The Covid-19 epidemic could cost the global economy $2.7 trillion according to the Organization for Economic Corporation and Development (OECD) Interim Economic Assessment. Global GDP growth is projected to drop to 2.4% in 2020 from 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. Ghana’s economy is not left out of this global economic meltdown as the pandemic is expected to cost GHȼ9,505 billion (2.5% of revised GDP). Ghana has not been sparred of the crude oil plunge caused by the price war between Saudi-Arabia and Russia coupled with impact of Covid-19. The Africa Centre for Energy Policy (ACEP) has projected a 53% oil revenue loss in 2020. This will hugely affect the country’s revenue target of GHȼ 67.1 billion for this year.
Funding the Epidemic Expenditure
On 11th March, 2020, President Nana Addo Dankwa Akuffo-Addo announced to use US$ 100 million 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 Ghana Stabilisation Fund, GHȼ1,222.8 million from BoG’s deferred interest payments on non-marketable instruments, adjustment of expenditure by GHȼ1,248 million, secure the World Bank DPO of GHȼ1,716 million; secure the IMF Rapid Credit Facility of GHȼ3,145 million. Others are; reduce the proportion of Net Carried and Participating Interest due GNPC from 30% to 15%; 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$591.1 million 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.
World Bank Group on 3rd March, 2020 announced an initial package of up to US$12 billion in immediate support to assist countries coping with the 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$50 billion through rapid-disbursing emergency financing for low-income and emerging markets. The Rapid Credit Facility (RCF) is available to low income countries and it 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 facility in the wake of Cyclone Idai and Ebola. This is not out of place for Ghana to access this IMF facility at this time. Ghana’s major exports have also suffered 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 fiscal deficit of 7.8% which is in excess of the 5% threshold stipulated by law and above the 2020 target of 4.7%.
It is commendable some measures the government has announced to boost economic growth. This includes GH¢1 billion to households and businesses during the lockdown in Accra, Kumasi, Tema and Kasoa. Commercial banks in consultation with authorities have also made available GH¢3 billion 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 of principal repayments to entities in the airline and hospitality industries i.e. hotels, restaurants, car rentals, food vendors, taxis, and uber operators. 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 returning the economy to growth trajectory.
The clean-up of the banking sector 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¢112.82 billion as at end-June 2019, representing 12.4 % year-on-year growth, compared to 15.7 % growth 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¢1.67 billion, representing a year-on-year growth of 36.3% compared with 21.7 % the previous year. This story will be short-lived because of Covod-19 epidemic and its negative impact on the banking sector and the economy as a whole.
Ghana’s Central Bank mandated to stimulate economic growth has implemented measures to resuscitate the economy. 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 expected to reduce all things being equal.
The Bank of Ghana in a release titled ‘Guidelines on the Utilization 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 the banks. 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 of government bonds. Republic Bank has deferred loan repayment for six (6) months for customers and employees. Whiles this move is commendable, a blanket call by all banks to do 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 programs like Free Senior High School.