Estimating the Impact on Poverty of Ghana's Fuel Subsidy Reform and a Mitigating response

Governments across Africa have faced increasing challenges to maintain fuel subsidies over recent years. In Ghana, in the face of a near 12% fiscal deficit in 2012, their burgeoning cost has drawn attention to questions of fiscal sustainability as well as their overall efficiency and effectiveness. In 2013, the Ghanaian Government would have spent cost 2.4 billion GHS (approximately 1.2 billion USD) on fuel subsidies, equalling 3.2% of GDP and more than half of Ghana’s allocation to the entire education sector. Fuel subsidies around the world have been proven to be generally regressive, benefitting largely the richest group with very little reaching those living below the poverty line. In Ghana, this paper finds that almost 78% of fuel subsidies benefited the wealthiest group, with less than 3% of subsidy benefits reaching the poorest quintile. This report builds on UNICEF technical support to reform fuel subsidies and scale-up social protection to respond to rising inequality. It aims to provide evidence of the magnitude and the distribution of the impacts of the 2013 fuel subsidy reforms on household welfare in Ghana, and to determine to what extent an expansion of social protection, through the LEAP cash transfer programme, is an effective mitigating measure. We show that the removal of the fuel subsidies, by causing an increase in prices, results in a negative impact on household welfare. We see that the negative effect is worst for the poorest group who experience a reduction in their total consumption of 2.1%.