IFS Commends Gov’t on Plans to Hedge Oil Imports

The Institute of Fiscal Studies (IFS) has commended government plans to hedge the country’s oil imports.

In a statement issued yesterday, IFS explained that hedging the country’s import would provide an insurance to mitigate the adverse impact of oil price volatility.

This follows a recent report circulating in the media that government is considering hedging its oil import, after an increase in price of Brent crude from 65 dollars per barrel to 71 dollars per barrel was announced this week.

According to the statement, “Ghana currently produces nearly 200,000 barrels of oil per day. Ghana’s share has risen to nearly 20% of this total output, which it sells on the international market. Ghana is however a net oil importer, except last year when oil exports exceeded imports.”

IFS believes without an oil hedging program the country stands to lose foreign exchange earnings from exports when oil price drops on the world market.

Likewise, when oil prices increases, the country would suffer through increases in its oil import bill.

Hedging is not entirely new to Ghana’s fiscal management.

“It is an insurance instrument used to buy protection against risks and not a gamble for futuristic gain.”

According to the statement, “in March 2010, after the country had built capacity in commodity risk management in collaboration with one of the world’s reputable banks, Goldman Sachs, the government implemented a Commodity Risk Management Policy to help protect the economy from the volatilities in commodity prices.

In line with the policy, a National Risk Management Committee was established and charged with the responsibility of hedging Ghana’s oil imports and exports through “call” and “put” options, respectively.”

IFS revealed that the country’s hedging program was abandoned in 2013, exposing its foreign exchange resources to the vagaries of an unpredictable and often harsh international commodities market.

However, since 2015 they have strongly advocated the need for Ghana to re-introduce the petroleum hedging program to cover both imports and exports to save the country from losing millions of foreign exchange earnings and also provide stability to the national budget.

By: Emmanuel Yeboah Britwum/ thePublisher