COVIDNOMICS: 2021 Budget Statement, Can the Bull still ride on?

It is almost a year since the global economic community was hit by the covid-19 virus putting economies into disarray and the challenges associated with the spread of the pandemic, including; a shortfall in production due to cut down in supply and human capital, rise in income variant, inequality afloat and the death tolls caused by the virus.

This calamity brought an urgency for nations to develop new strategic measures such as the formulation and implementation of new budgetary plans as means to control the pandemic and further minimize its effect on the economy.

These developments also saw the assistance of development partners such as the International Monetary Fund, the World Bank, United Nations, and the World Health Organisation offering fiscal, monetary, and humanitarian support to cushion the pandemic’s health and economic consequences and protect vulnerable populations.

In all these situations, Ghana was not an exception to this global development carpe diem to provide a mid-year budget plan for the year 2020 in order to control the covid-19 pandemic, sustain businesses, and manage the economy, which has seen the Ghanaian economy inching closer to normalcy, under the Nana Akufo-Addo administration.

Recap: 2020 Mid-Year Budget Review

Countries around the world are faced with a mystery and difficulty to drive their challenging economies.

The urgency of the times calls for deep knowledge and an action-driven mechanism to unravel the mystery.

The covid-19 pandemic opened the floodgates of risk and opportunities for every nation including Ghana.

At the backdrop of my mid-year budget review 2020 paper titled,

“COVIDNOMICS; Should Ken Ofori-Atta pause, relax or nurture Ghana’s?’’, which we dealt with risk and opportunities as well as a policy framework in navigating the pandemic, of which aspects were reflected in Ken Ofori-Atta’s Mid-year 2020 Budget review presentation.

In fact, the budget was not only the most ambitious of all times but also provided the path for resilient and trajectory growth for post-covid-19.

I am here once again to provide insights as the Government presents its financial and economic plans for the year 2021. My expression of position is advisory but not binding.

This paper will be modeled holistically around five step-plan for the 2021 budget; namely Risk and Opportunities, Reviving, Protecting, Sustainability, and Driving the economy for the future.

RISK

Covid-19 is an active event and will stick around over a period.

The rollout of vaccines in the country has raised hopes that recovery is in sight and therefore the government must be determined to ensure the vaccination program covers more than half of the population of the country,

“It’s tough to make predictions, especially about the future.

According to the greatest baseball player, Yogi Berra,

“simply put, we still do not know, and the uncertainties of the future remain the same”.

The nation's tolerability of risk will be dominated by the perception of risk of covid-19 infections and new variants in testing the efficacy of the vaccines. Let us be reminded that we are all not fully immune and therefore uncertainties and risk remain unchanged.

Both micro and macroeconomic indicators will continue to go wrong in this level of economic dispensation until there is a certainty.

It is therefore advisable to use the indicators as a guide to recovery and not a metric of measure. Economic indicators such as growth rate, budget deficit, revenue, expenditure and primary balance must be a measure for recovery.

The bounce-back of the economy will be dependent on the right investments allocated to the real sectors of the economy and policy direction activated by the administration.

OPPORTUNITIES

The National Board for Small Scale Industries (NBSSI), has become a national treasure and must be strengthened further to be an explanatory drive for the economy in the long-term.

The survival of every nation’s economy is anchored on the Small and Medium-size Enterprises (SMEs) which contribute about 70% to the Gross Domestic Product (GDP) coupled with massive employment reduction for the economy.

The government’s stimulus packages to businesses within the private sector through the NBSSI must be entrenched and the scheme must not be subjected to rigid and compliant conditions that limits the large percentage of the number of SMEs accessing the funds.

Injection of funds to the agency will help stir the SMEs during the implementation of African Continental Free Trade Agreement (AFCFTA) and be the bedrock for entrepreneurship and innovation for the economy.

The cash flows under the Coronavirus Alleviation Programme (CAP), the IMF Rapid Credit Facility, COCOBOD Syndicated Loan facility, Contingency fund, World Bank, Commercial banks, Heritage Fund, Covid-19 Funds and BOG funds must be reassessed and channel to areas that were highly impacted.

REVIVE

The pandemic has greatly affected livelihoods, businesses, and the economy in general. However, with the vaccines being rolled out, we are optimistic that things will pick up and gradually lead us to achieving normalcy.

A number of countries are developing action plans to get people back to work, revive the tourism, hospitality, and aviation industries of their economies.

Others including Australia, France, Indonesia, Malaysia and Singapore have announced several measures ranging from extension of tax-collection deadlines, setting up task forces to develop and implement strategies to aid the tourism industry to broader stimulus packages with a focus on improving consumer spending and tourism.

With the case of Ghana, particular attention should be on revamping the tourist sites, hospitality sector and the adoption of the concept of visa on arrival to increase tourist growth of the country. This will go a long way to help revive businesses and create the necessary job opportunities for the people of the country.

PROTECT

It is without a doubt that the covid-19 pandemic has caused businesses to either shut down or operate at break-even notwithstanding the global supply chain shocks and decline in profit.

