The Bank of Ghana’s (BoG) latest data on the economy has given a first-time indication of the magnitude of the damage the COVID-19 pandemic has wreaked on the economy so far.

The central bank’s composite index of economic activity (CIEA) revealed a rare contraction in economic activity in March—a development which underscores fears that economic growth may be headed for its worst performance in almost four decades.

The bank’s summary of macroeconomic and financial data released last week showed that the CIEA recorded a negative 2.2 percent growth in March, in sharp contrast to the 7.1 percent growth recorded in February and the 5.6 percent expansion in March 2019.

The contraction in economic activity appears to vindicate assertions by the government that a continuous restriction of movement would have had devastating consequences on the economy.

Finance Minister Ken Ofori-Atta has said economic growth could sink to as low as 1.5 percent this year as a result of the novel coronavirus outbreak.

The BoG data come on the back of a record slump in Ghana’s Purchasing Managers’ Index (PMI) to an all-time low of 31.7 in April, from 41.4 in March. The index, published by Stanbic Bank, sank further below the critical 50-threshold that separates improvement in local business conditions from deterioration.

Cascading impact

According to the central bank, there was a decline in construction activity, tourism, and domestic tax payments as of March compared to the same period last year.

Exports as of March stood at US$3.9bn, down from the US$4bn recorded in the first quarter of 2019. This decline was the result of a US$180m disparity in oil exports between the two periods after crude oil prices crashed in March this year.

In terms of imports, the data indicated that as at the end of March, the total amount spent lagged behind the 2019 figures.

While the collapse in crude oil prices meant that the country could import the same quantity of oil for less, non-oil imports also declined compared to last year’s.

The total non-oil imports in the first quarter of 2019 stood at US$2.7bn, but this declined by 7.3 percent to US$2.5bn between January-March 2020.

Overall, total imports in the first three months of 2020 was US$3bn, while that of last year was US$3.4bn.

Slump in financial and capital inflows

The fallout of the pandemic has taken a toll on financial and capital inflows, with the data confirming projections that foreign direct investment, remittances, and portfolio inflows are suffering from serious shortfalls.

The capital and financial account balance fell from US$2.7bn in the first quarter of 2019 to US$1.4bn in January-March this year—reflecting possibly weak FDI inflows as well as outflows from foreign investors in domestic assets.

Even before the full impact of the pandemic is felt, government’s revenue for the first three months of 2020 was slightly lower—2.7 percent of GDP—than what it collected—3 percent of GDP—within the same period last year.

On the contrary, government spending, driven by pandemic-induced outlays, increased to 6.1 percent of GDP from 4.1 percent in March 2019.

The gap between revenue and expenditure is expected to worsen as government incurs additional unplanned expenditure as a result of the pandemic coupled with revenue shortfalls.

With the government facing tight financing conditions both at home and abroad, the central bank last week released GH?5.5bn to the central government in emergency lending.

“Under the Bank of Ghana’s Asset Purchase Programme, the bank has purchased a Government of Ghana COVID-19 relief bond with a face value of GH¢5.5bn at the monetary policy rate with a 10-year tenor and a [repayment] moratorium of two years (principal and interest),” said central bank governor Dr. Ernest Addison at Friday’s monetary policy press briefing.