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Opinions of Thursday, 23 July 2020

Columnist: Samuel Okyere Donkor

COVIDNOMICS: Should Ken Ofori-Atta pause, relax or nurture Ghana’s economy?

Finance Minister, Ken Ofori-Atta Finance Minister, Ken Ofori-Atta

The OECD Economic Outlook for June 2020 reveals that growth within the global economy has been worse hit and continues to decline as a result of the COVID-19 pandemic.

Other agencies of Bretton woods institution have also made similar predictions indicating a recurrence of 1930's economic woes in the absence of good structural policies for nations across the world with Ghana not being an exception.

Historical antecedents have taught us the economy does not get back to where it started. Instead, the economic revival will depend on the decisions we take as a nation.

The impact of the pandemic has affected the revenues of companies, multinationals, corporations in the trade, technology, retail, travel and leisure sectors; such as restaurants, airlines etc.

This has resulted in job cuts, low productivity, profit shortfall catamount to rise in unemployment and low-income benefits. The situation has negatively affected the lives of individuals, households, and the growth of the economy.

Economies are known to thrive on favourable conditions that seek to promote and attract economic partnership with the private sector. Since private sector engagement is critical for economic growth and developments. Thus, it is important to consider how best the private sector can be used to facilitate growth in this era of the pandemic.

However, “Covidnomics” has presented us with both opportunities and risks within the markets and economies of the world. It is now incumbent on the Government of Ghana to strike a balance between risk and opportunities for its citizens notwithstanding the private sector.

I am very conscious of my professional background and my brief for the Mid-Year Review will be advisory but not binding. Bearing in mind the Finance Minister’s Statement to Parliament on 30th March 2020, it will be unfair on my part to pre-judged his work for the mid-year but my submission will be investment focused coupled with the recommendation for the future.

My insights have been modelled around the National Board for Small Scale Industries (NBSSI), as a pot of investments at this critical time and a channel to drive the economy for both short-term and long-term benefits.

The National Board for Small Scale Industries (NBSSI), one of the government's agencies was established to provide support to Small and Medium-size Enterprises (SMEs) within the country.

SMEs have become the backbone of Ghana's economy, with a contribution of about seventy per cent (70%) to the gross domestic product (GDP), not to mention its economic benefits to the nation. Additionally, the world trade organisation recognises SMEs as one of the strategies for the promotion of export growth of a country. It has even become more pressing that SMEs are internationalised to derive the needed benefits and promote global trade.

The government's stimulus packages to businesses within the private sector through the NBSSI is a laudable initiative in the light of this, “Covidnomics”, makes NBSSI a springboard for our economy to revive, retain, support, protect and create jobs.

Managing this pandemic is a key responsibility of the public sector, the event is not a banking crisis, and therefore money should continue to flow into the economy.

The Bank of Ghana (BOG) as a monetary authority does not have direct access to the real sector, whereas the Finance Ministry act as facilitators, instead, NBSSI have direct access to all sectors of the economy including agro business, manufacturing, tourism etc.

NBSSI in these current conditions can provide around 70% of employment, deliver critical goods and services and contribute to tax revenue mobilisation and efficient flow of capital.

This will position the agency's role as a major creator and employer which gives credence to entrepreneurship, digitalization and innovation to drive productivity, development and growth with minimal risk. Covidnomics Opportunities

Under the Coronavirus Alleviation Programme (CAP), the IMF Rapid Credit Facility, Contingency Fund, World Bank, Commercial banks, Heritage Fund, COVID-19 Funds and BOG funds have been allocated to the economy to help curtail any economic disruption.

A holistic approach has to be adopted in these situations to help bring all sectors of the economy on board.

These cash flows have come at the right time to help mitigate the shocks of the economy and stem the losses that the pandemic has caused. However, stringent measures must be put in place for judicious disbursement of the funds for efficiency and accountability.

The IMF Credit Facility can help sustain both the micro and macroeconomic indicators of the economy, cushion the public sector expenditures and bridge the shortfall in oil and tax revenues of the country. Whereas 2/3 of GH¢3 billion Commercial Banks facility can be rolled over to the NBSSI to revamp the economy in the long term.

The World Bank supports the US$100 million and COVID Funds must help respond to the pandemic, expand the health care system, improve health infrastructure (88 Hospital Agenda) and address wages and salaries of health professionals in the country.

The Heritage funds should supplement the road infrastructure project (Year of roads 2020) for the benefits of increasing the supply chain of the agriculture sector especially at this time of COVID.

The US$600million COCOBOD Syndicated Loan facility should be injected into the agriculture sector and help facilitate President Akufo Addo vision for planting for food and Jobs and rearing for food and production of agriculture raw materials to boost the industrial growth of the country.

I am tested at this moment to reflect on the Harrod-Domar growth model which tries to propose that an increase in savings will propel growth in investment. As such the funds made available from both external and internal sources coupled with expectations in appreciation of the current account balance of the nation due to the decline in import trade; is to serve the ideal purpose of driving the domestic growth of the economy towards creation of wealth and prosperity for the people of Ghana in this era of COVID-19. Risk Component of Covidnomics

The Mid-year review will encompass all the components of both macro and micro-economic indicators, however, the survival of the economy will be dependent on the investments allocated to the right portfolios of the economy and offset the slow impact of the economy.

Macroeconomic predictions can go wrong and do go wrong many times to push economies into disarray. It is imperative to see a review of the key economic indicators (i.e. growth rate, budget deficit, revenue and expenditure and primary balance) for the 2020 Mid-year review. The Government targets have been thrown off by the pandemic and therefore it will be prudent for the

Finance Minister not to dwell too much on these indicators but rather be a guide to help measure with the model recovery.

George W. Bush's Defence Secretary Donald Rumsfeld talked about life's “unknown unknowns” — the things we do not know we don't know. COVID-19 is a risk that came up that nobody was ready and nobody was preparing for. The uncertainties of the future remain a threat and a second wave of infections will be impossible to reboot the economy of Ghana. It is in this respect that nations of the world including Ghana are expected to undertake major critical fiscal expenditure policies to sustain the economy for the medium-term, not losing sight that we are in an election year.

Which is necessary for me to acknowledge that the cash flows into the economy will not balloon the Debt-to-GDP ratio beyond 70% at the end of 2020 fiscal year.

It is noted that the global economy is expected to experience worse economic downturn and in order to avert such development, will be dependent on the structural policies governments implement both at the local and international level and secondly the time it will take a nation to bring the pandemic under control. This development has not created the period for experimental predictions but rather the initiation and implementation of good policies that will help nations to mitigate its covidnomic consequences.

However, it is prudent to suggest or propose the following recommendations for the Mid-Year 2020 Budget Review to foster job creation, promote wealth, and transform the country.


* Government must strengthen the COVID-19 economic recovery team.

* Bank of Ghana quantitative easing must be done in tranches, as such in mid-September & November] to bring equilibrium to the first quarter of 2021.

* NBSSI should be a prioritised model for the real sector measures in order to safeguard existing businesses while creating opportunities for innovation and entrepreneurship.

* Effective and efficient use of the funds should ease the fiscal and monetary sections of the economy.

* Proper data management system to widen the tax net in the long term.

* Raising funds through capital market.