ISODEC SLAMS FUEL SUBSIDY WITHDRAWAL!!!
The Integrated Social Development Centre (ISODEC) deems the decision by the Mahama administration to remove subsidies on petroleum products, albeit partially, when measures to mitigate the potential negative impacts of the decision are still being discussed, as bad judgment. The decision short-circuits the ongoing public debate on the issue of fuel subsidy and breaches the good faith that should otherwise exist between the government and the electorates.
While we welcome the opportunity we have had, to debate the issue, it seemed apparent (now confirmed) that government’s mind was made up, perhaps long before the 2012 elections. It is recalled that in May last year the International Monetary Fund (IMF) urged the government to withdraw the subsidies which, according to the Fund, were not only missing their targets but also crowding out expenditures in the priority areas of infrastructure, education and healthcare. The advice was however dropped amidst growing public opposition to it. It seems from a hind sight reflection that the government’s decision not to implement the IMF advice at the time was borne more out of political expediency than goodwill. While that is understandable, we deem such behavior as amounting to a betrayal of the peoples’ confidence.
Again, it is the view of ISODEC that the debate, thus far, has not been as open and fair as one would have wished. Vital information that would have made the discussions more meaningful was withheld from the public. For instance, the government was not open about the gains and/or losses it had made from the country’s hedging of crude oil prices. Furthermore, while government was loud on how much fuel subsidy was costing the state, it was mute on how much petroleum taxes were generating in terms of revenues and what the net surplus or loss between that and the subsidy was. This level of selectivity in the use of data is unfortunate, as it undermines the spirit of the debate. The time has come, we believe, to open up the petroleum pricing formulae for public scrutiny especially given the fact that many remain unconvinced that there is a subsidy in the first place.
The government’s lack of candor in the debate finds further expression in the explanation given for the withdrawal of the subsidy. The government has so far presented its case as if the subsidy that it has now cut is money that is available. It has argued that it intends to better target them when it knows very well that the money is simply not available. The promise of better targeting of the withdrawn subsidy is therefore nothing but a decoy to justify government’s decision.
Ramifications of the subsidy withdrawal
Globally, subsidies to the poor have come in as the easiest target for spending cuts in governments’ bid to reduce budget deficits. In October 2010 the U.K. government in what has been described as the most extensive programme of government cuts since the 1920s announced massive cuts in welfare spending. This was £4bn extra cut, in addition to £11bn announced in that year’s Budget.
The cuts were in respect of child benefit usually paid out to single mothers; reduction in the levels and scope of tax credit to the poor.
Again, in February 2011, less than two months after signing tax cuts for the wealthiest Americans into law, President Barack Obama proposed a spending plan to Congress that cut funding to programs that assist the working poor and the needy to heat their homes, and expand access to graduate-level education. Obama\\\'s new budget put forward a plan to achieve $1.1 trillion in deficit reductions over the next decade. These reductions -- averaging just over $100 billion each year – are to be achieved mainly by squeezing social programs.
The tendency to cut support for the poor in times of fiscal squeeze is probably because in terms of the power architecture the beneficiaries of these support programmes present the weakest voice in the public policy negotiation space, a situation that can only be reversed through grass root economic literacy and empowerment programmes to help the poor better articulate their concerns. It is important to point out that the social imbalances that are created by neo-liberal economic policies represent a clear and imminent threat to our security and social cohesion.
We have in recent days published a ten-point statement on why fuel subsidy must be maintained (see Public Agenda of Friday February 15, 2013, and wwww.isodec.org). We reiterate our position that, fuel subsidy withdrawal, without adequate impact mitigating measures will hurt the poor more than the rich, and risks rolling back whatever progress we have made as a country in the macro-economic sphere.
The new price increases of petroleum products announced last Saturday will translate into higher transport fares and take up a higher percentage of the poor’s income than was the case before the increases. Food prices will also go up. Utility tariffs and prices of locally manufactured goods will go up as production costs rise in commensurate measure. These developments are likely to lead to wage-related agitations with their attendant destabilizing effect on the macro-economy.
The new increases in prices of petroleum products are also likely to compound government’s own budget for the consumption of these products. This calls for urgent measures to reduce abuses and waste in fuel allocations and use by state agencies.
Dealing with the fiscal squeeze
We have come to a point in our country’s economic development that requires us to address our minds to the bigger question of the fiscal squeeze that confront us as a people and which is the reason for the subsidy withdrawal in the first place.
The Bank of Ghana has estimated Ghana’s fiscal gap in 2012 to have widened to 12.1 percent of gross domestic product. Though it is widely speculated that Ghana’s huge fiscal deficit is as a result of over-spending during the 2008 electioneering campaign, the truth of the matter is that donor support for Ghana’s budget has been on decline following the country’s attainment of middle income status. The Dutch government has for instance exited the Multi-Donor Budget Support (MDBS) arrangement with a loss of an estimated 20 million Euro. We also know that the World Bank is withholding huge amounts of development aid from Ghana due to slow progress in the execution of projects being funded by these funds. Projected oil tax receipts for 2011 and 2012 did also not materialize as a result of poor forecasting.
All these constraints call for a much more fiscal discipline, and not just subsidy withdrawal which does not address the bigger problem. We need to urgently consider the passage of a Fiscal Responsibility Law (FRL), which could help in improving fiscal discipline.
In addition, we must continue to work to improve our public financial management systems. Even though there have been some reforms in this area, the fiscal slippages that have contributed to the huge fiscal gap we are having to bridge means there are still systemic weaknesses that must be addressed.
Finally, recognising that the budget is the single most important tool for national resource allocation we urge government to create greater opportunities for the people’s participation in its formulation. That way, we will be engendering a true national ownership of the policy choices made by government.
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