Ghana economy responding positively, but more need to be done

Adnan Adams Mohammed

 

Bank of Ghana’s surveys on consumer confidence indicate that economic activity had started picking up in some sectors of the economy, showing signs of recovery after the pandemic’s ravage.

To consolidate the economic gains, post-COVID-19 rebuild, the Governor of the Bank of Ghana calling for the need for government to develop a new medium-term macroeconomic framework to return the economy unto a path of fiscal consolidation. Indicating that, whatever framework is developed should include a clear priority towards expenditure rationalization and revenue mobilization.

The Governor, who had earlier on raised questions about the sustainability of the implementation of COVID-19 related interventions meant to cushion Ghanaians and businesses against the adverse impact of the global pandemic, the cost associated with the interventions, the governor admitted, had pushed Ghana’s total public debt stock to GHS273.8 billion as at the end of September 2020.

“Business confidence has also improved although the index remained below pre-lockdown levels. Our latest high frequency economic indicators, such as consumer spending, industrial consumption of electricity revitalise businesses and cushion households will have to be defined to scale and there should be no expectation that these should become permanent obligations of government,” Dr. Ernest Addison noted when speaking at the recent University of Ghana Alumni Lecture.

The Governor, in his lecture, also stated that a wide fiscal gap raised important financing issues, stressing that, its financing should not be by recourse to central bank funds, as doing that would weaken the central bank’s ability to serve as the anchor of monetary and exchange rate stability.

 

Dr Addison, however, warned that the global economy was not out of the woods yet, neither was the Ghanaian economy.

 

He said the pandemic and its socio-economic impact would be felt long after the global community reached herd immunity and started seeing the full benefits of the success in the vaccines.

 

"This means as public policymakers, we will still be faced with tough decisions that require a response function asymptotic to Pareto principles. The critical decisions that we take will be judged by posterity," Dr Addison said.

 

The Pareto principle postulates that for many outcomes, an average of 80 percent of consequences come from 20 per cent of the causes. This means the country should focus on doing the few most important things that can trigger widespread impact on the rest of the economy.

 

“At the end of the year, the stage is set to redesign a medium-term macroeconomic framework to return the economy to fiscal consolidation and to further consolidate macroeconomic stability to provide an essential lever for positioning the Ghanaian economy on a path of higher growth, job creation, and faster pace of poverty alleviation.”

 

“Public debt levels have risen following the necessary fiscal expansion in the short-term to contain the impact of the pandemic. Hence, there is the need to design a plan to bring down the debt to sustainable levels to contain risks posed to future financing of the budget, exchange rate stability and financial sector stability post Covid-19. The framework should include a clear priority towards expenditure rationalization and efficiency, as well as improving revenue collection capacity,” he added.

 

Dr. Addison reiterated the need for constant regulatory and policy attention on Ghana’s financial sector in the coming year to ensure sustained financial stability.

 

Despite the Bank of Ghana concluding three years of banking sector reforms, which saw an increase in the minimum capital requirement, revocation of licenses of insolvent institutions as well as a complete overhaul of the regulatory and supervisory frameworks for the financial sector the Governor continues to preach vigilance.

 

According to Dr. Addison his outfit will be putting a lot of effort into identifying warning signals and initiation corrective actions to ensure the financial sector thrives.

 

“By and large, the economic impact of the pandemic may result in higher non-performing loans and some capital erosion of banks. Hence, the Bank is putting greater focus on identifying the early warning signals and initiating prompt corrective actions.”

 

But, Head of the Economics Division at the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey do not want the government to blame COVID-19 for the entire magnitude of the woes of the economy as the country is nakedly exposed with how the economy was on its knee-jerk, alluding that, the Ghanaian economy was in recession before the pandemic.

 

“Once we have recorded two negative growth rates consecutively then we can say there was a recession,” he stated.

 

Consequently, in an interview, he said, although the economy recorded negative growth for the second consecutive time, there was still some positive as it appears the negative growth rate was improving, considering that the negative growth rate for the second quarter was 3.6%.

 

“If you look at the numbers, in 2020 quarter two, it was -3.6%, but 2020 third quarter it was -1.1 so we can say the negative growth is improving and hopefully, we will see some marginal positive growth rate in the last quarter,” he explained.

 

From the Ministry of Finance data, economic growth without oil also contracted by 0.4 per cent which compares to a growth of 4.6 per cent in the same period in 2019.

 

The agriculture sector recorded the highest growth of 8.3 per cent in the third quarter. The industry sector contracted by 5.1 per cent, while the services sector contracted by 1.1 per cent.

 

Key sub-sectors that contracted in quarter three of 2020 included; hotel and restaurants which contracted by 62.1 per cent; mining and quarrying which contracted by 16.9 per cent; trade, repair of vehicle, household goods which contracted by 7.7 per cent; and forestry & logging which contracted by 6.8 per cent.

 

The main sub-sectors that expanded in quarter three of 2020 also included; information & communication which expanded by 51.3 per cent; fishing which grew by 20.4 per cent; real estate which also grew by 12.2 per cent and; electricity which expanded 11.6 per cent.

 

Presenting the third quarter data, Government Statistician, Professor Samuel Kobina Annim, said the GDP (Including Oil & Gas) estimate at constant 2013 prices for the 3rd quarter of 2020 was GH¢41.05 billion compared to GH¢41.51 billion the third quarter of 2019.

 

He said the non-oil GDP at constant 2013 prices for the 3rd quarter of 2020 was GH¢37.79 billion compared to GH¢37.95 billion for the same period in 2019.

 

As it stands now, the Services sector was the largest sector of the Ghanaian economy in the third quarter of 2020 with a share of 42 per cent of GDP at basic prices.

 

The GDP share of industry and agriculture were 35 per cent and 23 per cent respectively.

 

In the Agriculture sector, the fishing sub-sector grew by 7.7 per cent in the 3rd quarter of 2020, compared to 0.05 per cent in the 2nd quarter of 2020.

 

The crop subsector also grew by 2.2 per cent compared to 0.6 per cent recorded in the 2nd quarter of 2020. The Llvestock sub-sector grew at a slightly lower rate of 1.1 per cent in the 3rd quarter of 2020, compared to a growth of 1.2 per cent in the 2nd quarter of 2020.

 

The forestry and logging subsector contracted by 1.8 per cent compared to a contraction of 2.1 per cent in the 2nd quarter of 2020.

 

Within the industry sector, the electricity sub-sector recorded a growth of 2.8 per cent in the 3rd quarter of 2020, compared to 3.5 per cent growth recorded in the 2nd quarter of 2020.

 

Water supply, sewerage, waste management & remediation activities sub-sector grew by 1.4 per cent in the 3rd quarter of 2020, compared to 2.4 per cent in the 2nd quarter of 2020.

 

Construction sub-sector grew by 1.0 per cent in 3rd quarter of 2020, compared to 0.9 per cent in the 2nd quarter of 2020.

 

Manufacturing recovered from a contraction of 3.6 per cent in 2nd quarter of 2020 to record a 1.1 per cent growth rate in the 3rd quarter of 2020.

 

The mining and quarrying sub-sector contracted by 4.5 per cent in the 3rd quarter of 2020, from -1.4 per cent recorded in the 2nd quarter of 2020.

 

In the Services sector, information and communication grew by 8.2 per cent in the 3rd quarter of 2020 compared to 15.7 per cent in the 2nd quarter of 2020.

 

The real estate sub-sector also slowed to 3.2 per cent in the 3rd quarter of 2020 from 0.8 per cent recorded in the 2nd quarter of 2020.