) for such subsidies to be eliminated.

These unbudgeted subsidies, together with top-ups on the public wage bill, extra debt-service outlays and commitments carried over from 2011, will require additional spending of GH¢2.6billion in 2012 by the government, Finance Minister Dr. Kwabena Duffuor told Parliament on Wednesday when he presented the ministry’s supplementary budget to the House.

“An analysis of developments in both the domestic and global environment since the beginning of this year has necessitated some revisions in the assumptions which underlined the 2012 budget and economic policy,” he said.

He asked Parliament to approve GH¢290million in subsidies on petroleum products for the rest of the year, on top of GH¢228million already spent between January and May. Retail fuel prices were selling at 15% below cost-recovery rates by May despite an upward review in December 2011, he said.

Another GH¢179.7million will be spent on utility subsidies over the next six months, according to Dr. Duffuor. Utility tariffs were last adjusted in December 2011, and the planned subsidy is likely to leave the rates frozen for the rest of the year.

Executive Director of the Centre for Policy Analysis (CEPA), Dr. Joe Abbey, told the B&FT that while the decision to ramp-up subsidies a few months before elections is not unexpected, some petroleum products should have been exempted.

“Our view is that we should maintain the prices of kerosene and perhaps diesel -- because of the popular perception that diesel is used in vehicles for public mass-transport. But for premium [fuel] -- which is mostly used by the middle-classes -- LPG and premix, we should tell ourselves that we can’t subsidise everything.”

The IMF in May urged “an elimination of costly subsidies on fuel and energy consumption”, which it said often tend to be captured by the higher-earning segments of the population. The Fund also asked for the fast-tracking of the ongoing public-sector payroll audit, which coupled with the subsidy removal would yield GH¢160million in savings.

Last week, the Fund’s Executive Board approved the release of US$178.74million to the government -- under the Extended Credit Facility (ECF) pact that the two entered into in July 2009 -- and reiterated its warning over subsidies and rising expenditure on public wages.

“Spending overruns at the end of 2011, large public wage increases, and re-emergence of energy subsidies have created the need for corrective actions to achieve fiscal targets,” Mr. Naoyuki Shinohara, Deputy Managing Director of the Fund, said in a statement.

In his presentation to Parliament, the Finance Minister revised the budget deficit target to 6.7% of GDP from a previously estimated 4.8%, and said an extra GH¢1.1billion will be spent on wages and salaries to cover the cost of an 18% hike announced in the first quarter of the year. The total wage bill will therefore exceed GH¢6billion in 2012.

While the additional cost of wages will be met partly through savings of GH¢512million from plugging leakages in the pensions payroll, the revision of the deficit target will require additional borrowing of GH¢1.3billion, mostly from domestic banks, Dr. Duffuor said.

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