COVIDNOMICS: 2021 Mid-Year Budget Review- Never Too Late To Be Done

Introduction

While the covid-19 pandemic continues to ravage the world, distort economic principles, create divergence in capital growth, ruin the lives of people and cause a steady global recovery from fiscal and monetary space, it is imperative that countries continue to implement sustainable and renewable measures that will propel economic and societal growth as well as combat the spread of covid-19 pandemic.

At this crucial moment when the world is working tirelessly to get the world vaccinated, it is important to acknowledge the relentless efforts nations have put together to produce the covid19 vaccines.

Meanwhile, Ghana became the first country globally to receive vaccine shipment from the covax facility – a global initiative trying to ensure equitable access to covid-19 vaccines when 600,000 Oxford-AstraZeneca vaccine doses were delivered in February, 2021.

The initial plan adopted by the country was to vaccinate 20-million residents, i.e. about twothird of the population, by the end of October 2021. However, like many other countries in the world, this strategy has faced challenges.

According to the International Monetary Fund (IMF), the covid-19 crisis will not be resolved until all countries bring the pandemic under control through widespread vaccination so as to achieve robust human economic activities towards the three policy priorities for getting growth back on track in Africa including Ghana.

As the Government of Ghana prepares to deliver its 2021 Mid-Year Budget Review, it is necessary to provide cogent and realistic policy directives that can help foster economic growth and development.

It is obvious that the containment of covid-19 is running out as nations are battling third waves. It is imperative that we feed the consequences into the country’s economic model for the future, in a way that the country’s predicted growth of 5 percent will fall within the global growth of 6 percent at the end of 2021 as predicted by the IMF.

In doing so, let us consider the following strategic questions that can serve as a guide for effective resource mobilisation and allocation particularly, in this era of fiscal constraints emanating from the pandemic.

Firstly, how long can the Governments of the ‘World’ afford to persist with policies that seem to achieve so little or policies that seem to negate the gains made so far.

Secondly, how does the Government of the ‘World’ realise that it's ‘in economic crisis’ to wit- policies are not working to the expectation of its citizenry. It is important that we think through strategically especially at this crucial time of the raging pandemic.

Economic Drive

The Government of Ghana in its budget statement for the year 2021 began to implement strategic policies expected to boost business confidence and drive growth to the prosperity of the people of Ghana.

These policies include but are not limited to the $100 billion Ghana CARES (Obaatanpa) programme, 1D1F, Planting for Food and Jobs, Coronavirus Alleviation Programme Business Support Scheme (CAP BuSS), and Agenda 111 programme.

These feasible projects are expected to culminate towards achieving the President's goal of building a resilient economy to restore confidence, build hope and aspirations, create jobs and opportunities for the citizens.

As such the government should continue to harness these policy measures by reviewing them to increase its benefits to the socio-economic development of the country. This should be done consistently with a review of some of the tax policies that hinder business growth and deprive the livelihoods of the people in the country.

Mid-Term Sustainable Measures

Notably without recourse to economic disarrays, this piece of work will be solely advisory and not binding bearing in mind my professional background. It will also be unethical and unconventional to pre-judge the Finance Minister’s work but my direction will be based on Strategy, Risk, Opportunities and Recommendations.

Strategy

Ghana is in the ‘pole position’ amongst its competitors within the sub-region and if the nation were to be in a Formula 1 race, one mission will be required to drive and survive in the fast lane.

Covidnomics has presented us with opportunities, unfortunately we seem to let odd theories and unorthodox practises tie us to a path that will continue to create an unstable financial and economic system in this era of the covid-19 pandemic.

It's important to bring in different investment approaches such as building partnerships across nations, persuading investors, regenerating new sites for homes, industrial development and artisanal jobs as well as securing investment to revitalize cities, towns and villages. These creative investment ideas will help the regions and the municipalities to raise revenue, balance fiscal books and reduce debts.

