Ghana, as we all know, operates the market economy system in which decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand.
The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and other factors of production. Market economies range from the minimally regulated free market and laissez-faire systems where economic activity is restricted to providing public goods and services and safeguarding private ownership, to interventionist forms where the government plays an active and major role in allocating resources, capital and promoting social welfare.
State-directed or centrally planned economies are those where the state plays a more directive role in guiding the overall development of the market through industrial policies or indicative planning which guides yet does not substitute the market for economic planning, a form sometimes referred to as a mixed economy.
Amidst the ongoing global crisis precipitated by the COVID-19 outbreak, significant steps have been taken in Ghana going in the right direction, but more needs to be done. As the virus spread across the continent, decisive and coordinated action is key to providing stability to Ghanaian Economy and its financial markets. Boosting confidence and preventing deep and prolong effects.
In our present state, some businesses might want to take advantage of the shocks created by the outbreak of the COVID-19. Governments can intervene by establishing price ceilings or price floors in specific markets, or use fiscal policy to discourage certain consumer behaviour or to address market externalities generated by certain transactions (Pigovian taxes).
Different perspectives exist on the role of government in both regulating and guiding market economies and in addressing social inequalities and market imperfections.
Fundamentally, a market economy requires that a price system affected by supply and demand exists as the primary mechanism for allocating resources irrespective of the level of regulation. Simply put, these price hikes of goods across the world now are due to the shocks we are presently experiencing from the outbreak, there's a high demand for goods and services so more likely there is going to be an increase in prices until demand and supply reach equilibrium. This is very normal hence let's brace ourselves in the coming days.
Nevertheless, there are economic measures Ghana could embrace to mitigate the impact of the COVID-19 outbreak. Some of the underlining measures may stabilize the market and ensure the country macroeconomic outlook is robust and well maintained;
i) Bank of Ghana should provide liquidity to support market functioning and create an enabling environment for growth through open market operations
ii) Stimulate aggregate demand to ensure confidence while reducing borrowing costs for households and firms. More importantly, the government could support fiscal stimulus to help reduce any potential supply shocks or disruptions until the COVID-19 outbreak fades.
iii) Government policy response needs to be tailored to existing administrative systems and capacity. Broader measures may be needed for efficient response and to improve borrows capacity to service loans and avert higher and catastrophic rate of nonperforming loans NPL within the banking sector.
Finally, it will be tricky to espouse inclusive measures to dodge without potential losses the impact COVID-19 could have on the economy, however, the government may need to step in with additional support measures including targeted subsidies and tax relief aimed at smaller businesses as well as credit guarantee and asset purchase to restore confidence and stem systemic turbulence.