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Ghana's crude oil export earnings stand the risk of being hugely affected if global demand for it is dampened, following the COVID-19 global pandemic.
According to the Bank of Ghana (BoG), which made this known in its recent monetary policy committee report, such a development could have major implications for the country’s foreign inflows and tax revenues.
Dr Ernest Addison, Governor of the central bank and Chairman of the MPC, who read the report, said BoG’s internal assessment showed that the pandemic could impact Ghana through a number of channels in the domestic economy.
“There is also a likelihood of export restrictions from advanced economies and other emerging market economies which could create supply chain shortages for Ghanaian businesses, with significant impact on imports of intermediate and capital goods, as well as consumption goods.
“This is expected to negatively affect inputs in the domestic production channels with severe consequences for growth and tax revenues which could become more pronounced by the second or third quarter. In addition, crude oil prices have declined sharply to historically low levels and already creating negative shocks on exports, albeit with some offsetting effects from rising gold and cocoa prices,” he noted.
Assessing the negative impact of COVID-19 on exports, imports, taxes and foreign exchange receipts, he said that would culminate in a slowdown in economic activity.
“GDP growth is forecasted to decline to 5.0% in a baseline scenario. In the worst case scenario, GDP growth estimates could be halved to about 2.5% in 2020. These assessments are preliminary as the situation is very fluid and the degree of uncertainty concerning the outbreak is very high. This means that there is a likelihood that these assessments could change rapidly.
“The latest inflation reading for February 2020 is estimated at 7.8%, unchanged from January 2020. The forecast for inflation is expected to remain within the target band for the next quarter.
Policy Rate Now 14.5%
Owing to the current situation, he said the MPC has lowered the monetary policy rate by 150 basis points to 14.5%.
Other Measures By BoG
The MPC has reduced the primary reserve requirement from 10% to eight per cent to provide more liquidity to banks to support critical sectors of the economy, to help extend the previous targeted reserves for SMEs under the enterprise credit scheme to all critical sectors.
Also, it has reduced the capital conservation buffer (CCB) for banks from 3.0% to 1.5% to enable banks provide the needed financial support to the economy.
Furthermore, it has reduced the Capital Adequacy Requirement from 13% to 11.5%.
Provisioning for Loans
Dr Addison continued that provisioning for loans in the “Other Loans Especially Mentioned” (OLEM) category had been reduced from 10% to five per cent for all banks and specialized deposit-taking institutions (SDIs) as a policy response to loans that might experience difficulty in repayments due to slowdown in economic activity.
He added that provisioning norms for loans in all other categories had been maintained to provide capital relief to banks and SDIs in such uncertain times.
“Loan repayments that are past due for microfinance institutions for up to 30 days shall be considered as “current” as in the case for all other SDIs.”
More digital transactions
He continued that BoGhad agreed with banks and mobile network operators on measures to facilitate more efficient payments and promote digital forms of payments for the next three months, subject to review, effective today.
“Mobile money users can send up to GH?100 for free (excluding cash out). This includes sending to a recipient on the same network, or another network via the interoperability platform. All mobile phone subscribers are now permitted to use their already existing mobile phone registration details to be on-boarded for Minimum KYC Account.
BoG added that it was closely monitoring developments as regards the impact of COVID-19 on the domestic economy and would not hesitate to convene an emergency meeting to deliberate on other measures, if required.
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