An economist, Professor Newman Kwadwo Kusi, has called for a commodity hedging policy which will compel the government to hedge against the continuous fall of commodity prices, especially cocoa and crude oil, on the international market.
That, he said, would save the country from the shocks of commodity price volatilities and also avert revenues loses arising from the fall or rise in commodity prices on the international market.
Addressing a joint news conference organised by the Institute for Fiscal Studies (IFS) and Imani Ghana in Accra yesterday on the 2015 budget, Prof Kusi said the country could have avoided the loss of GHC2.7 billion due to the continuous fall in crude oil price on the international market.
The Minister of Finance, Seth Terkper, on March 12 this year, appeared before Parliament to explain the implications of the falling crude oil on the 2015 budget and seek approval to revise the total revenue figures for 2015 from GHC3.1 billion to GHC2.7 billion in view of the plummeting prices of crude oil on the international market.
Prof Newman who is the Executive Director of IFS, a think tank, questioned why the government did not pursue the hedging programme which was successfully implemented between 2010 and 2012 when there was a fall in crude oil prices on the world market.
He also queried Parliament on the matter saying, “Why did Parliament not ask the Finance Minister when he appeared before it on Thursday, March 12, 2015 the reason why the government did not hedge against the falling crude oil prices, leading the country to lose a whopping GHc2.7 billion and causing important expenditures to be cut?”
For instance, the executive director said the country recorded a net surplus of $98.4 million crude oil exports in 2011, adding that the hedging programme and other prudent policy measures introduced by the government “brought about one of the longest periods of monetary and fiscal stability in the history of the country’s economic management”.
“Considering the tremendous success of the hedging programme between 2010 and 2012, it is difficult to understand why the government discontinued the programme in 2013 and has refrained from resuming it despite the current situation,” Prof Newman said.
He said the failling of oil price on the world market would not only undermine the government’s efforts to reduce the fiscal deficit, but will also increase the current account deficit.
Prof Newman also raised qualms about the decision by Mr Terkper to use benchmark revenue of $99.39 in projecting the revenues to be accrued from the oil sector when experts had predicted that oil prices could fall below $50 this year.
Commenting on the matter, Evron Hughes, the Founding Chief Executive Officer of Cambridge Capital Limited, said the decision of government not to hedge against the falling price of crude oil demonstrated that the “government is not committed to fiscal discipline”.
He also said probably the government projected the oil revenue so that it could serve as impetus to spend more.
“Government is pushing the envelope so that it would not cut on expenditure,” he said.
The Founding President of Imani Ghana, Franklin Cudjoe, in his remark, wondered why the Ministry of Finance and Economic Planning was not pursuing the hedging policy.
He said the loss arising out of the fall in the crude oil pride could have been averted if the ministry continued with the hedging policy.
By Kingsley Asare