Accra, Ghana, April 14, 2020//-A Ghanaian economist and Professor at the University of Cape Coast (UCC), John Gatsi has drawn the attention of the government to fiscal and reserve data as it jubilates over the release of IMF’s $1 billion cash.
This IMF loan according to him has displayed some important fiscal management issues that make the prudent utilization of the Rapid Credit Facility (CRF) by Government of Ghana comparable to the canonical demands of the Ten Biblical Commandments.
Overall, the fiscal deficit deteriorated from -7% of GDP in 2018 to -7.5% in 2019 and is projected to further decline to -9.5% in 2020 based on government data submitted to the IMF inclusive of financial and energy sector costs.
The primary balance which is a critical domestic anchor for debt sustainability also deteriorated from -1.1 in 2018 to -1.8 in 2019 and expected to close the year 2020 with -4.1, Prof Gatsi added.
“The debt to GDP ratio has also deteriorated by 4.2% (59% to 63.2% from 2018 to 2019) and projected to worsen to about 69% in 2020, excluding ESLA bonds.
There will be about 6.5% reduction in GDP per capita for Ghanaians between 2019 and 2020. This compromises the share of Ghanaians in the national cake”.
While the expectation for recession is a possibility for fragile economies in Sub-Saharan Africa, if the coronavirus disease 2019 (COVID-19) pandemic is contained early enough, Ghana may not slip into a recession but will experience sharp reduction in economic growth from 6.1% in 2019 to 1.5% in 2020, he projected.
This is why judicious application of all the funds being generated from the World Bank, IMF, the Stabilization Fund and the COVID-19 Trust Fund is required with greater transparency and accountability.
“We must apply the funds to avoid delay in resuming normal economic activities. We must avoid food crisis in post coronavirus era”.
In 2020, oil GDP is cut to about -2.1% with ever dwindling donor support expected to be about $514 million in 2020 against $826 million in 2019.
The government the economist said must deal with this crisis to hold the confidence of foreign investors to apply the break of investment withdrawals or dis-investing.
The IMF indicated balance of payments as one of the areas that the $1 billion disbursement will address. The gross international reserve which is a protection for domestic currency performance and confidence of foreign investors is not in good shape.
On average, between 2018 and 2020 the gross international reserve covers about 2.9 months of imports in which 2.7 months of imports is expected in 2020.
This means between 2018 to the first quarter of 2020 there is no record of the reserve performing better than what is presented to IMF, Prof Gatsi who is also the Dean of the UCC Business School, explained.
The net international reserve, which in practice is the critical measure, averages 2.2 months of imports from 2018 to 2020 with expectation of 2.1 months of imports in 2020, he added.
“While Parliament did a good job by providing fast track approval to government to borrow from the IMF, the reality is that there are recorded deterioration in the key fundamentals before the coronavirus.
Government should make good use of the flow of funds. This is important as the chances that government may bundle more areas that will create further problems is high”.
Prof Gatsi demanded that the criteria for individuals and businesses to benefit from the Coronavirus Alleviation Program should be made more transparent and well targeted.
“A matrix of primary balance, lower revenue prospect, critically low expected growth rate, heightened expenditures and deteriorating debt to GDP ratio as well as the weak international reserve position makes 2020 and 2021 very difficult years for the Ghanaian economy’.
In the midst of the Ebola crisis, energy sector crisis and collapsed of crude oil prices spanning from 2013 to 2016 with the right decisions and investments of available funds, Ghana’s economy did emerge stronger.
Though, one is not compelled to compare the Ebola period with Coronavirus pandemic, the two periods remain times of massive shocks that require similar determination and commitment to rewrite new financial and fiscal notes about the Ghanaian economy.
African Eye Report
