Question

Corona Virus Disease Pandemic (COVID-19) has a devastated impact on many economies of
the world. COVID-19 is not only a public health and medical issue but also an economic and
fiscal matter. Ghana recorded the first case of the virus in March 2020, three months into the
implementation of the national budget. Therefore, the cost of fighting the disease is unbudgeted
for, which has created a fiscal challenge for the country. The Minister of Finance recently in a
statement to Parliament1
estimated that the fiscal impact of COVID-19 may stem from the
shortfall in petroleum receipts, shortfall in import duties, shortfall in other tax revenues, the
cost of the preparedness plan, and the cost of Coronavirus Alleviation Programme (CAP) which
will altogether cost the country an extra GHS9,505 million.
In the statement, the Minister of Finance posits that COVID-19 will have severe impact on the
fiscal targets contained in the 2020 Budget Statement and Economic Policy. It is estimated that
the overall fiscal deficit will increase from the programmed GHS18.9 billion (4.7% of GDP)
to GHS30.2 billion (7.8% of revised GDP). The primary balance will correspondingly fall from
a surplus of GHS2,811 billion (0.7% of GDP) to a deficit of GHS5.6 billion (1.4% of GDP).
The Minister therefore proposed the following measures, among others, to close the fiscal gap:
i) Arrange with Bank of Ghana (BOG) to defer interest payments on non-marketab
instruments estimated at GHS1,222.8 million to 2022 and beyond;
ii) Adjust expenditures on Goods & Services and Capital expenditure (Capex)
downwards by GHS1,248 million;
iii) Secure the World Bank Development Policy Operations (DPO) of GHS1,716
million; and
iv) Secure the IMF Rapid Credit Facility (RCF) of GHS3,145 million.
v) Use of monies in Ghana Heritage Fund2

Answer 1

As you haven't mentioned what explicitly I'm expected to answer from the passage, I'll comment on the measures proposed by the Minister to address the fiscal gap.

i) Deferring interest payments lets the citizens who are struggling to pay them, breathe a sigh of relief. Due to the cash crunch, households are facing a difficulty in managing their unavoidable expenses. Hence this move by the government is welcome in reducing the stress off.

ii) Adjusting Government expenditure on Goods & Services and capital expenditure means a better framework of government investment, and can be seen as a revival mechanism for the economy. The lesser investment on capital expenditure, more the investments can be transferred to immediate liquidity regulations.

iii) World Bank Development Policy Operations paves a way for countries to borrow money at the time of extreme financial scenario. This GHS1716 million will be really helpful in stabilizing the economy mainly in the field of manufacturing, etc.

iv) Rapid Credit Facility is a form of providing rapid financial assistance with the minimum amount of conditions attached to it. At the advent of this financial crisis, Ghana government can always vouch for this scheme if they wish to sustain this crisis with least damage and face it.

v) Use of money from Ghana Heritage fund is obviously the best course of action. Revisiting financial crisis of 2007/08, the American government announced hefty stimulus packages from the Sovereign Wealth funds which helped minimize the damage caused by the great recession. Hence, a go-to method is to leverage the Ghana Heritage fund.

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