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Macro-fiscal Impact of the COVID-19 on Ghana’s Economy

The health crisis in the West African country has brought three years of economic expansion of 6% or more to a sudden halt in the nation of 30 million people, with the finance ministry forecasting that growth could slow to 1.5%, the least in 37 years.

This situation highlights 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.

President Nana Akufo-Addo announced on March 11, 2020, during his first broadcast on the coronavirus pandemic, the Government has earmarked the cedi equivalent of US$100 million for the fight against COVID-19. While, the International Monetary Fund agreed to $1 billion in emergency funds to Ghana in April while a debt standstill from the World Bank will free up $500 million in interest and principal payments.

Government programmed a crude oil price of US$62.60 per barrel for the 2020 Budget, consistent with the PRMA (Act 815). Global crude oil prices has, however, declined significantly since the outbreak of the coronavirus. As of 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.

Projected growth will further worsen in the event of full lockdown

The effect of the pandemic on real sector indicate that the 2020 projected real GDP growth rate could decline from 6.8% to 2.6% in the event of infected cases and 1.5% in the event of partial lockdown.

A 21-day lockdown of Ghana’s biggest cities became financially unbearable for most of the population, a concern that gave the government little choice when it lifted the restrictions last month, said Finance Minister Ken Ofori-Atta.

“Given that 90% of our population is informal and they go out each day to earn wages, it became increasingly impossible to continue with such a policy,” said Ofori-Atta, according to a transcript of a speech he delivered in Accra, the capital.

Increase in demand for dollars, which could impact negatively on foreign reserves

COVID 19 has also sparked off capital flight as a result of related bearish emerging market sentiments and given the high proportion (about 25%) of local bonds held by non-resident investors. Ghana’s successful and timely raising of US$3bn from the Eurobond market in early February this year has been extremely helpful and provided us with the needed buffer to anchor the Cedi.

Investment and trade in comparison

Ghana is endowed with natural resources and a market-based economy with relatively few policy barriers.While the Gold prices have increased from US$1,479/toz in December 2019 to US$1,621.6/toz, an increase of 9.6% as at 30th March 2020. A decline in cocoa prices was visible from US$2,440 MT in December 2019 to US$2,253 MT as at 30thMarch, 2020.

Trade volumes and value reduction

There is a significant reduction in trade volumes and values with many countries, especially China, which constitutes the highest of Ghana’s imports and the second highest of Ghana’s exports. Programmed Foreign Direct Investment (FDI) flows in 2020 have slowed down due to uncertainties as to the effect of the COVID-19.This will altogether slow down economic growth, considerably, experts say.

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