Highlights on the economic impact of the COVID-19 pandemic on the economy of Ghana by the Minister of Finance (Ken Ofori-Atta)

The Finance Minister in the midst of the COVID-19 pandemic outlines the following actions on the macro-fiscal impact, and the measures that Government is taking to mitigate the impact and, at the right time, seek for the necessary Parliamentary approvals:

  • The Finance Minister has been tasked by the President to prepare for approval by Parliament, a Coronavirus Alleviation Programme (CAP) to address the disruption in economic activities, the hardship of our people, and to rescue and revitalize our industries.
  • The Greater Accra and Greater Kumasi are on a partial lockdown and will remain so for the next two weeks.
  • The key objectives set out to combat the pandemic in Ghana are:
  1. Limit and stop the importation of the virus;
  2. Contain its spread;
  3. Provide adequate care for the sick
  4. Limit the impact of the virus on social and economic life and;
  5. Inspire the expansion of our domestic capability and deepen our self-reliance.
  • A preliminary analysis of the macro-fiscal impact of the pandemic shows that there is likely to be a significant slowdown in our GDP growth, significant shortfalls in petroleum revenues, shortfalls in import duties, shortfalls in other tax revenues, increased health expenditures, and tighter financing conditions with consequences on the 2020 Budget.
  • The impact of the pandemic affects every Ghanaian either directly or indirectly; from the toddler who cannot attend nursery, to the grandmother who is compelled to stay away from her own close family members; from the employer, who sees demand dropping dramatically, to the employee, whose job and income are at risk. From big companies, drilling our oil offshore to the farmer, planting corn in the Afram Plains, and the street hawker, selling finished products on the streets of our big cities. The self-employed, especially, the hairdresser, the barber, the carpenter, the trader, the builder, the dressmaker, the musician, the trotro or taxi driver, the kayayie, are all already feeling the pinch from this global pandemic.
  • The Bank of Ghana has announced a number of measures, including a 150 basis points drop in the policy rate to 14% and a reduction in the required reserve requirement from 10% to 8%, to mitigate the impact of COVID-19.
  • International research institutions and multilateral organizations including the IMF, the World Bank, the UNECA, the Economic Intelligence Unit, and Fitch Solutions are all projecting significant slowdown of global GDP growth with most predicting a recession or a severe economic contraction.
  • Though the IMF had indicated earlier in March 2020 that the impact of the COVID-19 on global growth is difficult to predict, the IMF is certain that 2020 growth will slow down significantly from the projected 3.3% to rates far below the 2019 outturn of 2.9%. The UNECA predicts that the Africa 2020 projected GDP growth will drop by 1.4 percentage points from 3.2% to 1.8 % as a result of the coronavirus. The World Bank estimates that a 1% decline in developing country growth rates traps an additional 20 million people into poverty.
  • The global response to the pandemic has been swift with a mixture of monetary and fiscal policy responses. Central Banks have cut interest rates, making more funds available to both private and public sectors, whiles Finance Ministries are providing fiscal stimulus packages to mitigate the impact of the pandemic. Multilateral institutions are also providing support through rapid disbursement instruments.
  • The global trend in the cancellation of flights, closure of borders (land, sea and air), and the need to maintain social distancing, including the ban on public gatherings, are having huge negative impacts on economic activities in the hospitality industry. Among the worst hit are hotels, airline business, tourist sites and attractions, and car rental services. Hotel occupancy rates are down from 70% to under 30% and staff are being sent home. Even before the impact of the current lockdown, restaurants were already experiencing an average drop in patronage of 60%. Scheduled international conferences in Ghana cancelled, include the 4th African Union 9 Specialized Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration meeting and the G24 Technical meetings, which were programmed in early March 2020, resulted in a loss of 1000 combined participants and therefore a loss in 1000 hotel beds!. Transportation services have been among the worst hit due to social distancing, closure of schools, and ban on public gatherings.
  • Although the impact on agriculture may not be severe, since agriculture does not require significant imported intermediate goods, growth could still be a slow-down as a result of disruptions in the supply chain and lower demand activities. Disruptions could limit farmers’ access to inputs, such as seeds, fertilizers and insecticides, uncertainty and fear could negatively impact planting decisions; and also a reduction in the volume of main agricultural exports, as a result of the general 10 downturn in global economic activity due to the pandemic. General shortage in food supply is anticipated if the pandemic intensifies. This could lead to inflation in food prices, especially rice, bread, poultry and other meat products, vegetables, sugar and other commodities.
  • In spite of these challenges, the COVID-19 pandemic presents an opportunity to boost domestic production and consumption of some food commodities, such as rice, maize, cassava, yam and chicken. The plan is for Ghana to use the opportunity to increase the production and export of commodities for which the country has comparative advantage in to trade within the West African region, among countries that have not closed their borders to cargo.
