Analyst - PAGES

Tuesday, September 29, 2020
Economy on
course for
rebound
• Continued from front Page
The latest Composite Index of
Economic activity recorded year
on year growth of 3.6 per cent
over the 12 months to July, a
complete reversal of the record
10.6 per cent contraction
recorded by the index for the 12
months up to May.
This indicates that actual
Gross domestic Product growth
will be positive for the period as
well.
The BoG ‘s CIEa measures
changes in the quantum of
economic activity while
economic growth, as measured
by the Ghana Statistical Service
tracks changes in the value of
the economy as measured by
GdP. While the two are by no
means the same, they tend to
move in the same direction.
The first warning of the 3.2
per cent contraction in GdP for
the 2nd quarter came from the
10.6 per cent contraction in the
CIEa up to May.
according to the BoG however,
its survey shows that consumer
spending, industrial
consumption of electricity and
construction activities have all
reached pre-lock down levels,
while tourist arrivals and port
and harbor activity are gradually
edging upwards.
One the downside however,
imports, exports and private
sector contributions to social
security remain below pre
lock down levels.
Importantly, the BoG’s
Monetary Policy Committee
chose to retain the
benchmark Monetary Policy
Rate at 14.50 per cent despite
the fact that inflation
remains above the target
band of eight percent plus or
minus two percent (inflation
for august was 10.5 per cent)
in order to support economic
growth through relatively
cheap and accessible credit
for private enterprise.
The economic rebound is
being underpinned by
improving confidence from
both businesses and
consumers according to the
latest surveys of both
“
The economic
rebound is being
underpinned by
improving confidence
from both businesses
and consumers
according to the
latest surveys of both
economic segments
by the central bank.
economic segments by the
central bank. The latest
consumer confidence survey
indicates that consumer
confidence is bouncing back
strongly and is currently above
pre lock down levels.
Business confidence also
increased but is yet to match pre
lock down levels. However about
95 per cent of businesses
surveyed showed strong
optimism, reflecting the
improving macroeconomic
condition, stability in the
exchange rate, lower input prices,
moderation in lending rates and
positive industry prospects.
The BoG also points to other
indicators of an economic
recovery. according to dr Ernest
addison, the BoG ‘s Governor:
With the exception of workplace
clusters, which still remained
below baseline, all other
indicators embodied in the
google mobility data –
commuting and travelling, visits
to supermarkets and
pharmacies, and residential
activity have moved above
baseline.”
Furthermore, the Ghana
Purchasing Managers index,
which gauges the rate of
inventory accumulation by
managers of private sector firms
and measures dynamics in
economic activity, points to a
steady rise in business activity
since april 2020.
Instructively, the BoG now
reckons that Ghana can achieve
GdP growth for 2020 as a whole
of between 2.0 percent and 2.5
percent. This is more than double
the 0.9 percent growth projected
by the Ministry of Finance in
July.
dr addison admits that the
adverse effects of COVId 19 may
have been overestimated by
economic analysts, policy
makers and business regulators.
• Dr Ernest Addison, the Governor of the Bank of Ghana
Govt grapples
with fiscal deficit
pressures
GOVERNMENT recorded a
fiscal deficit of 7.4 per cent
of Gross domestic Product
for the first seven months of
2020 ie January to July.
This is marginally
higher than the 7.2 per cent
target for the deficit over
this period and suggests
that even the record high
fiscal deficit target for this
year, forced upon
government by the
extraordinary
circumstances and impact
of COVId 19, may be hard to
achieve.
It is instructive that the
higher than targeted fiscal
deficit was the result of
higher than budgeted
expenditure rather than
revenue shortfalls.
Between January and
July this year, total revenue
and grants amounted to
GHc27.7 billion which is
higher than the GHc26.8
billion expected over the
period.
However, total public
expenditure and arrears
clearance amounted to
GHc56.2 billion, which is
higher than the GHJc53.3
billion targeted.
Consequently, the
primary balance deficit of
3.7 percent was significantly
higher than the 3.4 percent
deficit targeted for the first
seven months of the year.
The out turn is
confirming the fears of
some economists and public
policy commentators that
even the record high fiscal
deficit targeted for 2020, in
order to cope with the
unprecedented debilitating
effects of COVId 19 will not
be achieved.
This year government is
aiming for an 11.4 per cent
fiscal deficit - more than
twice the temporarily
suspended ceiling on the
deficit of five percent of GdP
– because of the inevitable
effects of COVId 19 on
public revenues and the
need to increase
expenditures drastically to
meet health costs and
provide economic stimulus
for the economy in the
wake of necessary socioeconomic
restrictions
imposed to curb the spread
of the viral infection.
However public policy
analysts had warned that
the unusual circumstances
were also giving
government an excuse to
engage in extra budgetary,
general election related
spending; in short spending
to woo voters disguised as
social interventions to
ameliorate the effects of
COVId 19 on vulnerable
segments of the populace.
They warn that all sorts
of vested interests have seen
the opportunity to squeeze
money out of government,
who they believe will accede
because of the peculiar
circumstances.
For instance last week –
in response to loud protests
and election threats from
affected members of the
electorate - government
accepted to replace the zero
interest five year bond
issued to depositors of
liquidated banks and other
deposit taking institutions
with three year bonds that
have a coupon rate of 19 per
cent per annum and are
discountable on the
secondary market.
Questions are being
asked as to where the
GHc3.5 billion
in unbudgeted funds used
for this came from.
Worries are increasing
that these circumstances
will worsen further ahead of
the december polls.
already, Ghana’s public
debt has risen to 68.3 per
cent of GdP – GHc263 billion
– as at the end of July, from
62.4 per cent of GdP
(GHc208.2 billion) as at the
end of december 2019. If the
off balance sheet debt
resulting from financial
sector clean up and legacy
energy sector debts are
added on – as the
International Monetary
Fund suggests – then
Ghana’s public debt would
go above the 70 percent of
GdP upper limit for debt
sustainability.
Instructively the BoG
says the size of the fiscal
deficit is the major reason
why it ios not increasing its
monetary easing to support
flagging economic growth
due to COVId 19.