Published on 28 Apr, 2020.
Following recent events, many government institutions have come under pressure and no more so than Ministry of Finance and Ken Ofori-Atta. Whilst still enjoying international credibility, many questions abound as to why monies are not forthcoming to fight C-19.
This crisis has highlighted several deficiencies across the markets and with Oil set to go below $20, African oil-dependent countries are going to be the hardest hit. Recent €3billion bond fortuitous in timing will not save the cedi as purported yesterday nor will inflation be spared as the economy flounders, unemployment soars, supply chains disrupted and a fiscal stimulus package just announced with no clear implementation guidelines insight.
Statutory funds such as sovereign, stabilisation, oil, GET Fund all seem to be lacking amidst the crisis and instead, Ghana went cap in hand to IMF/WB, further delaying response time and placing lives at risk. We foresee a forex risk with the surge for USD in the coming weeks, tightening government’s ability to service foreign debt and even buy crude. With most sectors in various form of crisis before C-19, it is difficult to see how growth above 5.6% (IMF) can be achieved. Bank of Ghana now forecasts it could decline to 5% but could go as low as 2.5%.
Impact on the economy
Overall Cost of COVID-19 on Ghana (Pecuniary Terms): The total estimated fiscal impact from the shortfall in petroleum receipts, shortfall import duties, a shortfall in other tax revenues, the cost of the preparedness plan, and the cost of Coronavirus Alleviation Programme is GHȼ9.505 million (2.5% of revised GDP).
The overall fiscal deficit will increase from the programmed GHȼ18.9 billion (4.7% of GDP) to GHȼ30.2 billion (7.8% of revised GDP). The primary balance will correspondingly worsen from a surplus of GHȼ2.811 billion (0.7% of GDP) to a deficit of GHȼ5.6 billion (1.4% of GDP).
Proposed Measures to Close the Fiscal Gap of GHȼ30.2 billion
A Corona Alleviation Programme-CAP presented to Parliament on 31st March spells how the stimulus incentive will be carried out.
Once these fiscal measures are approved and implemented, the fiscal deficit of 6.6% of revised GDP will be recorded and corresponding primary balance (deficit) of 1.1% of rebased GDP.
Ghana’s overall debt burden and debt due within 12 months score it very low on the continent. The huge informal sector, subsistence farming and access to finance will slow the effectiveness of any fiscal response, yet its greatest impediment will be political and its inability to revise budgets, control costs and have real-time figures to help decision-making.
Already looking to the West, Ghana and other African import-dependent economies show their fragility and if the C-19 curve is to turn mid-July, Ghana still faces annual cholera and possible measles outbreak, particularly in the poor Northern regions. Grappling with poor hygiene conditions, access to sanitation, freshwater, poor transport and a broken health care system, considerable pain is envisaged. Being an election year, the traditional war chest is now seriously undermined as Ghana is highly likely to enter debt distress, with repatriated funds diminishing and exacerbating a projected dollar drought. Hidden Chinese debt may maintain this debt trajectory.
It is now accepted that the initial V-shaped recovery will not be a factor for African Economies, but Ghana has been the first African country to reduce interest rates from 16% - 14.5%. The situation continues to change rapidly and maybe Ghana can stem the infection rates. Being three weeks into the COVID- 19 cycle a lot of uncertainties remain, but what is known is that the economic repercussion will be severe and with the upside being a recession for many. Ghana can still come out better than others if contagion is curtailed but it is inescapable for it not to be several affected by a world economy in flux.
“The global economic picture is looking bleak, with recessions in almost every developed economy across the world. We assume that there will be a recovery in the second half of the year, but downside risks to this baseline scenario are extremely high, as the emergence of second, or third waves of the epidemic would sink growth further. At this stage, it is also hard to see an exit strategy from the lockdowns, which means that uncertainty will remain high. Finally, the combination of lower fiscal revenues, and higher public spending, will put many countries on the brink of a debt crisis.”
Agathe Demarrias, The EIU’s Global Forecasting Director
As Africa grapples with C-19, traditional external support and development assistance will diminish as European countries and others come to terms with their situations which may impose a new reality. Considering that US C-19 response is more than the combined annual GDP for the continent, it is maybe a time for a different perspective and economic model if Africa is to be a serious player in a post-C-19 world economy.
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