Fuel subsidy removal: Scaling up the LEAP Programme is a priority
The Government of Ghana has initiated a set of fiscal adjustments to improve the country’s macroeconomic position.
Advertisement
An important policy is the gradual removal of fuel subsidies, the benefits of which largely go to the wealthiest groups in the country.
However, early analysis shows that removing the subsidies, while beneficial for the country in the long run, will also have a significant negative impact on the poorest people in Ghana who can least afford such a shock.
The impact of the removal of the fuel subsidies have been immediate and have meant increases of pump prices of 20 per cent to 50 per cent.
This direct effect on the prices of fuel products will be accompanied by ‘second round effects’ on the prices of other commodities such as food and services, which depend on fuel for their production and distribution.
These price rises would have significant effects on Ghanaian households as their purchasing power declines, and they all need to adjust and reallocate their current expenditures.
However, UNICEF is concerned that poor households could be the most affected, given their already constrained resources, requiring greater social protection to shield them from the impact.
Preliminary analysis on the impact of the removal of the fuel subsidy shows that people’s consumption will decline as a result.
Most worryingly, the poorest households in Ghana, who are least able to cope, will also experience a decline in their standard of wellbeing unless mechanisms to address this are urgently put in place.
Rapid action is therefore needed to redress the impact on poor households to enable them cope with the price rises, and to protect the gains Ghana has made towards the achievement of the MDGs and poverty reduction targets.
The options immediately available for targeted action to protect the poorest households are limited. However, the government of Ghana already has in place the Livelihoods Empowerment against Poverty (LEAP) programme that is independently proven to be well targeted, effective and efficient at addressing extreme poverty. Indeed the 2010 study on targeting found LEAP to be the number one, best-targeted programme of those studied
The LEAP programme currently provides cash grants to over 70,000 of the poorest households in Ghana. Eligibility is based on poverty status and having a household member in one of three demographic categories: orphans or vulnerable children (OVC), the elderly (65 years and above), or persons with a severe disability unable to work.
The LEAP programme has in place a structure which can be used to quickly and efficiently increase its coverage to 150,000 households by the end of 2013 and 300,000 households in 2014, equaling around one third of all households living in extreme poverty (lowest quintile).
Confirming LEAP’s effectiveness and efficiency to cushion the poorest quintile, UNICEF and its development partners support the scaling up of the programme using the savings made from the removal of fuel subsidies.
Clearly the Government understands the challenge ahead, as they have now committed to scale up the LEAP programme increasing its budget from just 8 million GHC spent in 2012, to 30 million allocated for 2013.
This is the first commendable step in a longer process to ensure that adequate resources are dedicated to LEAP and to social protection in general so as to eventually reach all extreme poor households in Ghana, around 1 million families .
The estimated impact of the removal of fuel subsidies on poor households is significant and could have repercussions on the level of poverty in Ghana - even reversing some of the impressive achievements made in poverty reduction over the last several years - unless an immediate response is initiated and the LEAP programme and social protection in general is rapidly scaled up to reach the extreme poor.
The government’s laudable commitment to expand LEAP is a big step which will ease the negative impact on thousands of extremely poor families.
Article by Sarah Hague
The writer is Chief, Social Policy, UNICEF