Fiscal Policy and Petroleum Revenue Management: Is Ghana on the Path to Beating the Resource Curse?

Abstract

In the ten years since the discovery of commercial quantities of hydrocarbon resources offshore Ghana, expectations and optimism for rapid economic development and poverty reduction have been tempered. This has been driven by concerns over the management and use (transparent use and fair distribution) of petroleum revenues, pro-cyclical nature of fiscal policy in Ghana, and fears of a possible Dutch disease. The latter could reduce competitiveness in the country’s key export and import-competing sectors while adversely impacting the livelihoods of most citizens. This chapter reviews the key fiscal policy implications of Ghana’s continuous reliance on natural resource revenues despite persistent talk of using these revenues to catalyze broad-based industrialization through the development of the much-needed linkages. It also reviews the role of Ghana’s fiscal institutions in managing the oil boom, the operational aspects and political economy of fiscal policymaking in Ghana, and the rationale for the setup of natural resource funds such as the Stabilisation and Heritage Funds under the Petroleum Revenue Management Act (PRMA). The chapter also critically analyzes the extent to which the PRMA and other laws such as the Public Financial Management Act have been able to adequately address issues relating to revenue volatility and expenditure smoothing in the budget, thereby contributing to overall fiscal sustainability in the country. Finally, using various case studies and economic evidence, the chapter reviews and benchmarks the governance, transparency, and accountability mechanisms of the various petroleum funds.