COVID 19, which is a member or a strain of the Coronavirus family has changed how things are done in the world, by reshaping relationships in many countries, be it the economically rich, and all powerful, militarily, or indeed, poor or developing.
This virus has also proven to be no respecter of persons, be they rich or poor, even the homeless. In the world today, travel restrictions and lockdowns have been at the top of protocols adopted by authorities. It is a phenomenon that has brought many mighty businesses, including the world’s large multinationals, to their knees—as economies and financial markets wobble.
In my little Republic, Ghana, we are experiencing a partial lockdown with restrictions on movements in two major cities: Greater Accra and Greater Kumasi—which include major metropolitan areas such as Tema, Kasoa and its environs. So far we have recorded 152 cases, 5 deaths and 31 recoveries we are told.
With our greatest enemy being FEAR, what do I want to really talk about in this article? Well it is how you and I have been affected economically by this stubborn virus and how it is succeeding in bringing businesses to a standstill; shutting economies by closing factories and retail businesses; crushing financial markets; and, even today March 31, tumbling and flattening crude oil prices to all-time lows. Historically, we are seeing WTI crude oil sell at $20 per barrel and Brent Crude also hit $23 per barrel. Gold and Cocoa which are our lead and primary commodities that bring Ghana foreign exchange have also suffered a hit.
Government Measures
Before I tackle the economic issues, as the Finance Minister told parliament, let me share a thought on our fight so far against this deadly virus COVID 19. Even as Ghanaians join other countries in resorting to isolation, in voluntary or compulsory quarantine to protect themselves from the pandemic, opportunities for collaboration abound to defeat the disease, I dare say. It has to be all hands on deck.
Also I think there are lessons to learn from experiences of other countries in dealing with not just the coronavirus but also previous crises such as the Ebola and SARS outbreaks which came close to us.
Since November 2019 we sat and watched China struggle alone with what seemed to be its problem, with the Coronavirus which was killing its people in Wuhan. Even in December 2019 and January 2020 when it became clear that the virus was real and travelling around the globe, like many other countries including South Africa, the Ghana government and all of us ignored the virus. Yet, as it continued to get intense in Wuhan for a longer time, we kept thinking it was China’s problem. Like any other virus, it moved far and wide through January and February and when other countries were recording cases, as usual, we were not prepared. Reality hit us on March 12 when we recorded our first 2 cases.
But all the same, I will say, we woke-up from our slumber and have somewhat done well in going for the all-of-government approach that has helped countries such as China, Singapore and United Arab Emirates (UAE) to contain the virus.
I think our government led by President Nana Addo Dankwa Akufo-Addo is trying and I agree with most of the measures taken so far. But I honestly think when he announced the restrictions, it should have taken immediate effect on the day. Giving 48 hours allowance is what has seen people run from these cities Accra, Kumasi, Tema and Kasoa and its environs to other parts of the country [Am considering the relative chaos in India, Kenya and South Africa. We hope and pray those people are not carriers and do not spread it in other parts of the country. We must get them to go to testing centres that the Government should set up—if they see symptoms.
Economic Impact
Now let’s look at the stimulus package government is putting in place and how this can help revive or sustain the economy which is sick or at the emergency ward I will say. To borrow a quote from the former Finance Minister Seth Terkper, “Austerity is an inherent part of fiscal management, you either prepare for it with your own fiscal discipline, buffers and stabilizers or it will be forced on you by your benefactors.”
This simply means that considering economic ups and downs, at least, as remember from 2008 financial meltdown, Ebola coupled with the 2014 to 2016 commodities crush and subsequent financial crises again—before 2020 COVID 19—economic or fiscal managers need a counter cyclical measures when putting together their plans every year. It means they must look at all possible scenarios in putting together fiscal plans or budgets. This I dare say we forget to do in good times and it comes back to bite us hard.
Since we don’t have the full details of the Corona Alleviation Programme (CAP) from the Finance Minister I will not spend a lot of time looking at the likely impact on us but will say the statement in parliament yesterday gives us some hope but very little. At least an indication of how government is thinking and how they want to save this economy from going down completely.
