The COVID-19 epidemic could cost the global economy US$2.7trillion, according to the Organisation for Economic Corporation and Development (OECD) Interim Economic Assessment. Global GDP growth is projected to drop to 2.4% in 2020 from 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. Ghana’s economy is not left out of this global economic meltdown, as the pandemic is expected to cost GHȼ9,505billion (2.5% of revised GDP).
Ghana has not been spared from the crude oil price-plunge caused by the price war between Saudi-Arabia and Russia, coupled with impact of COVID-19. The Africa Centre for Energy Policy (ACEP) has projected a 53% oil revenue loss in 2020. This will hugely affect the country’s revenue target of GHȼ67.1billion for this year.
Funding the Epidemic Expenditure
On 11th March 2020, President Nana Addo Dankwa Akufo-Addo announced the use of US$100million to cover COVID-19 expenditure. The funding sources, according to the finance minister as presented to parliament on 30th March 2020, will include: GHȼ1,250 million from the Ghana Stabilisation Fund; GHȼ1,222.8million from the BoG’s deferred interest payments on non-marketable instruments; adjustment of expenditure by GHȼ1,248million; securing the World Bank DPO of GHȼ1,716million; securing the IMF Rapid Credit Facility of GHȼ3,145million. Others are to: reduce the proportion of Net Carried and Participating Interest due GNPC from 30% to 15%; and amend the PRMA to allow a withdrawal from the Ghana Heritage Fund to undertake urgent expenditures in relation to the coronavirus pandemic.
There is an estimated US$591.1million in the Ghana Heritage Fund. The decision to make some withdrawals from the Heritage Fund should be looked at again because of sustainable development. Ghana should be prepared to face the medium- to long-term consequences of some of these economic decisions.
The World Bank Group on 3rd March, 2020 announced an initial package of up to US$12billion in immediate support to assist countries coping with health and economic impacts of the global outbreak. The fund is to help developing countries strengthen health systems – including better access to health services to safeguard people from the epidemic, strengthen disease surveillance, bolster public health interventions, and work with the private sector to reduce the impact on economies. This financial package will provide grants and low-interest loans from the World Bank Group.
Similarly, the IMF has also made available US$50billion through rapid-disbursing emergency financing for low-income and emerging markets. The Rapid Credit Facility (RCF) is available to low-income countries and carries a zero-interest rate. RCF has a grace period of 5½ years and a final maturity of 10. Countries like Mozambique, Liberia and Guinea accessed this facility in the wake of Cyclone Idai and Ebola. Thus, it is not out of place for Ghana to access the IMF facility at this time. Ghana’s major exports have also suffered a price-plunge on the international market in the midst of COVOD-19 – hence the need for external funds. In times of crisis, it’s likely special waivers from the Fiscal Responsibility Act, 2018 (Act 982) could be applied. The aforementioned fiscal measures will result in a fiscal deficit of 7.8%, which is in excess of the 5% threshold stipulated by law and above the 2020 target of 4.7%.
Some measures the government has announced to boost economic growth are commendable. These include GH¢1billion to households and businesses during the lockdown in Accra, Kumasi, Tema and Kasoa. Commercial banks, in consultation with authorities, have also made available a GH¢3billion facility to support industry – especially in the pharmaceutical, hospitality, service and manufacturing sectors.
Banks have also slashed interest rates by 200 basis point effective 1st April 2020, and also granted a six (6) month moratorium on principal repayments to entities in the airline and hospitality industries – i.e. hotels, restaurants, car rentals, food vendors, taxis and Uber operators. The tax filing date has been extended from April to June.
On financial inclusion, mobile money users can send up to one hundred cedis (GH¢100) for free and a one hundred percent (100%) to three hundred percent (300%) increase in the daily transaction limits for mobile money transactions. Effective implementation of the aforementioned measures is crucial for returning the economy to a growth trajectory.
The banking sector clean-up by the Bank of Ghana has yielded positive gains in the industry. In the July 2019 Banking Sector Report, the various indicators pointed to a buoyant industry. Per the aforementioned report, banks’ total assets amounted to GH¢112.82billion as of end-June 2019 – representing a 12.4% year-on-year growth compared to the 15.7% recorded in the same period of 2018. Profitability indicators of the banking sector improved during the first half of 2019 compared with 2018. The industry recorded an after-tax profit of GH¢1.67billion, representing a year-on-year growth of 36.3% compared with 21.7% the previous year. This story will be short-lived because of the COVID-19 epidemic and its negative impact on the banking sector and economy as a whole.
Ghana’s central bank, mandated to stimulate economic growth, has implemented measures to resuscitate the economy. The Monetary Policy Rate has been reduced by 150 basis points from 16% to 14.5% – the first time since January 2019. Cost of credit is consequently expected to reduce, all things being equal.
The Bank of Ghana, in a release titled ‘Guidelines on the Utilisation of Capital and Liquidity Releases to Banks and SDIs’, has reduced the Primary Reserve Requirement from 10% to 8%, which will provide more liquidity to banks for lending. Mechanisms have been put in place to ensure banks do not abuse the excess liquidity available to them.
Banks and SDIs have also been asked to seek approval from the central bank before dividend payment to shareholders, and cautioned against using funds to purchase government bonds. Republic Bank has deferred loan repayments by six (6) months for customers and employees. While this move is commendable, a blanket-call for all banks to do the same is premature because of capital preservation.
Indeed, these are not normal times. Government will have to take some difficult and somewhat unpopular economic decisions to sustain the economy – including re-examining funding sources for some flagships programmes like Free Senior High School.