Eugene B.G Bawelle’s thoughts …..Macro-fiscal response to COVID-19: … A financially and politically motivated solution?


 The Coronavirus Disease 2019 (COVID-19) pandemic has wreaked havoc the world over. Its effects range from social consequences and political ramifications to economic and financial costs. By the end of April 2020, more than 65% of the world’s economy had gone under quarantine or some form of a lockdown. In Ghana, a quick look at the macro-fiscal impact of this pandemic reveals that the government will face significant challenges in implementing the 2020 Budget. Businesses have been badly hit. Additionally, there will be significant shortfalls in petroleum receipts, import duties, and other tax revenues, increased expenditure in health, as well as a slowdown in GDP growth. Growth in GDP is projected to slow down to 1.5% from an initial projected 6.8%.  COVID-19 has also resulted in additional emergency government spending and tight financing conditions as reported to Parliament by the Minister of Finance.

The impacts of COVID-19 on the economy are both direct and indirect. Directly, COVID-19 affects trade and investment within and outside of Ghana. For instance, global commodity prices, i.e, gold, cocoa, and crude oil will take a hit. Tourism, aviation, and general human life are already experiencing the negative effects of the pandemic. Indirectly, the disruptions to global supply chains will lead to economic growth rigidity and its negative impact on Ghana’s economic growth. As economic activities slow down, it will become difficult for the government and businesses to service debts. As safety protocols such as social distancing are also employed, workplace labour numbers may decrease leading to reduced productivity and loss of jobs. In the case of Ghana particularly, about 25% of local bonds issued by the government are held by non-resident investors. This has led to capital flight with its attendant increased demand for dollars and consequent negative impact on Ghana’s foreign reserves.

So how much projected revenue loss and expenses would the government anticipate as a result of COVID-19? According to the Ministry of Finance, preliminary assessments of the impact of COVID-19 puts the fiscal gap at GH₵ 21.42 billion. This includes revenue shortfall impact of GH₵ 15.85 billion and COVID-19 related expenses of GH₵ 5.57 billion.

How has the Ghanaian government responded to these COVID-19 related shortfalls? In response, the government through the Coronavirus Alleviation Programme (CAP) and its 3-year COVID-19 Alleviation and Revitalization of Enterprise Support Programme (The Ghana CARES Programme) has identified some financing measures to close the gap. Ghana has already applied and received US$ 1 billion through the IMF Rapid Credit Facility (RCF). The government has also drawn down on the Stabilization Fund, an amount of US$219 million as well as the World Bank DPO of US$ 350 million. This leaves Ghana with a residual financing gap of about GH₵ 17.9 billion, according to the Minister of Finance. The government has indicated this amount will be sourced from both domestic and foreign sources. The government has triggered the emergency financing provisions under Section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended. This will enable the government to increase the limit of the purchase of its securities by the Bank of Ghana. To this end, the government issued a special COVID-19 Relief Bond valued at GH₵ 10 billion with the Bank of Ghana having already released GH₵ 5.5 billion (without Parliamentary approval; whether the government needs parliamentary approval or not is a different case). In effect, the Bank of Ghana has simply printed or made available GH₵ 5.5 billion and given the money to government to spend. The government is supposed to pay this money back with interest in 10 years, with a 2-year moratorium. The question is: is it justified to conclude that the government is using COVID-19 as a conduit to enhance political and financial visibility?

First of all,  the  US$1.569 billion raised as a result of COVID-19 (US$1 billion IMF RCF + USD$219 million Stabilization Fund + US$ 350 million World Bank DPO) should amount to a minimum of GH₵ 8.63 billion (using an exchange rate of $1: GH₵5.5). The Finance Minister’s claim that this leaves a financing gap of GH₵ 17.9 billion (out of the UD$ 21.42 billion) is mathematically problematic unless there is some additional information he hasn’t given Parliament.  If a GH₵ 17.9 billion financing gap still exists, after raking in US$1.569 billion, it will mean the cedi equivalent of US$1.569 billion is GH₵3.52 billion ( at an exchange rate of $1:GH₵2.24). This will be ridiculous.

Accordingly, there is reasonable cause to subject the government’s COVID-19 expenditure to scrutiny. For example, a total amount of GH₵ 280.3 million was allocated for the provision of food packages and hot meals as well as dry food for vulnerable groups during the lock down. This amount also catered for the provision of water and sanitation. Beyond the chaotic and haphazard manner in which these activities were undertaken, there is concern that the party executives at the regional and constituency levels and Parliamentary candidates were mainly engaged in the procurement and distribution of these food items, purposely for political visibility.

President Akufo-Addo also used the COVID-19 opportunity to promise the building of 88 new hospitals in districts without any identified plan. It would later be revealed that this is a repeated promise and not new. The government had apparently forgotten that the promise to upgrade all existing district hospitals where they existed and build new hospitals in districts where none exists, and also construct 2 new Police hospitals in Sunyani and Bolga, a military hospital in Tamale and 2 new Prison Service hospitals had already been in their 2016 party manifesto; this is a manifesto which is already being implemented.

More than fighting the pandemic, the government equally appears to be fighting anyone or any private institution which is helping to fight COVID-19.  The government doesn’t want to share the glory if any. It is for this reason that the government has largely ignored the papers and suggestions from the COVID-19 team put together by the largest opposition party to augment the government’s efforts. Earlier, the government had also asked the Greater Accra Passenger Transport Executive (GAPTE), operators of the Aayalolo Bus Services to withdraw the buses it hired to Citi TV, a private TV station, to help transport health workers within Accra during the lockdown period.

Suffice it to say, many African countries are responding to the fiscal implications of COVID-19 through different ways. Nigeria, apart from announcing a stimulus package, has also cut capital expenditure by up to 20% to finance COVID-19 related expenses. In Angola, the government has frozen 30% of its goods and services budget as well as CAPEX until a review of the national budget. Senegal has taken similar measures while announcing cuts on operating expenses and deferring investments worth billions of CFA francs. In Zimbabwe, the government says it will redirect the country’s 2020 capital expenditure budget towards fighting COVID-19. In the case of Ghana, apart from having received US$1.569 billion from various sources to address its fiscal and balance of payment needs, the country is printing an additional GH₵ 10 billion worth of notes. The country is still exploring ways of further raising a GH₵ 7.9 billion to close the GH₵ 17.9 billion financing gap. Many analysts are worried that Ghana is still keeping to a huge budget for goods and services as well as a huge number of government employees, which includes the largest number of ministers in the country’s history.

The author is an Economist and Environment &Social Risk Management Consultant

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