“Here let me be quick to say, if care is not taken, we may be heading to the IMF again for a new substantive programme, likely within context of the calls for debt forgiveness for nations like Ghana, taking account of the damage COVID 19 has done”
Finance Minister Ken Ofori-Atta in parliament said the virus affects every fibre or fabric of the economy in Ghana, be it positive or negative, but I dare say that the negative is more than the positive.
Shortfall in petroleum revenues or crude oil receipts amounts to some GHȼ5,679 million. This he said meant the corresponding projected revenue shortfall in Annual Budget Funding Amount (ABFA) is GHȼ3,526 million; and Ghana Stabilisation Fund and the Ghana Heritage Fund are GHȼ1,058 million and GHȼ453 million, respectively.
Am sure you may be asking yourself the question: besides COVID-19 emergencies, what happens to the FREE SHS? This because we are using more than 70% of the ABFA to fund free SHS. Indeed the government is in hard times and needs help.
Non-oil revenues has also taken a hit amounting to GHȼ1,446 million, bringing the total estimated shortfall in non-oil tax revenues to GHȼ2,254 million.
Even though events on the coronavirus pandemic are still unfolding, a preliminary analysis of the impact of its menace on the real sector shows that the 2020 projected real GDP growth rate could decline from 6.8% to 2.6% with an outbreak and 1.5% with a partial lock-down Mr. Speaker, the projected growth will further worsen in the event of full lock-down, the Finance Minister said.
These disclosures and the measures announced, I think, is good for us. Especially when the Private sector has also launched a Fund, apart from the 1 billion Cedis set up by the President.
Dangerous Measures
Let me now go straight to the three measures, proposed by the Minister, which I think are dangerous for us. I think we must be careful not to grant it to him and the government.
- 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 emergency expenditures in periods of national emergency. There is an estimated US$591.1 million in the Ghana Heritage Fund.
- Amend the Bank of Ghana Act to allow for government borrowing from BOG up to 10% of previous year’s tax revenue in the event of tight domestic financing market conditions.
I may not be an economist but my simple economics knowledge, which gave me a Diploma in Economics for Business from the Institute of Commercial Management in UK, allows me to comment on them as dangerous and which will hit us back in our face very hard. Why do I say so?
I first have to say that, I agree government needs money but for a government that has already taken loans to parliament for approval to build roads and other infrastructure that is hit with this pandemic, heath investments become a priority. I If you are looking for funds you can and should get approval to divert these funds into building a robust health system and save lives. It must not be business as usual and elections winning which I think is still in the minds of the Executive.
Mr. President and Finance Minister, I beg you, think of it and rather fall on these funds or loans to deal with the situation for there are lives to be saved and roads or building infrastructure cannot be used by dead bodies or a sick population.
We are told of lowering the cap on the Ghana Stabilisation Fund (GSF) from the current US$300 million to US$100 million, this means we immediately have $200 million at hand; also the World Bank and the IMF are giving us funds or loans and grants, which is in excess of about $600 million. These exclude the loans we are contracting, including funds from the US$3 billion Sovereign Bond that I have already mentioned. This means we have at our disposal enough funds to put to work in our fight against COVID 19.
My question is Mr Finance Minister why do you want to touch the GNPC, Heritage Fund and go borrow from the Bank of Ghana without any mention of these loans accruing to government?
I have heard the various arguments on the Heritage Fund draw down which are all valid but now for you who is reading this, let me tell you what is awaiting us if Parliament approves this amendment.
My simple point here is that, to grant these amendments the Finance Minister is seeking, it will open the flood gates for them to dip their hands into the funds with any kind of excuse in an election year like we are in. An incumbent will want to win at all cost and will do anything to. So if they have to draw on these funds to do projects that will win them an election why not.
Cedi Performance
But most importantly the estimated US$591.1 million in the Ghana Heritage Fund is hard currency and had been added to our forex reserves by the government. This is an unusual treatment by this Government and means funds being recalled can also see an impact on the performance of the reserves and local currency.
Today March 31, the Dollar to the Cedi is around 5 cedis 80 pesewas. We are told of how even our bonds are performing badly on the markets which are all impacting on the Cedi’s performance.
I say we must be careful not to deep our hands in there, I mean the heritage fund.
