Opinions divided on need for commodity fund
Industry players have expressed divergent views on the proposal to establish a commodity fund to help manage shocks associated with volatility in the prices of commodities the country exports.
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With Ghana’s economy predominantly reliant on export of primary commodities such as gold, cocoa, bauxite and others, changes in their prices downwards impact adversely the projected revenue inflows and foreign exchange earnings and to a large extent, the national budget for a particular year.
This anticipated volatilities, therefore, make it imperative for the setting up of the fund to help manage the impact of fluctuating prices of commodities as it has been done already in the oil and gas sector with the establishment of the Ghana Stabilisation Fund under the Petroleum Revenue Management Act (PRMA) 2011, Act 815.
The co-chair of the multi-stakeholder Committee of the Ghana Extractive Industry Transparency Initiative (GHEITI), Dr Steve Manteaw, said the government must establish a commodity fund to help it manage the shocks posed to the economy as a result of commodity price fluctuations.
At a section with journalists at a two-day workshop on the 2014 GHETI Reports on Mining and Oil and Gas sectors organised by the Institute of Financial and Economic Journalists (IFEJ), in partnership with GIZ, he said, the fund must be set up just as it had been done for the oil sector.
“What the country needs is a commodity fund that will help us manage all the commodities that we have and the cost of their volatility on the national budget,” he said.
He further explained that, “currently, we have a provision to manage the volatility of oil prices on our budget, but we have to realise that crude oil revenue is a small component of our entire budget. There are other bigger components which are also subject to commodity price volatility so if you are managing just one, then you are not doing a good job in managing the volatility of commodity prices on your entire budget.”
Varied views
A source at the Ministry of Finance said, currently the country had the Ghana Stabilisation Fund with proceeds from crude oil exports but not for the wide commodity market. Instead, government, the source said, fell on its contingency in the budget to manage the shocks from volatility.
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“We have the Ghana Stabilisation Fund for oil. In every budget, we have a contingency which is similar to the one for oil. We don’t necessarily have to set up a fund for every commodity, but if you do fiscal planning very well, you can do it without necessarily having a fund,” he said.
He added that, “we have the contingency in the budget and in the case of unforeseen circumstances, we can tap into it. It is usually not enough but getting big fund to put somewhere has its own advantages and disadvantages.”
The Head of Policy at the Africa Center for Energy Policy (ACEP), Dr Ishmael Ackah, in an interview said instead of a large commodity fund, there should rather be a Mineral Revenue Management Law that would also have a stabilisation fund to provide a cushion for other mineral price volatilities as was in the case of oil.
“There are other minerals that also suffer from volatility. We are proposing a Mineral Revenue Management Law, that will also have a stabilisation fund to cater for the other minerals,” he said.
Capping Stabilisation Fund
Dr Ackah also suggested that the decision to cap the Ghana Stabilisation Fund should be reviewed so the country could accrue enough savings to cushion it against oil price drops.
“I think the capping should be stopped. Let’s build the stabilisation fund to a certain level that even when prices fall as low as US$40 per barrel, we will have enough to cushion ourselves,” he said.
We have managed the stabilisation fund very poorly. Since 2014, the minister of finance has been capping it, and transferring the rest into the sinking fund to pay off debts. When you do that, when prices are low, the stabilisation fund does not have the capacity to support the budget,” he said.