COVID-19 presents opportunity to restructure economy

The coronavirus which has become a global pandemic continues to have serious health concerns on countries around the world, with over one million, nine hundred and seventy thousand, two hundred and twenty five (1,970,225) recorded cases, four hundred and sixty nine thousand, nine hundred and twenty six recoveries (469,926), and over one hundred and fourteen thousand (124,544) deaths in 184 countries as at April 14 2020, according to data from the John Hopkins University.

The COVID 19 pandemic, which has posed serious threats to the financial and economic stability of countries has resulted in a lockdown of major towns and cities across the world, and a halt in trade, production and investment activities. The International Monetary Fund (IMF) forecasts that global growth will turn sharply negative in 2020, and anticipates the worst economic fallout since the great depression, with over 170 countries expected to have negative per capita growth this year. This is expected to hit vulnerable countries such as those in developing economies the hardest (IMF World Economic Outlook Report, 2020).

In Africa, over 13,814 cases of the novel coronavirus have been confirmed, with more than 747 deaths and over 2,355 recoveries as at April 12 2020, according to data from the Africa Center for Disease Control and Prevention. The World Bank has predicted that the rapidly-spreading coronavirus outbreak is expected to push Sub-Saharan Africa into a recession in 2020 for the first time in 25 years, and will cost Sub-Saharan Africa $37 billion to $79 billion in output losses this year due to trade and value chain disruption, among other factors. This therefore requires a balance in efforts aimed at managing trade-offs to save lives and livelihoods. This is important in order to contain the spread of the virus, reach-out to the vulnerable, and rebuild the economies of African countries.

In Ghana, the number of infected persons with Covid-19 continues to increase with six hundred and thirty six (636) recorded cases as at April 14 2020 in ten (10) out of the sixteen (16) regions of Ghana, with seventeen (17) recoveries, and eight (8) deaths. This has resulted in an extension of the partial lockdown of the Greater Accra and Greater Kumasi Metropolitan Areas by Government by one more week in a bid to contain the virus.

According to the World Bank, Ghana’s economy continued to expand in 2019 as the first quarter gross domestic product (GDP) growth was estimated at 6.7%, compared with 5.4% in the same period of last year, with non-oil growth at 6.0%. The relatively high quarterly growth was driven by a strong recovery in the services sector which grew by 7.2% compared with 1.2% in 2018. Improvements in the macroeconomic environment were accompanied by expansion in domestic demand due to increased private consumption.

International reserves also significantly improved in 2019 with Gross International Reserves (GIR) of $8.6 billion (equivalent to 4.3 months of import cover) at the end of June 2019 with the issuance of the $3 billion Eurobond in March 2019. The current account surplus, combined with significant inflows to the capital and financial accounts, resulted in an overall balance of payments surplus equivalent to 1.9% of GDP.

However, the persistence of the COVID 19 pandemic threatens to erase the gains achieved with major implications for the economy, particularly, revenue mobilization as import duties and other tax revenues are expected to decline. Shortfalls in petroleum revenues along with an increase in healthcare expenditure, will likely result in a decline in growth of GDP. This therefore reinforces the need to restructure Ghana’s economy through implementation of the following measures:

Firstly, the setting up of a Post COVID 19 Economic Recovery Team (PCERT) to fashion out a bridge to recovery by coordinating fiscal policy, bearing in mind that it takes about three (3) years for countries to come out of a recession, which is a huge possibility considering the current state of the Ghanaian economy. The PCERT should include stakeholders from the Central Bank, Ministry Of Finance, Ministry Of Planning, National Development Planning Commission, and Security & Exchanges Commission, among others to develop a medium to long-term growth and sustainability action plan for the economy as well as put in place measures to safeguard the economy against future unexpected shocks.

Secondly, government should take advantage of the Africa Continental Free Trade Area (AfCFTA) to meet demand for goods and services in post COVID 19 markets across the continent. Government can mitigate the shocks imposed by the pandemic and strengthen Ghana’s economy by empowering local industries such as pharmaceuticals to boost production for local consumption and to take advantage of the disruption in global supply chains for exports. This will also likely boost intra-regional trade and reinforce Ghana’s status as a regional hub for pharmaceutical manufacturing, distributing to over 300million people in the ECOWAS sub region.

Thirdly, the COVID-19 pandemic also presents opportunity to reduce inequality and poverty by providing skills training and temporary employment to vulnerable individuals and groups in order to provide the necessary labour needed to achieve increased production, and optimize advantages along the supply chains in an economic recovery programme led by the private sector. This will result in significant changes to the economy and ensure that such vulnerable individuals and groups play active roles in post COVID 19 markets.

This policy measure will be more impactful and sustainable as it will guarantee reliable means of income for such persons and their families compared to the daily feeding and handouts model currently being adopted. The pandemic provides a rare opportunity to change the narrative and psyche of vulnerable persons by actively engaging them in productive ventures to provide essential goods and services in this period.

Again, the pandemic imposes great responsibility on Government to prioritize health spending by strengthening health systems and infrastructure across the country and increasing allocations to the sector in order to pay doctors and health workers at the frontline in the fight against this pandemic. To this end, Government must maintain fiscal discipline and ensure efficiency in the allocation of resources, whilst cutting down on wasteful expenditure and overspending in least priority areas.

To stabilize the economy and generate resources towards the fight against COVID 19, the size of Government must be reduced in order to lessen the financial burden and impact on the economy. Also, reshuffles and appointments into key sectors of the economy must not necessarily lead to replacement in other sectors. Government must therefore take advantage of the pandemic to appraise the performance of appointees against standard benchmarks in order to ensure efficiency in resource allocation.

In conclusion, as the entire world looks forward to the end of the COVID-19 pandemic, it is important that Ghana remains open-minded to ideas and opportunities and design policies and programmes that reflect our socio-cultural contexts and empower the private sector to play lead and active roles to revamp the economy and balance trade-offs.

Andrews Maxford & Emmanuel Baah Duodu

(PRAI Economic Outlook, 2020)