Question

Effects of GDP, unemployment and inflation rate on the ghanaian economy in this period of Covid-19. Please it should be of about 500 word count. Thank you

Answer 1

Ghana currently trails South Africa and Cameroon as Sub-Saharan Africa’s third most impacted country with regard to the COVID-19 pandemic.

While the latest forecasts do not predict contraction for Ghana this year, the country's forecasted real GDP growth in 2020 was revised down substantially from a projection of 5.8% to just 1.5% in the International Monetary Fund’s latest World Economic Outlook.[2] This would be the lowest growth registered since 1983. Furthermore, it would almost certainly entail a contraction of per capita GDP, considering that Ghana's 2.2% GDP growth in 2015 pushed per capita growth below zero that year.[3] Poverty in the country is likely to increase disproportionately to the decrease in per capita GDP. Given the high concentration of Ghanaian workers in the informal sector, particularly in informal wholesale/retail trade, ongoing restrictions and depressed economic activity risk hitting those already vulnerable particularly hard.

IMF projections for 2021, however, have in fact been revised upward, from 4% to 5.9% growth, though much of this increase is likely a reflection of the lower base from which it will grow. While strong growth, fiscal consolidation, and macroeconomic stabilization over the last three years have created a bit of a buffer, Ghana's economy is nonetheless poised to experience significant disruption in the near term.

Among the most immediate impacts of the crisis will be on fiscal space in Ghana as government revenues fall significantly. In addition to reduced petroleum receipts, an important second channel will be through tax receipts, which will be dragged down both by a reduction in import duties and by reduced conventional tax revenues.

With the expected decline in export earnings, further depreciation is likely, exacerbated by a fall in capital inflows as planned investments are put on hold. While this should be attenuated to an extent by declining import volumes—with container arrivals at Ghana's ports having already fallen by a third as of March 30—a pronounced depreciation is possible. This could make exports more competitive, which would bode well for exports of gold, whose short-run demand is very price-elastic, particularly in India, Ghana's largest gold market.

With the expected decline in export earnings, further depreciation is likely, exacerbated by a fall in capital inflows as planned investments are put on hold. While this should be attenuated to an extent by declining import volumes

The negative shock to revenues and positive shock to expenditure will almost certainly require temporarily suspending the 5% deficit ceiling imposed by Ghana's 2018 Fiscal Responsibility Act. IMF projections place the 2020 deficit at 9.5% of GDP

While the resulting fiscal gap promises to be formidable, particularly in the face of the shocks outlined above, Ghana has spent recent years building a track record for responsibility and accordingly finds itself well positioned for financing support in the near term. This, together with the country’s solid macroeconomic fundamentals and good governance, bodes relatively well for Ghana’s ability to weather the current storm, despite the inevitable uncertainty that is to come.