Boon from oil not enough to plug Ghana’s budget hole as prices drop

A surge in Ghana’s oil output this year may do little to ease the country’s fiscal strains as crude prices are lower than what it budgeted, eroding the gains from extra production.

This year’s average Brent crude price of $52 a barrel is below the $56 forecast in the budget, which could complicate the state’s plans to narrow the fiscal deficit. Output is set to climb by more than a third in 2017 from a year earlier after Eni SpA started up the Sankofa field in May, and as production rises at Tullow Plc’s second project in the country.

The world’s second-biggest cocoa producer plans to cut its fiscal deficit to 6.5 percent of gross domestic product this year as it seeks to raise investor confidence eroded by the announcement in January of a 7 billion-cedi ($1.6 billion) hole in the budget. Funding options are limited, with Ghana already relying on an almost $1 billion International Monetary Fund program to prop up its finances.

Lower-than-forecast crude prices mean “there could still be downside risks to government’s oil revenue outlook, despite increased oil output from the additional field,” Courage Martey, an Accra-based economist at Databank Group, told Bloomberg by phone. “We expect the government to revise the deficit target northwards.”

Ghana turned to the Washington-based IMF in April 2015 after lower prices for its gold, cocoa and oil exports caused debt to balloon and the currency to decline against the dollar while regular power cuts weighed on the economy. The country will ask for an eight-month extension to its $918 million credit program after failing to rein in public spending last year, deputy Finance Minister Charles Adu Boahen said last month.

The nation’s debt rose to 73 percent of GDP at the end of last year, from 34 percent in 2010, Finance Ministry data show.

The IMF cautioned last month that Ghana “remains at high risk of debt distress” and that continued fiscal consolidation would be required to lower public-sector borrowing.

Ghana, which became an oil producer when Tullow started the Jubilee field in 2010, forecasts a production increase to an average of 123,416 barrels daily this year from 88,487 in 2016, it said in the March budget.

Output from Jubilee has recovered after a fault at its floating storage facility halted output from March 20 to May 3 last year. Production is also increasing at the Tweneboa-Enyenra-Ntomme field that started in August, and Tullow is awaiting the outcome of a maritime border dispute between Ghana and neighboring Ivory Coast.

Brent fell 0.4 percent to $47.60 a barrel by 6:42 a.m. in London, extending the decline this year to 16 percent.

Ghana’s revenue and grants totaled 11 billion cedis in the four months through April, 17 percent less than planned, the Finance Ministry said
July 11 on its website. While oil-company taxes exceeded targets, crude royalties missed forecasts by 47 percent. Spending of 13.4 billion cedis was 21 percent less than planned.

“The oil price is a risk, but oil revenue is quite low as a percentage of total government revenue,” Mark Bohlund, an economist at Bloomberg Intelligence, said in an emailed response to questions. “The risks are more on the expenditure and debt sides.”