If there was any time in the life of any president or finance minister that he or she dreaded to talk about the economy, it is now. Why? The coronavirus pandemic has eroded many gains which had been achieved by governments all over, including the administration of President Nana Akufo-Addo. Therefore, tomorrow ‘s presentation of the mid-year budget may arguably be the most-ever anticipated by the business community and citizens, as everyone would like to hear what is in store for them in these difficult times.
For businesses, their main interest will be what practical measures government has further taken to revive various sectors of the economy which have been bitten by the coronavirus impact. With businesses in the tourism and travel sectors, nothing can be said again about impacts of the virus on their operations. These sectors have been completely annihilated by the pandemic. Government has still not lifted international travel bans; hotels and restaurants have not been allowed to operate at full capacity; tourist sites are still closed, and other ancillary businesses have been restricted. All these have resulted in significant job-losses, as no revenue is coming in to keep workers on the payroll.
Schools are also not left out of the damage. Only final-year students are allowed to go to school to write their final examinations. With the exception of government school teachers that are still receiving their salaries in full, almost every private school has either stopped paying their teachers or cut down heavily on their salaries.
Then, those in import and export business have also been rendered jobless – as most countries have shut down international trade to avoid cross-country spread of the virus. And because the economy is interlinked, the pandemic’s effect on all these and other sectors have led to a general economic slowdown; thereby, affecting all businesses in the country. The message coming from everybody is that “things are slow”.
The pandemic has also not spared the stock market. Share prices are falling like rain from the sky. A market report by SEM Capital Advisors Ltd. shows that in the second quarter of the year, of the companies listed on the Ghana Stock Exchange (GSE) only two – Ecobank Ghana Ltd. and Aluworks Limited – recorded gains in their share prices, at 8.7 percent and 10 percent respectively in the second quarter. Sixteen other listed companies all saw a decline of their share prices, with Fan Milk Limited becoming the biggest loser with a more than 55 percent loss of its share value and Tullow Oil recording the least loss of 0.08 percent of its share price within the same period. Prices of 14 other stocks, however, remained flat.
Although businesses and individuals that are going through ‘hell’ with this virus’ impact, government is going through worse. The revenue and fiscal figures are very scary.
According to the Fiscal Development Report (May 2020), out of the GH¢1.9billion projected to be reaped from the oil sector in the first quarter, only GH¢331million was realised; indicating a more than 82 percent shortfall from the target.
Oil was not the only source of revenue affected, as other tax and non-tax revenue generation sectors also missed their targets. Due to closure of borders and restriction on movements, international trade activities ground to a halt; thereby affecting import revenue. Import duty amounted to GH¢829.7million, over 34 percent below the budget target. Compared to first quarter of last year, the outturn declined by 42.5 percent.
Overall non-tax revenue declined to GH¢1.16billion in the first quarter, representing a shortfall of 53 percent due to government’s inability to realise the expected dividend, interest, and profits from crude oil as international prices plummeted while social distancing protocols affected fees and charges.
In all, the pandemic’s impact resulted in a GH¢3.6billion shortfall of total revenue and grants, as GH¢10.3billion (2.6 percent of GDP) was realised in the first quarter against a target of GH¢13.9billion (3.6 percent of GDP).
Again, the same report shows that government operations in the first quarter of this year sent the budget deficit to GH¢13billion against a target of GH¢7.2billion. This means the budget deficit widened to 3.4 percent of GDP against a pre-pandemic target of 1.9 percent of GDP.
So, with revenue shrinking, and expenditure going up, thereby widening the deficit, it will take some ingenuity from government to bring the economy back to life because the damage is great. In fact, that is what all in Ghana are expecting from this government as the president himself has touted his administration as the one which best knows how to revive weak and fragile economies.
Speaking to the Director-Institute of Social, Statistical and Economic Research (ISSER), Prof. Peter Quartey, on the subject, he said he expects the Finance Minister to announce measures aimed at boosting revenue without increasing taxes.
“Government has to cut its coat according to the size of its cloth. Revenue numbers are declining, and so given the revenue challenges what you have to do is prioritise. Government will have to look at some of the expenditure items and prioritise. In most cases, capital expenditure is what suffers because it is mostly financed by loans. But because it is an election year, government will not want to renege on its promises.
“And so that will mean there will be more borrowing to finance some of the capital expenditure. If that happens, I would encourage government to stick with cheaper sources of finance, such as from bilateral multilateral institutions.
“In terms of revenue, government must enhance efficiency in collection rather than introducing new taxes. In an election year, it is not rational to introduce new taxes or increase existing ones. These days, there are quite a number of online businesses, so we can look at innovative ways of taxing those businesses,” he said in an interview with the B&FT.
For the Dean-University of Cape Coast Business School, Prof. John Gatsi, the most important thing government must seek to address in the mid-year budget is how to bring back lost jobs through a stimulus that can revolutionalise the economy.
“For me, what I expect the mid-year budget to talk about is how government is going to restore jobs so that those who have been rendered jobless as a result of the virus will get back to work. The hotel sector, aviation, among other sectors have recorded significant job losses. So, the budget should talk about finding innovative ways to raise money to spend in these priority areas.
“There should be a stimulus package that will target specific areas of the economy and revolutionise economic activity. Stimulus packages must be guided by economic principles,” he told the B&FT in an interview.
Whatever the case, all eyes are on Finance Minister Ken Ofori-Atta to deliver a budget that will give hope to businesses and individuals, at least for the rest of the year 2020.