Ghana scraps fuel subsidy to reduce budget deficit

* Ending subsidy aims at narrowing budget deficit

* Plan to scrap last year was delayed

ACCRA, May 31 (Reuters) - Ghana has scrapped costly fuel subsidies to help restore fiscal stability after overshooting its budget deficit target by nearly 100 percent last year.

The National Petroleum Authority (NPA) said in a statement on Friday that the decision followed a government directive to achieve full pass-through petroleum products prices in the West African cocoa, gold and oil exporter.

“By this, the government has completely removed subsidies on petrol, gas oil and LPG (liquefied petroleum gas), which form about 95 percent of domestic (petroleum) products, effective 1st June,” NPA chief executive Alex Mould told Reuters after the announcement.

The measure will result in an immediate 3 percent hike in petrol and LPG, while diesel fuel will increase 2 percent.

Mould said the policy would be reviewed after two weeks and any fluctuations in international crude oil prices would be passed on to the consumer.

Ghana’s economy has been one of the world’s fastest growing since oil production started in 2010, but the government has struggled to steady its cedi currency and contain deficit spending.

The 2012 deficit reached 12.1 percent of gross domestic product (GDP), almost double the target of 6.7 percent, due to excess public sector wages, a shortfall in projected tax revenue and rising costs for fuel subsidies.

The cost of subsidies last year reached one billion cedis ($500 million) and was expected to rise to 2.4 billion cedis this year, before the NPA raised prices in February.

Ghana has set a 2013 deficit target of 9 percent of GDP.

Like several other countries in West and Central Africa, Ghana had planned to cut swelling fuel subsidies last year following pressure from the International Monetary Fund and the World Bank, who see them as wasteful and inefficient.

But the measures were delayed ahead of national elections in December which confirmed President John Dramani Mahama in office after the unexpected death in July of his predecessor, John Atta Mills.