The Economic Impacts Of COVID-19 And Ghana’s Response
COVID-19 cases have been confirmed in 176 countries across the globe as at 10:23 GMT of March 19, 2020. The World Health Organization has declared it a public health emergency of international dimensions.
More than 85,785 people around the world have recovered from COVID-19, out of 221,312 confirmed cases of the disease. The virus has caused or contributed to the deaths of over 8,997 people, while the remaining 126,530 cases are still active.
Ghana has so far recorded 16 cases of the pandemic. Three (3) Ghanaians living abroad had lost their lives due to the outbreak. As a precaution to counter the spread, the President of Ghana placed a suspension ban on all public gatherings such as festivals, rallies church activities, weddings, and funerals for the next four weeks. Also, basic schools, Senior High Schools and Universities, both Public and Private have been closed. B.E.C.E and W.A.S.S.C.E candidates are only permitted to go to school under social distancing protocols.
Coronavirus has distressed China's economy and the nightmare is not over. Approximately 60% of the global COVID-19 cases are currently outside China, the original source of the disease. It was initially assumed that the outbreak would be a localized problem for China and that any spillover effects to the rest of the world could be comfortably managed.
Now, Coronavirus pandemic is shutting down the economic pillars of the world, inevitably leading to a global recession with very different vulnerabilities than on the eve of the 2008-2009 global financial crisis.
The economic disruption caused by COVID-19 is enormous. Entire countries like Italy and Spain are in lockdown. The problems facing airline companies are symptomatic of a crisis facing the global travel industry, from cruise companies to hotels that cater for tourists. Discretionary spending by consumers appears to have collapsed. The imminent recession will be U-shaped: a steep decline followed by a period of bumping along the bottom. There will be recovery but it will take time after some level of damage has been caused. The extent of the damage depends on the response by policy makers.
The US central bank is slashing interest rates to near-zero and promise to resume large-scale asset purchases. This is to help American families and businesses in the economy weather difficult period and foster a more vigorous return of the economy. In the UK, there are coordinated efforts by the Bank of England and the Treasury to respond to the crisis.
UK has set up £12 billion support package for households and businesses to minimize Covid-19 impacts. The Bank of England’s monetary policy committee is expected to cut interest rates from 0.25% to a record low of 0.1%, and resume its quantitative easing package. There have been comfortable signs from Italy and Germany of the need for their governments to spend big to restore their economies back on tract.
Ghana’s Minister of Finance announced the cedi equivalent of $100 million to enhance Ghana's COVID-19 preparedness and response plan. Ghana is expecting funding from the World Bank, IMF and the stabilization fund to bridge the financing gap. The Bank of Ghana’s Monetary Policy Committee met on Wednesday, March 18, 2020 to assess the impact of the coronavirus pandemic on the domestic economy. The Committee’s assessment of the situation and interventions will be communicated to the public on Monday, 23rd March 2020.
The Bank of Ghana has asked all Banks, Savings and Loans Companies, Finance Houses, Microfinance Institutions, Rural and Community Banks and Foreign Exchange Bureaux, to activate their business continuity and disaster recovery plans proportionate to the current circumstance, and to review these plans as the situation changes.
It has been clear from the start that COVID-19 affects both sides of the economy: supply and demand. The supply of goods and services is impaired because factories and offices in some affected economies are shut and output falls as a result. Importers in Ghana cannot import goods from China and other parts of the world. Demand is also falling because many consumers stay at home and stop spending, and some businesses have postponed investment.
The conventional policy measures such as cutting the cost of borrowing or reducing taxes tend to work better when there is such a demand shock. For the general public, the Government of Ghana may consider the reduction of the communication service and fuel taxes as a possible relief package.
In the event of a combined demand and supply shocks like COVID-19, we expect the Central Bank to include measures to remove supply constraints and to explore different scenarios on macroeconomic outcomes and financial markets. For instance, the government can use a stimulus package to support businesses that have been tax compliant.
China is the world's second-largest economy behind the United States. China's GDP was $14.3 trillion (99 trillion Yuan) in 2019. With the Coronavirus, It has been predicted that China's economy will contract by 6% in the first quarter, compared with the same period a year ago. China's unemployment rate has shot higher, up to 6.3% in February from 5.2% in December.
Ghana is now the 7th largest trading partner of China in Africa. The partnership between these two countries brought significant gains as Ghana-China trade volume registered over $6 billion in 2017. Also in terms of export and import between the two countries, China export to Ghana was $4.8 billion and import from Ghana was at about $1.8 billion. China’s non-financial direct investment inflows into Ghana hit $123 million and the volume of China’s newly signed contracts in Ghana reached $2.9 billion making Ghana stand out among African countries with these figures.
Substantial number of Ghana’s importers or traders buy goods from factories in China. Many of these factories are currently shut down. Ghana will definitely suffer in terms of goods, incomes and tax revenue from a dependable trade partner. Also, Ghana’s current account components like merchandise trade, services and unilateral transfers are bound to suffer.
As a country, we need to institute measures to promote export and restrict imports by encouraging domestic production. We have to reconsider the conventional wisdom of import substitution. We must produce more of commodities we consume at home and to look for resources to increase local production in order to reduce the heavy dependence of our economy on the external sector. The One-District-One-Factory (1D1F) initiative aims at establishing at least one factory in each district across the country must be vigorously pursued.
We must continue to implement trade policies that create jobs, support Ghanaian Small and medium-sized enterprises to be globally competitive and address structural factors that inhibit net export and domestic production.
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