On Tuesday, April 7, 2015, the Institute for Fiscal Studies (IFS) and IMANI jointly issued a press statement in which the two think tanks advanced a position that the loss of GH¢2.7 billion worth of revenue to the 2015 Budget from the decline in crude oil prices could have been avoided or mitigated if the Minister of Finance had taken steps to resume the hedging programme that was implemented in the 2010-2012 period.
On Wednesday, April 8, 2015, the Ministry of Finance issued a response signed by the deputy Minister of Finance to the IFS/IMANI press statement on behalf of the government. In that response, the ministry claimed that the 2012 fiscal outcome belies the IFS and IMANI’s claim that the hedging programme was successful and contributed to one of the longest periods of monetary and fiscal stability in the history of Ghana.
Second, the ministry stated that “it is wholly inaccurate for IFS and IMANI to claim that the hedging programme ended when the current Minister of Finance and his team were entrusted with reviving and managing the nation’s economy from 2013”.
According to the ministry, the hedging programme continued well into 2013 before it was subjected to a review as part of government’s broader review of the petroleum pricing formula. The review which was undertaken by an Inter-Ministerial Technical Team was concluded in September 2014 and the implementation of the hedging programme resumed.
Third, the ministry stated as follows: “Indeed, deciding not to actually hedge for any given period, based on the peculiar circumstances of the oil market and the projected direction of prices in both short and medium term, can also constitute a hedge.”
Finally, the ministry stated for the records that Parliament has not approved any interest rate risk management programme as mentioned in the IFS/IMANI press statement.
The IFS wishes to comment as follows:
On the impact of the hedging programme on the economy, what was said in the Press statement issued by the IFS and IMANI was that the hedging programme was tremendously successful and, together with other prudent policy measures pursued by the government, it brought about one of the longest periods of monetary and fiscal stability in the history of the country’s economic management.
Indeed, the hedging programme was implemented over a three-year period, i.e., between 2010 and 2012. Therefore, to judge the impact of the hedging programme by the 2012 fiscal outcome only and also ignore the acknowledgement that the hedging programme, together with other prudent policy measures pursued by the government, brought about the monetary and fiscal stability in the country is rather unfortunate. In any case, the IFS is undertaking a comprehensive review of the 2012 fiscal outturn, including the allegation that petroleum and other subsidies as well as unpaid two promissory notes and foreign exchange losses were the causes of the 2012 fiscal deficit, and will publish the results for the benefit of all Ghanaians when the work is completed. By the way, how do unpaid promissory notes cause a fiscal deficit? — GB