The Government's stimulative policies are unprecedented in range and scale, however, it is creating a slow growth economy as compared to a fired-up economy as expected. In situations of such nature, research makes us believe that;

“In periods of benign financial conditions, disaster myopia is likely to lead to decisions regarding allocations of economic capital, the pricing of credit risk, and the range of borrowers who are deemed credit worthy, that make the financial system increasing vulnerable to crisis” (R. Herring,1999, P63).

Another burning issue has to do with fiscal discipline especially, as the nation has run a deficit economy for so many years. People are of the expectation that the government cuts down on spending by enforcing the efficient implementation of the Public Financial Management Act. This would help the government to accommodate some of the challenging issues for the next six months without exceeding targeted budgetary expenditures and reduce the deficit of the country for the end year 2021.

In effect, the mid-year strategic plan of the Government should consider such laid down strategic measures above to ensure a proper allocation of economic capital and resources to the appropriate real sectors of the economy to help drive growth and avoid short-term economic shocks.

Risk

The Ghanaian economy needs a holistic policy framework to be re-engineer for future events and avert any unforeseen situations. No country ever prepared for covid-19, it just surfaced and till now the uncertainties of the future still remain a threat due to its impact on economies.

The late Herb Stein, an American Economist, pointed out that, “if something can’t go on forever, then it will stop”. This draws attention to the rising debt due to successive governments inability to reduce borrowing from the capital market, mostly attributed to shortfalls in revenue mobilisation.

Moreover, figures released by the Bank of Ghana in May 2021, puts the country’s debt stock at GH¢304.59 billion. The IMF has projected that the nation's debt may reach 81.5% of GDP if care is not taken. The mitigation factor is gradually fading out as a nation and the risk exposure around debt management is high which makes it more critical for the Government and the relevant stakeholders of the economy to break the cycle of unsustainability and forge a new niche for equity(s).

Likewise, one of the investment pots that the Government employed during the peak of covid19 was the National Board for Small Scale Industries now Ghana Enterprises Agency. The aim of the investment portfolio was to elevate, revive, and sustain businesses as well as citizens, from experiencing major economic shocks from the pandemic through the provision of financial support.

Nonetheless, the investment portfolio had been exposed to a considerable amount of risk such as fraud, momo fraudsters, debt recovery impasse, data errors and many more. These shortfalls limit the vehicle in exploring further under the current economic dispensation and as such making it difficult to drive long-term growth of the country. The government must rather focus on using the Ghana Enterprises Agency for short-term economic gains.

Additionally, the Central Bank programme of Quantitative easing(QE) initiated during the covid19 pandemic was mainly to increase money supply, encourage lending, and reduce interest rates. Unfortunately, the timeline for the roll out of the initiative was delayed, as indicated in my 2020 Mid-Year Review budget recommendation. This has created an economic specific risk for the country rendering a marginal depreciation of the Cedi, creating a shortfall in liquidity circulation, decline in export and import coupled with an increase in economic hardship borne out of the pandemic.

Furthermore, the QE lost its effectiveness to boost the real sector of the economy. This gave rise to the ‘trickle down’ theory of wealth, simply put, the QE ended up in the hands of the already-wealthy, amounting to economic disproportion contrary to Wagner’s law of state (1835– 1917).

Opportunities

The covid-19 pandemic has been a blessing in disguise though the devastating effect on economies is unbearable. This has created the green opportunity for nations to formulate their own short-to-medium term economic policies to mitigate the risk of the pandemic on economies and sustained growth. The current economic system requires a pivot-driven vehicle that can efficiently and effectively oversee and facilitate the financial policies of the government towards achieving its development goals through equity-financing. Which is critical for the Government at this momentous time to implement the Development Bank of Ghana (DBG) to drive such an agenda.

Moreover, DBG must be a catalyst of change and must address Ghana’s industrial capital gaps. The characteristics of the bank must drive economic transformation and facilitate an avenue for job creation.

