As the nation prepares to welcome the government of the next four years, one thing whoever leads the country (as the winner of 2020’s presidential election had not been announced at the time this publication was going to press) should keep in mind is the pandemic-ravaged economy.
If the general election had been held any time before 2020, the economy would not have been much of a headache for the next government as, at least, the macroeconomic indicators all showed impressive figures, signifying a stable and promising future for the economy.
However, the current macroeconomic environment doesn’t offer anything close to stable and promising for the next government, whether the incumbent New Patriotic Party (NPP) is retained or the opposition National Democratic Congress (NDC) pulls a surprise to spring a victory. It will certainly be a daunting task for that government. Why?
The current macroeconomic environment has been greatly affected by the coronavirus pandemic. Every facet of the economy has been negatively impacted, thereby affecting all macroeconomic targets. General economic growth is projected at 1.9 percent by the end of 2020 – the slowest growth in nearly four decades, against a pre-pandemic target of 6.8 percent; a sure indication of the extent to which the pandemic has devastated the economy. In fact, for the first time since 1983, the economy saw a contraction of 3.2 percent in the second quarter.
Another area showing the economy is in deep crisis is the revenue situation. Due to the pandemic’s impact on productive sectors of the economy, total revenue and grants have been revised to 13.9 percent of GDP in 2020 – representing a 20-percentage point decrease over the original 2020 budget target. This has directly affected the fiscal situation.
Then, the deficit comes to the fore. Before the pandemic, the budget deficit was projected to hit 4.7 percent of GDP – below the Fiscal Responsibility Rule of 5 percent. However, the pandemic has even pushed parliament to suspend the law, as government now projects the deficit to fly to 11.4 percent of GDP. The fiscal rule, according to Finance Minister Ken Ofori-Atta, will possibly not be restored in the next three years. The primary balance will also move from a surplus figure of 0.7 percent of GDP to a sharp deficit of 4.6 percent.
The real sectors of the economy – namely agriculture, industry and services, have also not been spared the pandemic’s destructive power. Agriculture was the only sector not completely destroyed by the pandemic in the second quarter of this year, as it grew by 2.5 percent. Industry and services, on the other hand, both experienced contractions of 5.7 and 2.6 percent respectively.
Then, the most controversial topic in the country’s economy – public debt – cannot be left out of this all-important analysis. Latest figures published by the Bank of Ghana show the public debt to GDP has crossed unsustainable levels, hitting 71 percent of GDP and further projected to clock 77 percent at the end of 2020.
Yes, this is the reality on the ground awaiting anyone declared winner and next president of the land. It will certainly be an uphill task for that president, considering the challenge is not coming from only within the economy – which could have been addressed by seeking international assistance – but is a global one that has affected every economy in the world, with each country looking for ways to come out of the quagmire.
So, the next leader must be prepared to fight the situation using, largely, its own resources; or he will have to rely on what no one wants to hear – borrowing to finance the budget.
Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, Professor Peter Quartey, underscores this point as he advises whichever government will be in charge to make fixing the macroeconomy its number-one priority.
“Fixing the macroeconomy is very critical. Even though growth numbers are picking up, we need to grow back to the pre-COVID era. So, the next government should focus on what can be done to revive the GDP growth agenda. Agriculture and industry should be the focal areas. We must revive the private sector by ensuring that the cost of doing business is relatively low or reasonable. That is very critical,” he said in an earlier interview with the B&FT.