Story by: Adnan Adams Mohammed
Economists have disagreed on the economic growth projection for 2020 in the wake of the scary COVID-19.
The Economist Intelligence Unit (EIU) has projected that the economy will contract to one (1) percent contrary to the 1.5% Gross Domestic Product (GDP) growth rate forecast by the government.
Although, the minister’s projection of 1.5% was affirmed by the International Monetary Fund and the World Bank, Fitch’s rating agency has projected 2% Gross Domestic Product (GDP) growth for the year.
“Our own view is that the economy is already heading for a contraction this year, with a real GDP decline of about 1%”, UK-based EIU stated in its latest report released last week, explaining that, “The contraction of the economy will be driven by falling oil prices and operational difficulties in some oilfields, as well as the impact of the coronavirus.”
“The key hydrocarbons sector will be badly hit. In addition to the ongoing operational difficulties facing Tullow Oil, a UK based oil company, at the Jubilee and Tweneboa-Enyenra-Ntomme oilfields, the sharp plunge in global oil demand and prices will weigh heavily on activity”, it added.
The downturn in the petroleum production sector will also have spillover effects on the wider economy, by negatively affecting industrial production, infrastructure investment and auxiliary services. At the same time, private consumption will also weaken, EIU noted.
Finance Minister Ken Ofori-Atta, later part of March 2020, announced that the government was cutting its forecast for economic growth in 2020 to 1.5%, from 6.5%.
However, the government also warned that the outcome could be even lower if the country was forced to go into full lockdown.
The Ghana Statistical Service’s revised estimates based on the rebased economic data indicates that, Ghana’s economy grew by 6.5% in 2019.
Meanwhile, EIU has further predicted that real GDP growth will rebound to an average of 5.7% a year in 2021 to 2024, as the impact of the pandemic fades and oil prices and output recover.
In same vein, Minority Leader in Parliament, Haruna Iddrisu has suggested that, the country will need US$5bn or more to put the economy on the road to recovery after the coronavirus pandemic.
He said this after the House of legislators approved the US$1billion Rapid Credit Facility (RCF) from the International Monetary Fund (IMF) to support the country’s efforts to tackle the pandemic and its economic repercussions, last week.
The purpose of the IMF’s RCF is to provide rapid and concessional financial assistance to low-income countries facing an urgent balance of payments need, without ex-post conditionality.
Out of the US$1bn loan, which is equivalent to GH¢5.5bn, GH¢1bn will be used to finance the electricity subsidy announced by the President. The remainder of the cash will be employed towards expenditure outlined in the 2020 Budget.
The former Trade and Industry Minister expressed that, the US$1bn RCF is not adequate to confront the country’s economic challenges.
“A billion dollars is just not going to be enough for post-COVID. For Ghana’s economy to recover, I estimate that the country will need not less than five billion United States dollars just for the management of the Ghanaian economy in terms of loss of revenue arising out of it,” he told Parliament when members approved the facility.
The government intends to use the funds to help close the financing gap that has been created by the pandemic as a result of shortfalls in revenues and additional expenditures to fight the COVID-19 pandemic.
Consequently, Mr. Iddrisu advised the government not to narrow the utilisation of the funds to budget support, but to consider providing some of it for balance of payments support, since this “will affect the cushioning of the cedi” given the pressures on the exchange rate arising out of the current challenges.
The government, however, is urged to detail adequate plans for supporting ailing companies which are struggling to pay workers and may go bankrupt.
“Per the country’s tax laws, companies are required to file their tax returns by end of April, but naturally they will not be able to do so; are we granting them tax amnesty in order to extend the duration for companies to be able to file their returns and file accordingly their tax obligations to the state?” he wondered.
The coronavirus outbreak has hit Ghana’s economy hard, and even though the government has lifted the partial restrictions on the movement of persons, which has allowed businesses to bounce back, economic growth is still expected to fall sharply to 1.5 percent, the lowest in almost four decades.