IMF cuts Ghana oil revenue forecast

The International Monetary Fund has revised down its estimates for Ghana’s oil earnings in 2011 and now sees them barely covering the cost of this year’s pay deal in its large public sector. “We are a bit more cautious on 2011 oil earnings. We are projecting budget revenues of three percent of Gross Domestic Product compared to an earlier estimate of five percent,” Peter Allum, who led last month’s IMF mission to Ghana said. “The future cost of the new public pay structure is not much less than 2011 oil revenues,” he said in a telephone interview from Washington of a newly-implemented pay reform seen adding about 2.5 percent points of GDP in costs. The downward revision is based on the expectation that Ghana will hit peak production from the first phase of its Jubilee oil field later than first assumed, and because of a lag in accruing tax revenues from the project. Initial output from Jubilee is set to reach around 120,000 per day before doubling to 250,000 in a second phase expected from around 2014. Energy Minister Joe Oteng-Adjei said in July it would hit the 120,000-barrel mark four to six months after the first oil is due in late 2010.

The IMF revision also takes into account a lag of around 2-3 months in the receipt of corporate taxes and other payments. President John Atta Mills’ government are implementing a so-called “single spine salary structure” aimed at putting all public sector workers on the same pay scale but which is also seen inflating the existing heavy burden on the budget. Allum warned the cost of the reform would rise further if so-called “pay relativities” — the differential between various pay grades — were to increase in line with trade union demands. “If public pay relativities increase, the wage bill would rise further, limiting Ghana’s ability to finance new budget priorities,” he said. “Looking ahead, a more streamlined public service is needed,” he said, adding that discussions continued between the Fund and the government on priorities for next year. Ghana is due to present parliament with its 2011 budget around the middle of next month.

Mills has banned all ministers and senior officials from official travel abroad until the budget has been wrapped up. The advent of oil in Ghana has been hailed as a chance for the aid-reliant country to elevate itself to the ranks of middle-income countries such as Morocco and Thailand but some analysts have long warned against excessive expectations. Standard and Poor’s credit rating agency in August lowered its sovereign ratings for Ghana to “B” from “B+”, citing concerns over public finances and oil revenue management, and the IMF has signalled concerns over unsustainable debt levels. Ghana has a $750-million 2017 Eurobond GH032376037=RRPS and is looking at a new $500-700 million issue by year-end. Finance Minister Kwabena Duffuor said Ghana was now targeting a budget deficit of 7.5 percent of GDP next year, higher than the 3-5 percent range initially expected, and acknowledged the new public pay deal was a “real challenge” to the economy. He suggested the government would seek to renegotiate the overall time period for implementation of the accord from three years to five years to ease the burden on the budget.