Submitted by : ken Ofori-Atta

Affiliated organization : Ministry for finance

Type of publication : Statement to Parliament

Date of publication : 20 March 2020

Link to the original document

Potential impact of the covid-19 pandemic on the economy of Ghana

President Akufo-Addo has outlined five (5) key objectives Government seeks to achieve in the fight against the Pandemic – limit and stop the importation of the virus; contain its spread; provide adequate care for the sick; limit the impact of the virus on social and economic life; and inspire the expansion of our domestic capability and deepen our selfreliance.

The socio-economic impact of the COVID-19 on the economy of Ghana is by direct and indirect routes:

a) Directly through the effects of the disease on production, trade and investment within Ghana and between Ghana and the rest of the world (especially China, Europe and the United States), on global commodity (crude oil, gold, and cocoa) prices, on tourist flows, on fiscal stance, and on human life, especially the health and life of the most vulnerable; and

b) Indirectly through the slowing of global economic growth, supply chain disruptions, and by extension, the negative impact on Ghana’s own growth.

Impact on the Hospitality Industry: the global trend in the cancellation of flights, closure of borders (land, sea and air), and the need to maintain social distancing, including the ban on public gatherings, are having huge negative impacts on economic activities in the hospitality industry. Among the worst hit are hotels, airline business, tourist sites and attractions, and car rental services. Hotel occupancy rates are down from 70% to under 30% and staff are being sent home. Even before the impact of the current lockdown, restaurants were already experiencing an average drop in patronage of 60%.

Scheduled international conferences in Ghana cancelled, include the 4th African Union  Specialized Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration meeting and the G24 Technical meetings, which were programmed in early March 2020, resulted in a loss of 1000 combined participants and therefore a loss in 1000 hotel beds!. Transportation services have been among the worst hit due to social distancing, closure of schools, and ban on public gatherings.

Impact on Investments: programmed Foreign Direct Investment (FDI) flows in 2020 have slowed down due to uncertainties surrounding the effect of the COVID-19.

Impact on Investments: programmed Foreign Direct Investment (FDI) flows in 2020 have slowed down due to uncertainties surrounding the effect of the COVID-19. Foreign investors are not able to arrive into the country to transact or even undertake feasibility studies as a result of the closure of most borders of countries including Ghana’s and, in many cases, restrictions imposed in their own countries of origin.

Impact on Trade and Industry: trade volumes and values (both domestic and international) are also reducing as a result of the coronavirus pandemic. We are already seeing significant reductions in trade volumes and values with many countries, especially China, which constitutes the highest of Ghana’s imports and the second highest of Ghana’s exports. We are also observing reduced arrival of containers at the ports by at least a third, resulting in reduction in import duties.

Reductions in imported intermediate goods could significantly slowdown manufacturing activities in Ghana. Reductions in imports of goods and services is, however, expected to reduce the demand for forex for importation of goods and services. This has a favourable impact on foreign exchange volatility and on our net international reserves. It also provides opportunities for import substitution, thereby, enhancing local production of goods and services.

Impact on the Agriculture: the impact on agriculture may not be severe, since agriculture does not require significant imported intermediate goods, growth could still be a slow-down as a result of disruptions in the supply chain and lower demand activities. Disruptions could limit farmers’ access to inputs, such as seeds, fertilizers and insecticides, uncertainty and fear could negatively impact planting decisions; and also a reduction in the volume of main agricultural exports, as a result of the general downturn in global economic activity due to the pandemic. General shortage in food supply is anticipated if the pandemic intensifies. This could lead to inflation in food prices, especially rice, bread, poultry and other meat products, vegetables, sugar and other commodities.

The plan is for Ghana to use the opportunity to increase the production and export of commodities for which the country has comparative advantage in to trade within the West African region, among countries that have not closed their borders to cargo.

The picture is grim. However, as the President has stressed, the COVID-19 pandemic presents an opportunity to boost domestic production and consumption of some food commodities, such as rice, maize, cassava, yam and chicken. The plan is for Ghana to use the opportunity to increase the production and export of commodities for which the country has comparative advantage in to trade within the West African region, among countries that have not closed their borders to cargo.

