In the case of Ghana, even though experts agree we are yet to reach our peak, 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.
POTENTIAL IMPACT OF THE COVID-19 PANDEMIC ON THE ECONOMY OF GHANA
The socio-economic impact of the COVID-19 on the economy of Ghana is by direct and indirect routes: a) Directly through the effects of the disease on production, trade and investment within Ghana and between Ghana and the rest of the world (especially China, Europe and the United States), on global commodity (crude oil, gold, and cocoa) prices, on tourist flows, on fiscal stance, and on human life, especially the health and life of the most vulnerable; and b)Indirectly through the slowing of global economic growth, supply chain disruptions, and by extension, the negative impact on Ghana’s own growth.
Some of the main potential impacts of the virus on the economy of Ghana.
Impact on the Hospitality Industry:
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
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.
Impact on Investments:
Programmed Foreign Direct Investment (FDI) flows in 2020 have slowed down due to uncertainties as to the effect of the COVID-19. Foreign investors are not able to arrive into the country to transact or even undertake feasibility studies as a result of the closure of most borders of countries including Ghana’s and, in many cases, restrictions imposed in their own countries of origin.
Impact on Trade and Industry:
Trade volumes and values (both domestic and international) are also reducing as a result of the coronavirus pandemic. We are already seeing significant reductions 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. We are also observing reduced arrival of containers at the ports by at least a third, resulting in reduction in import duties. Reductions in imported intermediate goods could significantly slowdown manufacturing activities in Ghana. Reductions in imports of goods and services are, however, expected to reduce the demand for forex for importation of goods and services. This has a favourable impact on foreign exchange volatility and on our net international reserves. It also provides opportunities for import substitution, thereby, enhancing local production of goods and services.
Impact on Agriculture:
Though 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 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.
Since the outbreak of the coronavirus, we have observed a significant decline in the international price of crude oil as result of fall in demand (especially China). Crude oil prices have declined from US$63.21 a barrel in November 2019 to US$22.9 per barrel as at 30thMarch 2020. The sharp decline in crude oil prices will result in significant shortfalls in petroleum revenue for the 2020 fiscal year. Consumers of petroleum products across Ghana are, however, likely to benefit from the decline in international price of crude oil as the ex-pump price of petroleum is likely to reduce. The increased demand for Gold as a safe haven as a result of the virus outbreak will likely impact positively on the balance of payments and receipts from mineral royalties. 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. We have also seen a decline in cocoa prices from US$2,440 MT in December 2019 to US$2,253 MT as at 30thMarch, 2020.
Impact on Exchange Rates:
The slump in import volumes and values will likely reduce the demand for forex for such imports, which may have favourable impact on foreign exchange volatility. On the other hand, reduction in exports from Ghana and investor capital flight could adversely affect the exchange rate volatility. The jury is still out as to whether all these will result in a net gain for Ghana.
Impact on the Financial Sector and Financing Conditions: The Coronavirus pandemic has led to tight financing conditions both in the global and domestic financial markets. The slowdown in economic activities is likely to result in debt service difficulties (especially from the sectors that are hard hit such as aviation and hospitality) and containment measures such as social distancing may lead to reduced productivity and job losses. 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. We are seeing an increase in demand for dollars which could impact negatively on foreign reserves. 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. However, in these apocalyptic times, we must do all we can to conserve and preserve our foreign exchange reserves.
Impact on GDP Growth:
The reason why every single person in this country must exercise the highest level of self-discipline is evidently clear in the economic numbers. The greater the level of self-discipline and civic responsibility we maintain in observing the enhanced protocols in hygiene and social distancing, the greater chances we have in avoiding mass job losses and its concomitant hardships. Already, we are experiencing slowdown in economic activities in the various sectors of the economy, as a result of the coronavirus pandemic. This will altogether slowdown economic growth, considerably. Even though events on the coronavirus pandemic are still unfolding, a preliminary analysis of the impact of the Coronavirus menace on the real sector shows 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 lock-down. The projected growth will further worsen in the event of full lock-down.
FISCAL IMPACT ANALYSIS OF COVID-19 PANDEMIC Even though events are still unfolding, preliminary analysis undertaken at the Ministry of Finance shows that the novel coronavirus pandemic will result in:
a.significant shortfalls in petroleum receipts; b.shortfalls in import duties; c.shortfall in other tax revenues; d.increased health-related expenditures; and e.tight financing conditions.
These will negatively impact the fiscal stance for 2020.
Shortfalls in Petroleum Receipts.
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 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 corresponding projected shortfall in Annual Budget Funding Amount (ABFA) is GHȼ3,526 million; while shortfalls in the Ghana Stabilisation Fund and the Ghana Heritage Fund are GHȼ1,058 million and GHȼ453 million, respectively. Projected shortfalls in transfers to GNPC is GHȼ642million.
Shortfalls in Tax Revenues .
The anticipated decline in import volumes and values, as well as the slowdown in economic activities, will lead to shortfalls in both import duties and other tax revenues.
Based on the performance of import duties to date, as well as assumptions on projected decline in import volumes and values, preliminary analysis shows that import duties will fall short of target by GHȼ808 million for the 2020 fiscal year. Similarly, the projected slowdown in non-oil GDP as result of the coronavirus pandemic is expected to result in shortfalls in tax revenues (excluding oil tax revenues and import duties) amounting to GHȼ1,446million, bringing the total estimated shortfall in non-oil tax revenuestoGHȼ2,254 million.
Increased Health Expenditures (Cost of Preparedness & Response Plan)
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 GHȼ572million (US$100 million). More specifically, the plan seeks to:·strengthen coordination of the overall preparedness activities;·strengthen capacity of regions, priority health facilities and points of entry to prevent, rapidly detect, investigate and control any COVID-19 outbreak in Ghana;·strengthen national capacity for laboratory surveillance and diagnosis;·build capacity for early diagnosis, case management, contact tracing and infection prevention and control;·ensure minimum health logistics are in place in prioritised regions, health facilities and points of entryfor preparedness and laboratory capacity sustained for timely and quality testing of COVID-19 samples; and·increase public awareness on COVID-19 risk mitigation and response measures.
As announced by President Nana Akufo-Addo on March11,2020, during his first broadcast on the coronavirus pandemic, Government has earmarked the cedi equivalent of US$100 million for the fight against
14COVID-19. Contrary to views of some sceptics that the money is not available, I wish to assure you that the money has been secured and is available to be disbursed in accordance with our public financial management procedures and rules. Indeed, from day one, Government has not stopped spending in the fight against Covid-19. Coronavirus Alleviation Programme.