The Ghanaian economy is faced with multiple risks from plunging oil prices and the coronavirus pandemic that is ravaging many countries across the world, Prof. Godfred Alufar Bokpin, an economist at the University of Ghana Business School (UGBS), has said in a wide-ranging interview with Business24.
According to him, the government’s 2020 budget has been weakened barely three months into its implementation, resulting from happenings on the global front, and it will be difficult for the government to execute the budget as it is.
The budget’s targets have been thrown overboard to some extent, he said, as some of its core assumptions have been rendered invalid.
“Looking at the 2020 budget which was presented in November last year, we were hoping to do oil transactions at around US$62 a barrel, and now we are talking about US$30, with projections that it might fall further. This has implications for our budget outcomes,” he said in the interview.
Potential revenue losses from the oil price dip and the coronavirus pandemic, which traders say has restricted imports from China especially, are enormous and could worsen the 2020 budget deficit position, he added.
“If we look at the macro side, in terms of revenue losses to government, it will have implications for the delivery of services, especially to priority programmes like the Free SHS, which is funded from the oil revenue through the Annual Budgeting Funding Amount.”
The local currency, according to the economist, will also come under pressure as export earnings could fall on the back of lower oil prices.
Moreover, he explained, “assuming foreign investors, because of developments in the global financial market, decide to seek early redemption of their investments in government debt, they will demand dollars when exiting, even though the investments are cedi-denominated. This can cause some depreciation in the foreign exchange market, and the cedi could come under some cumulative pressure.”
Given that it is an election year, Prof. Bokpin observed that the current situation poses serious concerns for prudent management of the economy along the lines of ensuring strict compliance with the Fiscal Responsibility Act (FRA).
The FRA, passed in December 2018, bars the government from incurring a budget deficit exceeding 5 percent of GDP in any financial year. The 2019 deficit stood at 4.8 percent of GDP, and the 2020 target has been set at 4.7 percent of GDP.
To Prof. Bokpin, these are challenging times for the global economy, and Ghana as well, with policymakers increasingly spending quite a sizable portion of their time on measures to fight the coronavirus, all of which come with cost implications.
“Now the government is thinking of spending US$100 million on coronavirus. Where is the money going to come from? If it’s not coming from aid and we are not generating enough revenue, certainly we will have to borrow,” he said.
“Already, the predictions are very clear: a slowdown in the global economy, and if we are not careful, we may slide into a global economic recession. Given that we are in an election year, we have to be seriously concerned because oil plays a key role in our economy, in terms of both imports and exports,” he warned.