Question

QUESTION 2 The government of Ghana through the Minister of Finance presented the 2020 Budget statement to Parliament in November 2019.The Coronavirus Disease 2019 (COVID -19) pandemic that has hit the world has impacted on global economy including Ghana, thus affecting our macroeconomic targets in the budget statement presented in November 2019. The Minister of Finance presented a statement to Parliament on the economic impact of COVID – 19 pandemic on the economy of Ghana and the way forward at the end of March, 2020. Discuss five (5) key impact of the COVID-19 on the achievement of our fiscal policy targets for the year 2020 by comparing the original budget statement to the one presented after COVID- 19.

Answer 1

The Coronavirus (COVID-19) pandemic is expected to have a significant adverse impact on the global economy. Governments around the world are implementing various fiscal measures to mitigate the adverse effect and provide relief for businesses and households. On 30 March 2020, Ghana’s Minister for Finance delivered a Statement to the Parliament of Ghana on the “Economic Impact of the COVID-19 pandemic on the Economy of Ghana”. The Minister outlined the expected impact of the pandemic on the Ghanaian economy and the fiscal and monetary measures taken by the Government of Ghana to mitigate the impact of the pandemic.

The Government has set out five (5) key objectives to combat the pandemic in Ghana. These objectives are:

a. Limit and stop the importation of the virus;

b. Contain its spread

c. Provide adequate care for the sick

d. Limit the impact of the virus on social and economic life and;

e. Inspire the expansion of our domestic capability and deepen our self-reliances.

Ghana is an import-driven economy, Covid-19 is likely have significant adverse impact on the country’s international trade and reserves. If the Covid-19 situation persists longer than anticipated, the economy could suffer from significant decline in Government revenue and expenditure resulting in potential job losses. This could in turn erode the economic gains achieved in recent years and significantly slow down Ghana’s economic development. In the light current developments, the Government estimates a slump in projected GDP growth for 2020 at 2.6%, which is significantly lower than budgeted GDP growth of 6.8% for the year. Also, additional borrowing and related expenses that will be incurred is likely to increase the country’s debt risk. The unplanned increase in expenditure, particularly in the health sector, could adversely impact the fiscal deficit. Government estimates that events unfolding as a result of Covid-19, even with some mitigating measures, will result in a deficit of 6.6% of revised GDP, which is higher than the de facto fiscal rule of 5% established by the Fiscal Responsibility Law.

The people of Ghana on the potential fiscal impact of the coronavirus pandemic on the 2020 Budget. Even though events are still unfolding, preliminary analysis undertaken at the Ministry of Finance shows that the novel coronavirus pandemic will result in:

a. significant shortfalls in petroleum receipts;

b. shortfalls in import duties;

c. shortfall in other tax revenues;

d. increased health- related expenditures; and

e. tight financing conditions.

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

• The establishment of a Coronavirus Alleviation Programme (CAP) to facilitate economic recovery
• Lowering 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
• Adjust expenditures on Goods & Services and Capex downwards by GHS1.2 bn
• Amend the Petroleum Revenue Management Act (PRMA) to allow for withdrawal from the Ghana Heritage Fund to aid in fighting Covid-19
• Reduction in the policy rate by 150 basis points to 14% and drop in regulatory reserve requirement from 10% to 8% to increase supply of credit to private sector
• Amendment of BoG Act to allow for GoG to borrow from BoG in excess of the stimulated threshold if need be
• Commercial banks engaged to provide syndicated facility of GHS3 bn to support key industries; to grant six-month moratorium on principal repayments for selected businesses; and to reduce interest rates by 200 basis points, also to increase credit supply to the private sector