Question

The novel corona virus disease (also known as COVID – 19) which started in WUHAN in December 2019 has grounded the global economy to a halt. World crude prices reached their lowest and trade among nations have generally slowed. Production has slowed and jobs are being lost across the globe.

Globally, over seven million people have contracted the virus and over four hundred thousand have died. Ghana announced its first two confirmed cases of COVID – 19 on 12 March, 2020 and as at June 14, 2020, the number of confirmed cases stood at 11,964 with 54 deaths. The impact of the COVID – 19 pandemic on Ghanaian economy and the global economy at large is predicted to be very severe. The government of Ghana, like many other governments, is spending more funds on containing the pandemic and limiting the effect of the pandemic on the economy. The IMF Executive Board approved the disbursement of US$1 billion drawn under the Rapid Credit Facility (RCF) for Ghana on April 13, 2020 after receiving application from the country’s government.

Given this background, briefly discuss the repercussions of the corona virus pandemic for the Ghanaian economy and foreign exchange market. Suggest ways of mitigating the effects of covid – 19 on Ghana’s balance of payments (BOP).

Answer 1

The first two Covid-19 cases were found in Ghana on 12 March 2020, and have since added to 204 cases, with 5 deaths and 51 recoveries as at the starting of April 2020. This stands to a recovery rate of about 25.0% and mortality rate of about 2.5%.

Beyond the inescapable impact of the global Covid-19 disruptions on Ghana, Government’s reply to the outbreak, key amongst which include cessation of all borders and partial lockdown of selected areas, is already having a impact on the economy. In Ghana, the economic toll of Covid-19 include the following:

1. Hospitality industry negetively impacted due to cessation of borders and normal slowdown in tourism and demand for international travel.
2. reduction in trading volumes and values due to obstruction in supply chain globally
3. decline in Foreign Direct Investment (FDI) comes to Ghana due to unreliability.
4. Agriculture value chain could be negetively impacted due to obstructions in international supply chain and slowdown in demand as countries adjust.
5. Mixed impact of Covid-19 on commodity prices, as well as decline in trade volumes, are likely to outcome in net loss of earning to Government
6. Shortage in supply of FX due to investor capital flight and decrease in exports could be offset by reduced demand for FX due to reduction in imports, the net outcome of which is yet to be evaluated

Ghana is an import-driven economy, Covid-19 is likely have notable adverse impact on the country’s international business and reserves. If the Covid-19 situation remains longer than anticipated, the economy could suffer from remarkable decline in Government earnings and expenses resulting in major job losses. This could in turn destroy the economic gains attained in recent years and notably slow down Ghana’s economic development. In the light recent developments, the Government estimates a slump in budgeted GDP growth for 2020 at 2.6%, which is significantly lower than projected GDP growth of 6.8% for the year.

Also, extra borrowing and related expenses that will be happen is likely to enhance the nation's debt risk. The unplanned increase in expenses, specially in the health sector, could negetively hit the fiscal deficit. Government gauge that events unfolding as a result of Covid-19, even with some mitigating measures, will outcome in a deficit of 6.6% of revised GDP, which is higher than the de facto fiscal rule of 5% stated by the Fiscal Responsibility Law.

MITIGATIONS

In line with the measures being embraced globally, Ghana is trying to implement a mix of fiscal and monetary actions to mitigate the impact of Covid-19 on the economy. The key measures planned include:

1. The endowment of a Coronavirus Alleviation Programme (CAP) to promote economic recovery
2. Decreasing of the cap on Ghana Stabilisation Fund (GSF) from the current US$300 million to US$100 million to allow for transfer of excess funds to the CAP
3. Adjust expenses on Goods & Services and Capex downwards by GHS1.2 bn
4. Change the Petroleum Revenue Management Act (PRMA) to allow for withdrawal from the Ghana Heritage Fund to assist in fighting Covid-19
5. Decrease in the policy rate by 150 basis points to 14% and drop in regulatory reserve demand from 10% to 8% to increase the supply of credit to private sector
6. Amendment of BoG Act to permit for GoG to borrow from BoG in excess of the stimulated threshold if need be
7. Commercial banks involved to give syndicated facility of GHS3 bn to strengthen key industries; to grant six-month moratorium on principal repayments for selected companies; and to reduce interest rates by 200 basis points, also to boost credit supply to the private sector.

Most of the steps the Government is attempting to implement is targeted at spurring economic growth, considering that Covid-19 has already begun to slow down economic activities and the result could get worse in the next couple of months. Aside the strengthening measures being adopted, Government is endeavoring to cut down on expense, including Capex. This suggests that, Government’s first plan to significantly uplift the country’s foundation in 2020 is not likely to materialize.

The Government is also performing the following tax measures to mitigate the consequence of the pandemic on businesses and households:

1. Extension of due dates for filing of tax returns from the regular 4 months to 6 months
2. Grant of waiver of penalties on principal tax liabilities owed by taxpayers who settle their outstanding liabilities by 30th June 2020;
3. Waiver of VAT on donations of stock of equipment and goods for fighting the Covid-19 pandemic;
4. Waiver of taxes on selected withdrawals from third-tier pension funds;
5. Grant of reduction against income tax for private sector contributions and donations given towards addressing the COVID-19 pandemic; and
6. Institution of an email filing and direct transfer payment system to permit taxpayers file and pay taxes with the various Ghana Revenue Authority (GRA) offices remotely.