Stay off subsidies - Bankers caution Prez Akufo-Addo
After burning their hands to finance subsidies in the past, bankers have learnt their lessons the hard way and now want the Nana Addo Dankwa Akufo-Addo administration to resist the temptation to reintroduce them or risk strangulating the economy.
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Beyond burdening the national budget, they contend that the return of subsidies will further complicate the woes of the banking sector, which is now recovering from the effects of a US$2.2 billion debt owed it by the utility companies.
With fiscal stability returning, the operations of the essential utilities stabilising and the citizenry fully adjusted to the market prices of water, fuel and electricity, the President of the Ghana Association of Bankers (GAB), Mr Alhassan Andani, said bringing back subsidies could be one early pitfall of the New Patriotic Party (NPP) administration.
"The measures taken to relieve government of subsidies, especially in the petroleum and energy sectors, and to put the essential utilities on a very firm and disciplined financial management, must be pursued."
"No conflict measures must be taken to reintroduce these subsidies," Mr Andani, who manages Stanbic Bank Ghana Limited, told the GRAPHIC BUSINESS.
He was speaking to the paper on the key policy decisions President Akufo-Addo, who was sworn into office on January 7, should pursue in order to be successful.
While admitting that the scrapping of subsidies in 2014 "was more politically damaging than earlier thought," he said the measure later proved to be in the good interest of the country, hence the need to uphold it.
"We all know, as Ghanaians, that there is no surplus money anywhere to pay for these subsidies and once everybody is now adjusted to their removal, we think that it will not be helpful bringing them back," he added.
The subsidy baggage
Mr Andani's concerns on the subsidies reflect the general sentiments of many across the country on the matter, mainly as a result of their implications on key macroeconomic indices.
Prior to their scrapping in 2014, fuel and energy sector subsidies remained one of the biggest threats to the budget, consuming a minimum of GH¢1 billion every year.
In 2013, GH¢809 million was expended on subsidies, with another GH¢955.8 being in arrears.
As of the second quarter of 2014, policy think-tank, IMANI Ghana, estimated that a total of US$85 million had been used to subsidise the cost of fuel, electricity, education and health services, among others.
In addition to forcing the government to increase its appetite for debt in order to make up for the extra expenses, subsidies mostly complicate government's indebtedness to the private sector, which renders services to companies that administer them.
Key examples are the banks and the bulk oil distributing companies (BDCs), whose operational structures have been weakened by years of under-recoveries and debt overhangs.
Beyond that, subsidies were seen as a constraint to the success of monetary policy smoothing and that partly informed the Bank of Ghana's decision to join the clarion call for their removal.
However, thanks to the unpopular decision to scrap the subsidies on fuel and energy, these challenges have now abated and the exchange rate, inflation, the policy rate and Treasury bill rates are now trending downwards.
Citing these gains, Mr Seth Terkper, the immediate past Finance Minister, who presided over the scrapping of the subsidies, explained in Accra that the government had complemented the initiative with the restructuring of the debt of the Volta River Authority (VRA) to help inject confidence into the banking sector.
"One of the reasons we had the unstable energy supply was that the likes of VRA could not even raise letters of credit (LCs) to suppliers for fuel due to the under-recoveries and the Ministry of Finance always had to issue promissory notes.
"However, through the strategy that we put in place, including the escrow regime, we have now seen VRA being able to pay for some of those fuels," he said.
Mr Andani believed these successes could be derailed if the new administration brought back subsidies.
"On the back of dealing with the fiscal consolidation, government has been working with the banks and other lenders to the essential utilities -- VRA, GRIDCo, TOR, ECG and the rest -- to take out the debt overhang, which was as a result of operational gaps, mainly due to subsidies and that is yielding positive results.”
“That is why we think it should be continued," he said.