It is necessary that the Government continue to provide tax relief incentives, import and export duty reductions, and equity financing to industries, firms and businesses in Ghana.

This implies that certain sectors of the Ghanaian economy should be made to enjoy tax holidays, reduction in corporate tax and tax rebates particularly for the hospitality, industry, and aviation sector as well as extend the tax reliefs made available to households and businesses under the mid-year 2020 budget review to other areas of the economy.

Less I forget, there should be special export tax reliefs and financial support for firms and businesses which could not produce to export during the era of the covid-19 pandemic.

The government should not lose sight of the fact that firms and industries in Ghana would need substantial tax regulation and financial incentives to be more competitive in doing business across the African frontiers under the AFCFTA.

This would help serve as a shield and create the necessary atmosphere for firms to thrive in Ghana and beyond.

SUSTAINABILITY

The global economy is expected to turn around from the covid-19 woes to a trajectory growth path due to strategic fiscal stimulus packages that were carried out across nations to help protect jobs, businesses and sustain livelihoods.

Though the path to recovery is uncertain, it is expected that the fight against the virus through vaccination would help restore confidence and boost economic growth in the long term.

It is in this respect that the policies that were carried out in the 2020 mid-year budget which includes but not limited to; CAP Business Support Scheme that provided over GH¢600.0 million to micro, small and medium-sized enterprises (MSMEs), the LEAP programme, NBSSI soft loan programme, Bank of Ghana Policy response programme coupled with the social interventions rolled out under the CARES programme should be sustained.

These would demand an increase in the threshold of the capital allocation even though there is limited fiscal stimulus.

Further, the Government under the 2021 budget must do well to extend the Unemployment scheme to cover the youth who by the reason of the covid-19 pandemic are without jobs or have become entrepreneurs themselves.

Surprisingly, there is a storm brewing in the youth bracket and the scary effect cannot be contained if the needed steps are not taken immediately.

The government must provide a safety net in the budget and make provisions for apprenticeship, entrepreneurship and trainingship. These services will boost productivity and channel a wave of diverse talent to promote economic growth in a forceful, proactive, and pragmatic approach with fiscal consolidation in the long term, to help move the economy from life support to turbocharge mode.

Moreover, the government must not lose sight of the World Health Organisation covid-19 protocols of ensuring the availability of PPEs and hand sanitizers to the people due to the presence of the vaccines. Since the vaccine is to compliment the effort of the PPEs in helping to

control the pandemic. We should be mindful of the fact that the covid-19 pandemic is not over anywhere until it is over everywhere.

The Government must prioritise a liquidity injection of increasing the vaccine as well as the PPEs with the provision of special incentives for frontline workers as it was previously captured in the 2020 Mid-Year Budget review.

To sustain and complement the existing government interventions, we recommend that the Government adopts other sustainable policy intervention programmes such as: Government Backed Loan Schemes (Equity Financing), Tech Investment, Road Infrastructure Development and Tourism Fund Support into the 2021 Budget Statement and Economic Policy of the Government of Ghana

DRIVING THE ECONOMY

The phenomenon of fiscal deficit, rising unemployment, widening of the inequality gap coupled with the hardship borne out of the covid-19 pandemic demands prudent, strategic and resilient economic measures to drive the annual plans of the Government into success. The difficulty that arises is how the government is going to fund these medium-term policy measures to the benefits of Ghanaians.

In this perspective, deem it necessary to suggest that apart from assistance received from international development partners and the private sector, the Government can take advantage of this opportune time of the covid-19 pandemic to raise funds from the public pension houses and other institutions through the capital market with a given reasonable moratorium.

It is also important that our trade borders are digitized to avoid smuggling and to ensure proper valuation of goods and services towards an efficient revenue mobilisation for the fiscal year 2021.

With the implementation of the African Continental Free Trade Area which is centered on communication, tourism and transportation as the bedrock for driving the success of the trade agreement.

It is keen the Government pays attention to its priority of increasing the road infrastructure growth of the country. This development is expected to create local or urban opportunity zones, feasible for the immediate implementation of the One District One Factory industrial agenda of the Government and increase the agriculture value chain of these zones.

In order to drive the economy into a more prudent and trajectory growth in the long-term, the Government should adopt the equity-financing model as a strategy for the provision of the fund relief packages for business, firms and industries instead of the debt-financing option used under NBSSI.

This model of financing can be driven through the establishment of the National Development Bank which would help provide support to the agro, industrial and export manufacturing sectors of the country without recourse to debt-interest payments.

The public sector borrowing requirement (PSBR) should not be an issue under covid-19 as the risk remained unchanged which has been echoed by IMF that, “spend whatever you need but keep the receipts’’.

Therefore borrowing is never a bad thing, however to demand for funds over and above, and not use it for the right purposes undermines the creditworthiness of the country.

According to Stephen Valdez & Philip Molyneux in the sixth edition of their book, ‘An Introduction to Global Financial Markets, “Equity is the exception in the debt merry-go-round”.