Amid the uncertainty surrounding the country’s energy sector due to the Middle East War, former Power Minister, Dr. Kwabena Donkor, believes Ghana’s intervention to mitigate the impact should carefully balance protecting citizens from rising fuel prices and safeguarding government revenue.
As global oil markets react to the tensions in the Middle East, the former Chairman of the Parliamentary Select Committee on Mines and Energy is convinced that the biggest risk to Ghana’s energy sector from the crisis is not supply shortages but price shocks that could ripple through the economy.
Speaking in an exclusive interview with The High Street Journal, he observed that the rising global crude oil prices are likely to translate into higher fuel prices locally, which could eventually push up transportation costs and drive broader inflation.
A Real Threat
According to him, the immediate concern is not the stability of the cedi but the inflationary pressure if the citizens bear the full cost of higher energy prices.
He fears that if households and businesses are allowed to bear the full brunt, the government’s agenda to contain inflation could be at risk.
He explains that the ripple effect through the economy will pass through higher transportation costs and hence derail inflation.
“This will not be a situation of the currency. It will be price inflation. Not of currency, but of inflation because of the impact on transportation and energy costs,” he said.
Pressure Mounts for Government Intervention
As global oil prices climb, calls are growing for the government to introduce measures that could cushion consumers from rising fuel prices.
One suggestion already gaining attention is the temporary suspension of the GHS1 per litre fuel levy, which was introduced at a time when petroleum prices were relatively lower.
Advocates argue that removing the levy, even temporarily, could help ease the burden on motorists and businesses if pump prices continue to rise.
Dr. Donkor acknowledged that such interventions are not new in Ghana’s policy history. He noted that governments led by both the National Democratic Congress and the New Patriotic Party have previously adjusted fuel price components during periods of sharp increases.
“Historically, the NDC has done this in the past. The NPP has also done that in the past. When there is an abnormal rise, the state or government will look at the price build-up and see what it can suspend temporarily to ameliorate the rise. That option is still open,” he recalled.
But Fiscal Space Remains a Major Concern
Despite acknowledging the possibility of intervention, Dr. Donkor warned that government must tread carefully. According to him, Ghana’s fiscal position remains fragile, and reducing revenue sources could create new economic pressures.
He pointed out that the recent stability of the cedi has already reduced import-related tax revenues, making government finances even tighter.
The challenge, he noted, is ensuring that measures meant to protect consumers do not inadvertently widen the country’s fiscal deficit.
“We are already challenged in terms of revenue, and that is why the finance minister is rightly furious about revenue leakages. Because the stabilisation of the cedi has an impact on revenue, especially on imports. If we further compromise that, it’s a chicken-and-egg situation,” he noted.
Avoiding Knee-Jerk Reactions
Dr. Donkor stressed that policy decisions must be guided by careful analysis rather than immediate reactions to market movements. He explained that Ghana’s petroleum pricing regulation operates with a two-week lag, meaning international oil price changes usually take time to fully reflect at the pumps.
Because of this structure, he believes the government should monitor the situation across two pricing windows, about two to three weeks, before considering any intervention.
“It’s a balancing act. But I believe it should not be a knee-jerk reaction. Let’s remember the nature of our price build-up. It’s two weeks in arrears. It’s about 14 days in arrears,” he noted.
He added, “So let’s see the impact over two pricing windows, and then we’ll make the case for it. But just because the prices have gone up, even before the impact on the window, there’s a knee-jerk reaction. I wouldn’t go for that. But let’s see the impact. If the impact goes beyond a certain point, we can at least make some temporary sacrifices in terms of revenue.”
A Delicate Balancing Act
For Dr. Donkor, managing the potential impact of the Middle East crisis requires a careful balancing act.
On one hand, the government must ensure that rising fuel prices do not place unbearable pressure on citizens and businesses. On the other hand, policymakers must avoid measures that could significantly weaken state revenue and undermine fiscal stability.
Ultimately, he believes thoughtful and measured decisions will be crucial in protecting both the economic welfare of Ghanaians and the financial stability of the state as global energy markets remain uncertain.
