Oil price slump: Implications and lessons

The Ministry of Finance of Ghana sought to have a better understanding of the implications of declining crude oil prices on the Ghanaian economy and asked for the support of IGC-Ghana to undertake this study.

Oil has become an important product in the Ghanaian economy. The production of oil in 2011 resulted in almost a doubling of Ghana’s GDP growth from 8% in 2010 to 15% in 2011. By 2014, Ghana had become a small net exporter of oil, indicating the importance of oil to Ghana’s economy. Apart from its impact on economic growth, oil plays a crucial role in Ghana’s macroeconomic stability. It enhances fiscal revenues and has been contributing substantially to foreign exchange earnings. Much of the future prospects of Ghana’s economy hinges on strong performance in the oil sector.

Since 2014, world market price of oil has been declining. Whereas, the Benchmark price for the 2015 Budget, which was estimated at $99.38 per barrel, the world market price for oil has witnessed some dramatic declines in recent times, falling as low as $50 per barrel, way below the Benchmark Revenue projection.

This development has necessitated the revision of Ghana’s fiscal budget twice in the year 2015. A better understanding of the events in the world market for crude oil and ideas on how Ghana can better cushion its economy and respond to such shocks will help the government better manage its fiscal and current account.