Ghana’s 2015-17 IMF Program
July 31, 2015
IFS and NRGI host Budget 2016 Forum
November 5, 2015

The Falling Crude Oil Prices: Mitigating the Risk

Crude oil prices have been falling sharply on the international petroleum market since July 2014. For Ghana, this poses a serious threat in the sense that, this phenomenon could lead to significant reduction in oil revenue which could worsen the projected fiscal deficit in 2015 and in the medium term. This development will naturally have serious negative implications for macroeconomic stability and economic growth in the country.

Ghana’s economic recovery therefore seems to be inextricably linked to oil prices recoveries. The recovery also hinges critically on the government’s ability to mitigate the negative consequences of the oil price fall. This paper looks at the implications of the falling oil prices on the international market for Ghana’s economy and the government’s approach to mitigating the associated risks.

The rest of the paper is organized as follows. Section two presents a brief review of the volatility in crude oil prices during the 2004 to 2008 period and its impact on developing countries. Section three discusses why sovereign states hedge their exposure to fuel and oil prices. Section four discusses the petroleum price risk management program implemented by the immediate past Ghanaian government. This is followed by section five which looks at how the present government is managing the risks of the current fall in crude oil prices. Section Six concludes the study with some recommendations.

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