Last year Ghana abolished its fuel subsidies. There was no available analysis of the reform's impact. UNICEF led high-level advocacy, working with the World Bank, to conduct preliminary analysis of the impact and estimate scenarios for a rapid and substantial expansion of the country's social protection. As a result, the budget to the national cash transfer programme, LEAP, was tripled.
To verify this preliminary analysis UNICEF Ghana and PEP (the Partnership for Economic Policy; www.pep-net.org/) completed a research paper on the impact on poverty of the fuel subsidy reform. We used a partial equilibrium model to look at the direct and indirect effects of the fuel price rises on household welfare: portal.pep-net.org/documents/download/id/22039
We confirm that the vast majority of the fuel subsidies' benefits went to the country's wealthiest group - almost 80% went to the richest quintile of the population, whereas less than 3% of the subsidies actually reached the poorest.
Importantly, the results show that removing fuel subsidies could indeed have increased poverty - by 1.5 percentage points. That's an additional 395,000 people pushed into poverty as a result - and the vast majority of these households have children.
But would increasing social protection really make enough of an impact to 'mitigate' this negative result at the national level? We estimated the effect of scaling-up the LEAP cash transfer programme in response. The paper shows that doubling the programme to 150,000 households in 2014 will in essence completely reverse the national increase in poverty. It also reduces inequality. This year the GoG is now committed to doubling LEAP to 150,000 households.
The experience shows that a combination of fiscal constraint, timeliness, subtle national communication campaigns, thoughtful partnerships, and rapid estimations backed up with rigorous analysis and technical assistance can lead to a peaceful transition away from fuel price subsidies.
In Ghana, although these recent developments will have reduced inequality, the overall longer-term trend is one of rapidly worsening inequality with entire regions left behind. The new household survey this year will provide us with much food for thought.
This is an example of the growing partnership between UNICEF and PEP in locally-led policy analysis using a range of techniques including poverty/deprivation analysis, macro/micro and micro policy simulations, randomized control trials, community-based monitoring systems. An overview of the first phase of this partnership is provided at www.pep-net.org/fileadmin/medias/pdf/publ/Special_Report_on_PEP-UNICEF_collaborations.pdf and some more recent examples can be found at www.pep-net.org/home/page-interne/article/two_new_pep_papers_published_from_unicef_commissioned_studies_in_ghana_and_uganda/ and www.pep-net.org/programs/mpia/special-initiatives/special-initiative-unicef-mena-partnership/
Professeur associé, CIRPÉE, Département d’économique, Université Laval
Pavillon J.-A.-DeSève, 1025 avenue des Sciences-Humaines
Québec (Québec) G1V 0A6, CANADA
Tél : 1-418-656-2131, poste 2756 ; Téléc. : 1-418-656-7798
Sites Internet: http://www.ecn.ulaval.ca/john.cockburn http://www.pep-net.org