Harnessing Oil Revenues in Ghana (IGC Working Paper)
Abstract
Ghana has recently started producing oil from the offshore Jubilee field. This paper addresses the question of how Ghana should best harness these oil revenues. This is done in two sections. In the first, it considers whether Ghana should spend or save the windfall, comparing spending rules under a range of assumptions to the permanent income (PI) benchmark. On balance we find that Ghana should bring spending further forward than is suggested under PI, to promote development. In the second, it considers how the windfall should be used, comparing the alleviation of capital scarcity, accumulation of foreign assets and investment in domestic public capital to boost growth and development. We find that the problem of capital scarcity should be alleviated first if Ghana is facing a premium on borrowing costs. The remainder of the windfall should primarily be used to invest in domestic capital, but some funds may temporarily be parked in foreign assets if there are absorption constraints in the non-traded sectors.
Citation
van der Ploeg, R.; Stefanski, R.; Wills, S. Harnessing Oil Revenues in Ghana (IGC Working Paper). International Growth Centre (IGC), London, UK (2011) 45 pp.
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