Borrowing from Bank of Ghana
Already the government spent some $8.97 million on printing the new 100 and 200 cedi notes which were introduced in November 2019. This is made up of $4.45 million and $4.53 million for the GHS100 and GHS200 notes respectively. The Finance Minister told Parliament recently that “an amount of $5.39 million of the total contract has been paid.”
The Bank of Ghana’s plan with the new notes was to address the deadweight burden on the economy from past inflation and cedi depreciation and also said the structure of the denomination has changed resulting in a shift in demand for higher denominations.
They went ahead to argue against some of us who pointed to them that it was not necessary at the time and that was going to fuel deprecation. Today the Dollar to the Cedi is around 5 cedis 80 pesewas.
Despite the challenges with gas shortage, power crisis, and fall in crude and other commodity prices, Former Finance Minister Seth Terkper’s government from 2013, after going into the 3 year ECF programme with the IMF, tried hard and met a conditionality which was zero percent borrowing from the Bank of Ghana and put it in Banking Act. We also know that there are senior members of the current government that were in key positions at the IMF during this period.
We know that the Mahama administrations managed without the BOG financing and build a lot of infrastructure while achieving fiscal performances that are now acknowledged to be credible. Why do we want to open the flood gates again for this government when in 2015 with all the crises that was not allowed?
I will ask Parliament not agree to this request even though is the last result the Finance Minister is looking at. Being discipline is critical even in these hard times. When that is done the BOG will be forced to engineer the production or cutting of more cedi to be pumped into the economy that will fuel inflation and also spark again depreciation of the currency which is already struggling.
Investments in Oil % Gas sector
Again the government move to lower GNPC’s share of returns made on the oil & Gas sector mostly from the Oil fields to 15% from the 30% its gives them is dangerous. Already crude oil prices has fallen to its all-time low which has eroded about or more than 70% of the expected revenues from the sector. Why will the government want to further reduce the GNPC’s share by 50%?
What this means is that GNPC as a shareholder on the production and exploring fields will not be able to do any further investments on the upstream production and exploration that are coming up. Whatever shares GNPC holds for and on behalf of us, they are expected to make contributions sometimes for the development or repair of the fields.
At least today we know some oil exploration companies have decided to leave Ghana, considering the difficult times. I will say the government must not go there at all and end –up stifling GNPC of funds, as they may be left with living hand to mouth.
In fact Oil prices, we are told, could turn negative as the world runs out of storage, as Saudi Arabia and Russia keep on fighting, and as collapsing demand and huge oversupply mean producers may soon need to pay to get rid of their own oil in stock.
In landlocked regions where maintaining an oil well no longer makes financial sense, producers could be forced to pay just to get rid of their oil, according to analysts at Goldman Sachs. This would be cheaper than shutting down wells, they add. This means we must be very careful at this time. Savings and investments must be part of the plan.
Conclusion
Trust me by the time this whole virus kisses us goodbye, to restart the economy again, I can tell you for sure that some businesses will send workers home and those to be hit are contract or we say casual workers. Some SME’s will not be able to come back but new business will emerge, I just hope the details of the stimulus package or the Coronavirus Alleviation Programme CAP will answers the questions on your mind and mine.
This is because to defer payment of taxes, and statutory payments means, yes, you have freed some funds for the businesses that are running but it will be sitting there waiting for them to pay in future.
Elsewhere, we’re told of government support which is enough cushioning for business, which is seeing business continuity and returning to normal after all this is over.
Because government is already challenged we cannot give out the austerity or stimulus measures that other countries gave, leading to some governments even taking up salaries of workers for three months.
We must understand that an economic stimulus package to reduce the burden on individuals and businesses such as the President’s directive on reducing data/telecoms fee, adding electricity and water fee, will be a welcome boost. Also fiscal measures to ease the burden on banks and enable lending and liquidity will also come in handy.
But whatever the details of the stimulus which will be presented to parliament, it is important that, those reading this article ensure that we are not only healthy after we overcome this virus but also will have a job to go to and have the economy bounce back.
I rest my case.
The views are the personal views of Norvan Acquah – Hayford not that if this media outlet. To reach me to also express your view, which might be different from what I have espoused here contact me via norvan986@gmail.com