For many years now, when fuel prices rise in Ghana, the easiest explanation is often that global crude oil prices have gone up.
But according to data and policy analyst Alfred Appiah, that explanation tells only half the story. The price Ghanaians ultimately pay at the pump is shaped not only by what happens in the global oil market, but also by the strength of the cedi and the government’s ability to cushion households when international shocks hit.
Alfred Appiah argues that Ghana’s experience demonstrates an important economic reality. He notes that external shocks matter, but the strength of the domestic economy determines how painful those shocks become.
The Cedi Can Turn an Oil Shock into a Bigger Bill
Ghana imports petroleum products, meaning changes in international crude oil and refined petroleum prices inevitably affect domestic fuel prices. But those products are largely priced in foreign currency.
This makes the exchange rate critical. If the cedi weakens significantly against the dollar, importers need more cedis to purchase the same quantity of petroleum products, even when the international oil price has not changed.
Alfred Appiah estimates that petrol could currently be selling at at least GH¢23 per litre if the cedi had depreciated at the same rate it did over the decade to 2024. The implication is that a stronger cedi can act as a shock absorber, while a weaker cedi can amplify the pain of rising global oil prices.
Government Intervention Has a Limit
The policy analyst also admitted that the government can intervene to prevent international price increases from being fully passed on to consumers. However, such intervention is not costless.
When government absorbs part of an external shock, it effectively has to find the resources elsewhere or accept pressure on its fiscal position. This means the ability to protect motorists from higher fuel prices depends partly on the health of the broader economy.
A government facing weak revenues, high debt-servicing costs and limited fiscal space has less room to absorb rising petroleum costs without affecting other spending priorities.
This is why Appiah argues that Ghana needs domestic economic conditions strong enough to allow government to intervene without significantly derailing its budget.
The Real Lesson for Consumers
For the ordinary driver, this distinction matters because two countries facing the same global oil price increase can experience very different increases at their fuel pumps. If one country has a relatively stable currency and enough fiscal space to cushion consumers, the increase may be contained.
If another has a sharply depreciating currency and limited fiscal room, the same external shock can translate into a much larger increase in transport and fuel costs. And higher fuel prices rarely stop at the filling station.
They can raise the cost of transporting food, moving goods, commuting to work and running businesses. Transport operators may face higher operating costs, while businesses may eventually pass those costs on to consumers through higher prices.
The analyst therefore maintains that Ghana cannot control the international oil market, but it can strengthen its shock absorbers
He emphasizes that global oil prices may provide the shock. But the exchange rate, fiscal strength and resilience of the domestic economy help determine how hard that shock hits Ghanaian households.
