Petroleum subsidy: Is it sustainable?

The debate on cost recovery in critical sectors of the economy has been reopened following media reports that the Chamber of Bulk Oil Distributors, Ghana (CBODG) has threatened to  not offer its services to the country if the government’s indebtedness to it is not settled.

This comes in the wake of the government’s programme to phase out subsidies on petroleum products with the fortnight adjustment in the prices of those products.

The government came under severe criticisms from various groups that questioned the rationale behind the cost-recovery policy at a time when the general economic situation was worsening.

Perhaps, the government was trying to avoid a situation where the budget will not be able to absorb subsidies on petroleum products.

Now, we are being told that the government’s indebtedness of GH¢1.8 billion to the bulk oil distribution companies (BDCs) will not have dire consequences for only the industry and the motoring public but also the banking industry that extends credit to the importers of petroleum products.

It has also been argued that in a liberalised economy, there should be no room for controlled measures such as subsidies, so that market forces will be at play.

Well said.

But in a developing economy such as ours, the government still has a responsibility towards the poor, needy and vulnerable.

Safety nets such as the Livelihood Empowerment Against Poverty (LEAP) programme, subsidies and other such interventions are meant to cushion the poor against the effects of unbridled liberalisation.

We need to go back to the drawing board to review all these safety nets to ensure that they achieve their intended purposes, instead of their present scope where they are subject to abuse.

On the specific subject of subsidies, the Daily Graphic calls on the government to open up the issue to a public debate, so that all shades of opinion will come to bear on the policy direction into the future.

Obviously, the policy, as formulated now,  is not sustainable even if it lends itself to rent seeking and political patronage and advantage.

In the long run, however, it has the potential to aggravate the present challenges facing the economy.

It is encouraging that the government itself is aware of the enormity of the challenges engendered by its huge indebtedness to the BDCs.

The Minister of Energy and Petroleum, Mr Emmanuel Armah-Kofi Buah, has said the government is undertaking an audit of the indebtedness to appreciate the levels and issues and also look at the policy of subsidies on petroleum products.

We must accept that our national budget cannot accommodate all the needs of society, a situation that calls for the prioritisation of issues to commit resources to critical sectors that will help stimulate the economy.

The sectors that are considered to be parasitic, unproductive and prestigious must be relegated to the background and attention paid to activities that will restart economic rejuvenation.

Be that as it may, challenges in the petroleum sector must be resolved as soon as possible to avoid dislocations in economic activities, particularly in the transport and other productive sectors.