On Thursday, March 30, Ghana’s Minister of Finance, Ken Ofori-Atta, read a statement to Parliament on the impact of the Covid-19 pandemic on the country’s economy. Titled, “Economic Impact of the Covid-19 Pandemic on the Economy of Ghana,” the statement updated Parliament on the macro-fiscal impact of the Coronavirus disease on the economy of Ghana and the measures government is taking to mitigate the impact.
According to the Finance Minister, even though events are still unfolding, preliminary analysis undertaken at the Ministry shows that the novel coronavirus pandemic will result in:
- significant shortfalls in petroleum receipts;
- shortfalls in import duties;
- shortfall in other tax revenues;
- increased health- related expenditures; and
- tight financing conditions.
Below are some key highlights of the Minister’s statement:
- Routes of Socio-Economic Impact: The socio-economic impact of the Covid-19 on Ghana’s economy is by direct and indirect routes.
- Direct Routes—This is through the disease’s effect on production, trade and investment within Ghana and between Ghana and the rest of the world (especially China, Europe and the United States), on global commodity (crude oil, gold, and cocoa) prices, tourist flows, fiscal stance, and on human life, especially the health and life of the most vulnerable.
- Indirect Routes—This is through the slowing of global economic growth, supply chain disruptions, and by extension, the negative impact on Ghana’s own growth.
- Impact on GDP growth: Even though the menace is still unfolding, preliminary analysis of the impact of the Coronavirus menace on the real sector shows that the 2020 projected real GDP growth rate could decline from 8% to 2.6% following the outbreak and 1.5% with the partial lock-down.
- Impact on the Hospitality Industry: The global trend in the cancellation of flights, closure of borders (land, sea and air), and the need to maintain social distancing, including the ban on public gatherings, are having huge negative impacts on economic activities in the hospitality industry. Among the worst hit are hotels, airline business, tourist sites and attractions, and car rental services.
- Hotel occupancy rates are down from 70% to under 30% and staff are being sent home. Even before the impact of the current lockdown, restaurants were already experiencing an average drop in patronage of 60%.
- Transportation services have been among the worst hit due to social distancing, closure of schools, and ban on public gatherings.
- Impact on Investments: Foreign Direct Investments (FDI) flows in 2020 have slowed down due to uncertainties surrounding the effect of the COVID-19. Foreign investors are not able to arrive in the country to transact or even undertake feasibility studies as a result of the closure of most borders of countries including Ghana’s and, in many cases, restrictions imposed in their own countries of origin.
- Impact on Trade and Industry: Trade volumes and values (both domestic and international) are also reducing. There are already significant reductions in trade volumes and values with many countries, especially China, which constitutes the highest of Ghana’s imports and the second highest of Ghana’s exports.
- Containers arriving at the ports have reduced by at least 33%, resulting in reduction in import duties. Reductions in imported intermediate goods could significantly slowdown manufacturing activities in Ghana.
- Reductions in imports of goods and services is expected to reduce the demand for forex for importation of goods and services. This has a favourable impact on foreign exchange volatility and on our net international reserves.
- Impact on Agriculture: Since agriculture does not require significant imported intermediate goods, impact of the Covid-19 may not be severe. Nonetheless, growth could slow-down as a result of disruptions in access to inputs, supply chain and lower demand activities. General shortage in food supply is anticipated if the pandemic intensifies. This could result in inflation in food prices, especially rice, bread, poultry and other meat products, vegetables, sugar and other commodities.
- Impact on Commodity Prices: The pandemic is also having impact on some commodity prices.
- As of March 30, 2020, Crude oil prices had declined from US$63.21 a barrel in November 2019 to US$22.9. The sharp decline in crude oil prices will result in significant shortfalls in petroleum revenue for the 2020 fiscal year.
- Consumers of petroleum products across Ghana are likely to benefit from the decline in international price of crude oil as the price of petroleum is likely to reduce.
- As a result of the Coronavirus outbreak, demand for Gold as safe haven has increased. This will likely impact positively on the balance of payments and receipts from mineral royalties in Ghana.
- There has also been a decline in cocoa prices from US$2,440 MT in December 2019 to US$2,253 MT as of 30th March, 2020
- Impact on Exchange Rates: The slump in import volumes will likely reduce the demand for foreign exchange for such imports, which may have favourable impact on foreign exchange volatility. On the other hand, reduction in exports from Ghana and investor capital flight could adversely affect the exchange rate volatility.