The Republic of Ghana discovered oil in commercial quantities in 2007.
Faced with the development of such a lucrative industry, public utterances by politicians before Ghana’s 2012 election manifested all sorts of extravagant promises to capture the voting population. But according to a policy research working paper published by the World Bank’s Governance Global Practice Group, titled Oil Discovery and Macroeconomic Management: The Recent Ghanaian Experience, 2017, Ghana’s election season saw politicians giving the glamour of their political promises more importance than the need to properly manage the expectations of the people.
The paper, co-authored by Håvard Halland and Mahamudu Bawumia, stated that the Government that took power after the election, experienced spending pressures they could not contain. It added that those issues gave precision to the various institutional weaknesses of the Ghanaian Petroleum stakeholders. Worryingly, the report stated that the integrity of the country’s savings funds was not sufficiently supported by political consensus or by strong legal and other institutional underpinnings.
Furthermore, it found that procedures used to forecast oil revenues were not isolated from and could have been affected by political pressure on the estimates. In this same regard, the report noted the propensity of politicians to seek the extraction of oil from the ground much faster than is optimal and to borrow against future oil revenues, if they expect to be expelled from office in the near future.
It affirmed Ghana as proof that unless there are enough checks and balances; the combination of rents from extractive industries and open democratic systems tends to be associated with slower growth. This shows as Ghana experienced an increased sovereign debt after the discovery of oil, which, according to the paper, “suggests that an abundance of natural resources may encourage countries to assume unsustainable levels of debt.”
The report’s authors wrote “Ghana was a benchmark for other African countries in the areas of democracy and development.” Therefore, they concluded that one would have expected that country to be in a better situation, instead of experiencing what seemed to be a resource curse even before the resource was extracted from the ground.
In Guyana’s case, politicians from both sides of the divide have made several promises to their voter bases, with intent to buoy those promises with oil revenues, from the attraction of free university to the reopening of sugar estates.
Like Ghana, the integrity of Guyana’s Natural Resource Fund is not supported by political consensus. The People’s Progressive Party (PPP) has threatened a complete repeal of the Act, if it wins the upcoming General and Regional Elections. This is because the legislation was instituted into law earlier this year, after the passing of the No Confidence Motion.
Like Ghana, Guyana has borrowed millions in US dollars to fund, among other things, public security and the development of the oil and gas fiscal framework.
Like Ghana, political leaders have made forecasts of Guyana’s oil wealth in the coming years, which are not isolated from political pressure to be electable. This is despite criticisms of various sections of Guyana’s Production Sharing Agreements (PSA) with international oil companies and the Petroleum fiscal framework, from both local and international experts, which detail the ways in which Guyana is likely to experience value leakage. Kaieteur News has been on the forefront of highlighting various deficiencies of the framework in which oil production will be facilitated, including the weaknesses of local stakeholders and the outdated state of the Petroleum Act.
According to Halland and Bawumia, Ghana’s story provides the opportunity to study the resource curse from a case study perspective, telling a story of insufficient fiscal and monetary discipline caused by challenges to policymaking. It details the deterioration of the country’s fiscal and monetary discipline over the period 2007-2014, which resulted in a rebound of debt, a deterioration of the external balance and a decrease in public investment.
The paper, which analyses the evolution of ﬁscal and monetary variables in Ghana from the discovery of oil in 2007 through to 2014, gives an empirical account of Ghana’s experience that may be useful to other countries that discover oil, like Guyana.
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