The Bank’s success must be dependent on its Target Operating Model (TOM). The TOM must envisage a long-term benefit to sustain, protect, and revive the economy. Any misstep in the model will make it a duplicate function of existing state-owned banks such National Investment Bank (NIB), Agriculture Development Bank (ADB), Universal Merchant Bank (UMB) etc.

Furthermore, the proof of concept for the bank must be modelled around a hybrid system that would help accommodate entrepreneurs and start-up businesses. Since the model of the bank is directed to agro-processing and manufacturing only. Such a limitation should be critically looked at in order to enable entrepreneurs and start-up businesses including technological companies, artisans, construction firms etc to access capital from the bank.

Luckily, the Government’s injection of GH¢100billion to the economy via Development Bank of Ghana must be action oriented and with a sense of urgency to help bring the Ghana CARES programme to fruition. It is our expectation that the establishment of DBG will help promote industrial growth under the 1D1F factory programme, support capital markets growth and bring a tremendous change to the citizenry.

The African Continental Free Trade Arrangement (AfCFTA) also continues to provide us with an opportune platform for the country to leverage on its industrial agenda. In order to stand tall among our trading partners and boost intra-african trade, the government must seek to strengthen and reform some agencies such as Ghana Export Promotion Authority (GEPA), Free Zones Authority, Ghana Exim-Bank, Ghana Investment Promotion Centre, Shippers Authority, Ghana Institute of Freight Forwarders in order to facilitate industrial-trade growth of the country.

These agencies are expected to attract foreign investment, deepen export-import growth, boost local manufacturing and facilitate financial support through the government National Entrepreneurship and Innovation Programme.

The Government priority of building a strong automobile base in Ghana should be given the needed resource and regulatory support to help sustain their production in the medium-to long term.

The Government should once again take the necessary steps to ensure that other sectors of the economy take advantage of the Interim Economic Partnership Agreement (IEPAs) and other bilateral and multilateral trade agreements undertaken or signed on within this period of the covid-19 pandemic.

What is important for the Government and the respective agencies of trade is to ensure that there is an avoidance of conflict neither exclusions between the AfCFTA, IEPA and CET as well as other trade protocols in terms of regulatory standards as it occurred in early 2008 coming into force of the Economic Partnership Agreement in the end year 2007.

Recommendations

The Government in combating and mitigating covid-19 impact on the economy and the lives of the people, rolled out numerous social intervention programmes. In an interview with Richard Quest (CNN) on 2nd July, 2021, Ghana’s Finance Minister was asked “what financial needs the Government requires from the rest of the world, and what more was needed for Ghana...not what you have done; and what is the unfinished business that you have to do for Ghana”. Much has been done but more needs to be done to revive, alleviate, sustain and drive the economy by equally considering the following suggestions for the short-to-medium term prospect of the nation.

• Ensure the availability of the covid-vaccine by tapping into the IMF $50 billion fund.
• Increase the covid-19 vaccination coverage to sustain lives both aged and the young.
• Downward adjustment (reduction) of Telecommunication tax to support digitization efforts and reduce the cost of online data.
• Ensure a policy adjustment of the Covid-19 levy and suspend other roll up taxes earmarked for implementation as was indicated in the 2021 Budget Statement.
• Review and adjust the Energy Sector Recovery Levy (Delta Fund) to reduce the transmission effect on the economy to alleviate hardship and the materialisation of the tax incentives provided to the tourism industry.
• Ensure effective roll-out of the $1 million per constituency project to enhance the financial strength of the District to help support community agriculture and infrastructurebase projects.
• Increase the social reliefs to cover people who could not benefit from the Unemployment Insurance scheme and other policy programmes.
• Ensure transparent allocation of resources to the real sectors of the economy to propel short term growth and value for money.
• Ensures the establishment of the Development Bank of Ghana (DBG) to facilitate transparent and efficient financial resource support to businesses in Ghana.

Samuel Okyere Donkor (INVESTMENT BANKER)

Atta Takyi – POLICY ADVISOR (CO-AUTHOR)

Contact # 0509105121

Email address: [email protected]