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Editorial News of Monday, 23 March 2020

Source: Business & Financial Times

B&FT: Stimulus package to struggling businesses seems probable

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An Associate Professor of Economics at the University of Ghana, Professor Eric Osei Assibey, believes government must carefully target some key industries, particularly those that are export-oriented, and offer stimulus packages to them.

This also includes businesses that are likely to suffer production challenges due to COVID-19, which he believes will minimize the pandemic’s economic impact on Ghana.

There is little doubt that the COVID-19 novel coronavirus has caused a crisis for the world’s economy and markets. With many countries’ economies already slowing before the pandemic, COVID-19 poses a serious risk of sending many countries into recession and has sent the U.S stock market – the largest in the world – into a bear market.

In response to the crisis, governments and central banks all over the world have enacted fiscal and monetary stimulus measures to counteract the disruption caused by the coronavirus. Numbers in the country keep rising by the day, leaving to fear if the situation doesn’t abate the country could experience a lockdown.

Professor Eric Osei Assibey is of the opinion that monetary policy and fiscal policy can come together to provide some kind of stimulus package, largely making credit accessible to business that are likely to suffer challenges,

“Government could also explore the possibility of tax deferrals and tax incentives for the affected industries, so they can retain staff in order not to worsen the situation.”

He commends the central bank for its bold initiative of reducing the policy rate by 150 basis points to 14.5 percent from 16 percent, and also reducing the primary reserve requirement of banks from 10 percent to eight percent.

He said reduction in the policy rate has also provided the Bank of Ghana an opportunity to close the gap between inflation and the Policy rate, which had remained high despite the low inflation environment.

Om March 17, French Finance Minister, Burno Le Maire announced a US$49billion package. Other examples are Germany, which authorized its state bank (a bank run by government but not a central bank), KfW, to lend as much as US$610billion for companies to cushion effects of the coronavirus.

On the fiscal side of things, the Canadian government announced US$7.1billion in loans for businesses to help them cope with damage the coronavirus is doing to the economy. Therefore, it is not too difficult to fathom why Professor Osei Assibey is calling on government to act swiftly to prevent an economic catastrophe in the country, since our import-driven economy is bound to suffer the effects of Europe and the America’s lock down.

Our worry is the weak fiscal capacity of the economy; however, it must be done to avert a total melt-down of the economy.

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