Finance Minister Ken Ofori-Atta is scheduled to present the 2020 Mid-Year budget on 23rd July, 2020 in accordance with Article 179 of the 1992 Constitution and the Public Financial Management Act 921. The 2020 budget is themed ‘Consolidating the Gains for Growth, Jobs and Prosperity for all’, with the following macroeconomic targets: overall real GDP growth of 6.8%; non-oil real GDP growth of 6.7%; inflation of 8%; fiscal deficit of 4.7% of GDP; primary surplus of 0.7% of GDP; and gross international reserves to cover not less than 3.5 months of imports of goods and services. These targets will likely not be achieved as a result of the COVID-19 pandemic.
In my article titled ‘Resuscitating Ghana’s Economy After COVID-19 Pandemic’, I enumerated a number of funding sources government has earmarked – which include US$100million for the COVID-19 Alleviation Programme (CAP); GHȼ1,250million from the Ghana Stabilisation Fund; GHȼ10billion in direct emergency funding from the Bank of Ghana; GHȼ500million from the sale of non-marketable securities; adjustment of expenditure by GHȼ1,248million; US$100million from the World Bank; IMF Rapid Credit Facility of US$1billion.
Others are: reduce the proportion of Net Carried and Participating Interest due GNPC from 30% to 15%; amendment of the PRMA to allow a withdrawal from the Ghana Heritage Fund to undertake urgent expenditures in relation to the Coronavirus pandemic. The COVID-19 National Trust Fund was also set up to help fight against the pandemic. The big question now is, how has government used these funds?
Aligning revenue to expenditure
In the 2020 budget, government envisaged raising GH¢67,071,159,908 and spending GH¢ 84,508,862,873 with a budget deficit target of 4.7% to GDP – but these targets will be missed. In the finance minister’s statement to parliament in March 2020, government projected that COVID-19 would cost the economy GHȼ9,505million (2.5% of revised GDP). This is a result of significant shortfalls in petroleum receipts, shortfalls in import duties, shortfall in other tax revenues, increased health-related expenditures and tight financing conditions.
According to the Ghana Statistical Service (GSS), government revenue for first quarter 2020 was short by GH¢3.6billion while expenditure for the same quarter was GHȼ 20.8billion – representing year-on-year growth of 33%. The mid-year budget review will give the fiscal authority an opportunity to revise macroeconomic targets and present a comprehensive economic recovery programme. Election years in Ghana have been characterised by fiscal slippages, and this year will not be an exception – partly because of the COVID-19 pandemic; but managers of the economy should not sacrifice Ghana’s medium- to long-term prospects for short-term pandemic-mitigating measures.
‘V’ or ‘U’ Shaped Recovery?
Economists are divided on whether countries globally will experience a ‘U’ or ‘V’ shaped recovery after the coronavirus pandemic. A ‘V’-shaped recovery is marked by a steep, dramatic decline in the economy (the first half of the ‘V’), followed by an equally rapid upturn, mirroring the preceding drop in speed and intensity (the second half of the ‘V’). This is the best-case scenario, constituting a strong recovery.
On the other hand, a ‘U’-shaped recovery means that after the economy falls off a cliff, it’ll hang out at rock bottom for a while, potentially up to two years, and then eventually climb back to normal—as we saw with the Great Recession of 2008. With a ‘U’-shaped recovery, we can expect economic hardship to persist until at least late 2020 and likely into 2021, but we can take comfort in the fact that an upswing will come.
According to the IMF World Economic Outlook Update, June 2020, world output is projected at -4.9% in 2020 and 5.4% in 2021. In sub-Saharan Africa, GDP growth is expected to decline to -3.2% in 2020 from 3.1% in 2019 but will reach 3.4% in 2021. In Ghana’s case, government has projected a 1.5% growth this year from an earlier projection of 6.8%. Countries globally have been hit by this pandemic, but economic recovery hinges on the structure of the various economies and containment strategies.
Countries that are dependent on severely affected sectors, such as tourism and oil, have been worst-affected. Reliance on external financial flows, including remittances, and pre-crisis growth trends will determine how fast they recover. Ghana’s finance minister, in an interview with Joy FM, opined that it will take up to 3 years to recover. It is safe to predict that Ghana’s economic recovery will be ‘U’ shaped if a formidable plan is implemented.
Ghana’s economy grew by 4.9% year-on-year in the first quarter of 2020 compared to 6.7% in the same period last year according to the GSS. The Services sector recorded the highest growth of 9.5% followed by the agriculture sector with 2.8%, while the Industry sector recorded an unimpressive growth of 1.5% – which can be attributed to the measures put in place for fighting against COVID-19. Government should pay attention to the Africa Centre for Economic Transformation’s (ACET) Policy Priorities for Africa’s Recovery, Growth and Transformation; which include resource mobilisation and management; governance, effectiveness and transparency; business and the investment environment; and digital innovation and entrepreneurship.
The writer is an Economist