  • Although the Government had programmed a crude oil price of US$62.60 per barrel for the 2020 Budget, consistent with the PRMA (Act 815), global crude oil price has, however, declined significantly since the outbreak of the coronavirus. As at 30th March 2020, crude oil prices (Brent) were down to US$22.9 per barrel from the December 2019 price of US$65.9 per barrel. Preliminary analysis shows that at an average crude oil price of US$30 per barrel for year 2020, Government will register a shortfall in crude oil receipts amounting to GHȼ5,679 million.
  • The Ministry of Finance has been working with the Ministry of Health to cost the National Preparedness and Response Plan prepared by the Ministry of Health and the World Bank. The Preparedness plan seeks to, among others, enable early detection and effectively manage and contain a COVID-19 outbreak in Ghana. The initial cost of programmes and activities under the COVID-19 Preparedness and Response Plan is about GHȼ572 million (US$100 million).
  • In the light of this, it is expected that the Government of Ghana will have to rely on Ghana Stabilization Fund (GSF) by lowering it from the current US$300 million to US$100 million in accordance with Section 23 (3) of the Petroleum Revenue Management Act (PRMA). This measure will enable the excess amount in the GSF account over the US$100 million cap to be transferred into the Contingency Fund, consistent with Section 23 (4) of the PRMA. The amount transferred into the Contingency Fund will be used to fund the Coronavirus Alleviation Programme (CAP). Through this process, an estimated GHȼ1,250 million will be transferred into the Contingency Fund to Fund the CAP.
  • There is the need to arrange with BOG to defer interest payments on non-marketable instruments estimated at GHȼ1,222.8 million till 2022 and beyond.
  • In addition to this, expenditures on Goods & Services and Capex will be adjusted downwards by GHȼ1,248 million.
  • The following facilities would also be secured from the Britain Woods institutions:
  1. World Bank DPO of GHȼ1,716 million.
  2. IMF Rapid Credit Facility of GHȼ3,145 million
  • PRMA will be amended to allow for 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.
  • To source for additional funds from the general public, the President has established a COVID-19 Fund, to be managed by an independent board of trustees, chaired by former Chief Justice, Sophia Akuffo, to receive contributions and donations from the public to support the CAP and to assist in the welfare of the needy and the vulnerable.
  • The Bank of Ghana and the Ministry of Finance have also engaged the Commercial Banks to discuss their support to the private sector to mitigate the impact of the Coronavirus pandemic. The support includes:
  1. A syndication facility of GHȼ3 billion to support industry especially in the pharmaceutical, hospitality, service and manufacturing sectors, as mentioned by His Excellency the President;
  2. Granting of six-month moratorium of principal repayments for selected businesses;
  3. Reduction of interest rates priced-off the Ghana Reference Rate (GRR) by 200 basis points (2% per annum).
  • Pension funds and other assets managers and investors are beseeched to follow the lead of the Banks to support by accepting a 200 bps reduction on short term instruments including T-bills and 364-day paper. This should reduce government expenditure on interest expense by over GHS300 million to help close the fiscal gap.
  • The various Telecommunication agencies will be engaged to reduce the cost of data and telecommunication services to households and small businesses.
  • The Ghana Revenue Authority will provide some reliefs to businesses and households including:
  1. Extension of due dates for filling of taxes from 4 months to 6 months after the end of the basis year;
  2. Tax payers are encouraged to pay their taxes by bank transfers;
  3. Grant a remission of penalties on principal debts to Tax payers who redeem, their outstanding debts due GRA up to 30th June 2020;
  4. Wave VAT on donations of stock of equipment and goods for fighting the Covid-19 Pandemic;
  5. Wave taxes on selected Third-Tier Pension withdrawals; and
  6. Permit the deduction of contributions and donations towards COVID-19 as allowable expense for tax purposes.
  • Ghana’s medium term prospects are very bright as it is supported by strong activity in the extractive industry (oil, gold, and bauxite), a safer and more resilient banking system, prudent macroeconomic policy stance, rapid infrastructure and oil sector investment, an improving environment for our private sector, and being a favorable destination for FDI with strong potential for becoming a hub for business, aviation, education, financial sector and the Head Quarters of the African Continental Free Trade Authority, among others.
  • Government fortunately has a partnership agreement between the State and Faith – Based Organizations, and also with Labor and Employers. The present danger calls for re-invigoration of our partnership agreements. These partnerships should bring safety and nourishment to our people.
  • When this Pandemic has long left the land, Ghana, and it is healing; when enough information on the coronavirus pandemic and its macrofiscal impact on the economy have been gathered, the Finance Minister is expected to go back to Parliament to update the House with a Midyear Review of the 2020 Budget on behalf of His Excellency, the President of the Republic.
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