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IMANI Policy Brief: Don’t let the short-term crisis measures reverse regulatory gains made in supporting prudent fiscal behaviour


The global economy is facing its most daunting headwinds for the first time since the 2007-2008 global financial crisis. The Coronavirus (COVID-19) pandemic continues to impact us all through health and economic channels, indicated by increasing financial market stress, collapse in commodity prices, supply chain disruptions and the loss of jobs, among others. These have significantly dampened near-term growth prospects. The United Nations Department of Economic and Social Affairs (DESA) estimates that global growth could contract by 0.9% in the worst case — instead of growing by 2.5% — driven by the weakened COVID-19-related trade and investment climate. This would have significant impacts on people’s wellbeing. Likewise, the World Health Organisation (WHO) indicates that over 1 million confirmed cases of COVID-19 have been recorded globally, with more than 50,000 deaths reported. In Ghana, there have been 214 reported cases with five deaths as of 5 April 2020, according to official government statistics.

It is increasingly clear to many observers that the post-crisis recovery success will depend, crucially, on policies implemented during the crises to avoid making permanent and structural damages. Across the globe, most governments using monetary and fiscal policy institutions, are putting in measures to mitigate the ‘shocks’ effect on supply and demand-side dynamics, crucially capital accumulation. According to the International Monetary Fund (IMF), most of the policies globally have focused on:

1. Household – cash transfers of various forms, suspension of interest payments on loans, assistance to goods markets participants.

2. Businesses and private sector – suspension of interest payments, subsidies, tax and social security suspensions, the extension of maturities on loan facilities, direct credit provision by central banks, purchases of commercial papers and bonds and;

3. Financial sector – liquidity provisions to financial intermediaries, equity injections, government guarantees, and a cocktail of actions to preserve market liquidity.

The summary propositions above, constitute short term solutions which match up to the short-term supply and demand-side shocks and allow governments to monitor medium term to long term implications of policy actions. All economic actors have had to make drastic concessions and adjustments.

It is within this context that the Ghanaian government through the Minister of Finance and Economic Planning on 30 March 2020 outlined a strategy – fiscal measures to mitigate the impact of coronavirus pandemic including the Coronavirus Alleviation Programme (CAP), to manage the impact of the crisis on the Ghanaian economy. To this end, the solutions provided by the Ghanaian government must at the barest minimum address short term risks, with the limited potential of:

1. Damaging long term structural gains, and;

2. Undermining broad economic recovery strategies over the medium term.

The government’s estimate of the immediate (2020) impact of COVID-19 is a decline in growth from a projected 6.8% to 2.6% of GDP, with several implications for revenue mobilisation, and financing of government operations. The Minister of Finance suggests that “…the estimated fiscal impact from the shortfall in petroleum receipts, shortfall import duties, the shortfall in other tax revenues, the cost of the preparedness plan, and the cost of Coronavirus Alleviation Programme …is GHS9.5 billion (USD1.73 billion; 2.58% of revised GDP  )”. The fiscal deficit will increase from 4.7% of GDP to 7.8% of GDP without any measures in place, while the primary balance will decline from a surplus of 0.7% of GDP to a deficit of 1.4% of GDP. In contrast, the cost of cleaning up Ghana’s financial sector is reported to have cost between GHS17 (USD3.1 billion) and GHS20 billion (USD3.5 billion). 

Curiously, some of the proposed fiscal measures, leave more questions than answers which we set out in the below arguments. However, we first provide a summary of the actions announced by the government.




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