Estimating the impact on poverty of Ghana’s fuel subsidy reform and a mitigating response

Abstract

The study simulates the welfare implications of the fuel subsidy reform carried out in early 2013 and the required scaling up of cash transfers to mitigate the impact of the subsidy removal on poor households in Ghana. Approximately 78 per cent of fuel subsidies benefited the wealthiest group, with less than 3 per cent reaching the poorest quintiles. We find that the removal of the fuel subsidies, by causing an increase in prices, results in a negative impact on household welfare. The negative effect is worst for the poorest group who experience reduction in their total consumption of 2.1 per cent. The simulation estimates that the poverty rate rises by 1.5 percentage points leading to an additional 395,180 individuals being pushed into poverty.