The Africa Centre for Energy Policy (ACEP), an energy think tank in the Republic of Ghana, West Africa, is predicting a quantum drop in the government’s projected oil revenue for the year 2020.
This is because of the significant drop in the global oil price, as a result of the novel Coronavirus pandemic.
Government of Ghana in its 2020 budget projected to receive $1.567 billion from oil revenues, anchored on a benchmark price of $62.61 per barrel.
However, the price on the international market, which was $66.25 per barrel at the start of the New Year, had fallen steeply to $26 per barrel as of March 21, 2020.
This fall in oil price is linked with the outbreak of COVID-19, which has affected global economic growth and demand for oil, thus creating excess oil supply.
Given the current global economic condition, effects of COVID-19, and Russia’s quest to sustain oil price below the marginal cost of shale production, oil price recovery is expected to be in the region of $45 per barrel by the end of 2020.
Therefore, the likely average oil price is estimated to be about $40 per barrel for the year.
At about 7:35am Monday, WTI was trading at US$22.87 per barrel while Brent was selling at US$28.46 per barrel.
According to ACEP, based on the average price prediction of $40 per barrel, the receivables from oil could drop to $743 million, a shortfall of about 53 percent. This has severe implications for the budget particularly physical infrastructure and debt servicing.
In the 2020 budget, Ghana’s infrastructure development programme is heavily dependent on oil revenues; about 80% of government’s domestic revenue for its capital budget was to be sourced from the Annual Budget Funding Amount (ABFA) (Figure 2).
Below is ACEP’s full statement