Impact on Commodity Prices: since the outbreak of the coronavirus, we have observed a significant decline in the international price of crude oil as result of fall in demand (especially China). Crude oil prices have declined from US$63.21 a barrel in November 2019 to US$22.9 per barrel as at 30th March 2020. The sharp decline in crude oil prices will result in significant shortfalls in petroleum revenue for the 2020 fiscal year. Consumers of petroleum products across Ghana are, however, likely to benefit from the decline in international price of crude oil as the ex-pump price of petroleum is likely to reduce.

The increased demand for Gold as a safe haven as a result of the virus outbreak will likely impact positively on the balance of payments and receipts from mineral royalties. Gold prices have increased from US$1,479/toz in December 2019 to US$1,621.6/toz, an increase of 9.6% as at 30th March 2020. We have also seen a decline in cocoa prices from US$2,440 MT in December 2019 to US$2,253 MT as at 30th March, 2020.

Impact on the Financial Sector and Financing Conditions: the Coronavirus pandemic has led to tight financing conditions both in the global and domestic financial markets. The slowdown in economic activities is likely to result in debt service difficulties (especially from the sectors that are hard hit such as aviation and hospitality) and containment measures such as social distancing may lead to reduced productivity and job losses. COVID 19 has also sparked off capital flight as a result of related bearish emerging market sentiments and given the high proportion (about 25%) of local bonds held by non-resident investors.

We are seeing an increase in demand for dollars which could impact negatively on foreign reserves. Ghana’s successful and timely raising of US$3bn from the Eurobond market in early February this year has been extremely, may I say, divinely helpful and provided us with the needed buffer to anchor the cedi. However, in these apocalyptic times, we must do all we can to conserve and preserve our foreign exchange reserves.

The plan is for Ghana to use the opportunity to increase the production and export of commodities for which the country has comparative advantage in to trade within the West African region, among countries that have not closed their borders to cargo

Impact on GDP Growth: the reason why every single person in this country must exercise the highest level of selfdiscipline is evidently clear in the economic numbers. The greater the level of self-discipline and civic responsibility we maintain in observing the enhanced protocols in hygiene and social distancing, the greater chances we have in avoiding mass job losses and its concomitant hardships. Already, we are experiencing slowdown in economic activities in the various sectors of the economy, as a result of the coronavirus pandemic.

This will altogether slowdown economic growth, considerably. Even though events on the coronavirus pandemic are still unfolding, a preliminary analysis of the impact of the Coronavirus menace on the real sector shows that the 2020 projected real GDP growth rate could decline from 6.8% to 2.6% in the event of infected cases and 1.5% in the event of partial lock-down. Mr. Speaker, the projected growth will further worsen in the event of full lock-down.

Proposed fiscal measures to mitigate the impact of coronovirus pandemic

Since we are faced with extraordinary circumstances which require extraordinary measures, we would like to propose the following measures for the consideration and support of the House:

a. Lower the cap on the Ghana Stabilisation Fund (GSF) from the current US$300 million to US$100 million in accordance with Section 23 (3) of the Petroleum Revenue Management Act (PRMA). This measure will enable the excess amount in the GSF account over the US$100 million cap to be transferred into the Contingency Fund, consistent with Section 23 (4) of the PRMA. The amount transferred into the Contingency Fund will be used to fund the Coronavirus Alleviation Programme (CAP). Through this process, an estimated GHȼ1,250 million will be transferred into the Contingency Fund to Fund the CAP. We therefore wish to seek approval from this August House for the Finance Minister to use the Funds which will be available in the Contingency Fund to fund the Coronavirus Alleviation Programme.

b. Arrange with BOG to defer interest payments on non-marketable instruments estimated at GHȼ1,222.8 million to 2022 and beyond;

c. Adjust expenditures on Goods & Services and Capex downwards by GHȼ1,248 million;

d. Secure the World Bank DPO of GHȼ1,716 million;

e. Secure the IMF Rapid Credit Facility of GHȼ3,145 million; f. Reduce the proportion of Net Carried and Participating Interest due GNPC from 30% to 15%.

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