Prof Kusi Newman, Executive Director, IFS
THE SHARP fall in Ghana’s economic growth due to the novel coronavirus (Covid-19) is likely to be associated with a reduced rate of job creation and employment, the Institute for Fiscal Studies (IFS) has said.
It said the services sector, which was the biggest and most job-intensive sector of the economy, was also the hardest-hit by the pandemic.
“This situation is likely to amplify the effect of the crisis on employment. Already, the worst-impacted sub-sectors, such as tourism & hospitality, transport and education, have begun to shed jobs as businesses reel from shutdowns and shrunken demand. This points to significant economic and social costs of the Covid-19 pandemic in Ghana,” it mentioned in its recent assessment of Government’s Fiscal Policy amidst the Covid-19 pandemic.
The IFS said the projected steep reduction in economic growth would be driven by a 0.8% contraction in services, with output from the domestic trade, hotels & restaurants, real estate and transport & storage sub-sectors expected to shrink in real terms.
It pointed out that before the pandemic, services had been forecast to grow by 5.8%. Industry was predicted to grow by 0.8%, against a pre-pandemic projection of 8.6%.
“Of this, the oil and gas sector will be a negative contributor as it is expected to contract by 7.7%. Manufacturing is projected to grow by 0.5%, which is considerably less than the pre-pandemic forecast of 6.8 per cent. Agriculture is expected to grow by 3.7%, down from a pre-pandemic projection of 5.1%. This means agriculture is expected to be both the least-affected sector by the pandemic and the main contributor to the projected 0.9% overall real GDP growth rate.”
It continued that after averaging an annual growth rate of 7% in the last three years, the economy had been expected, before the outbreak of Covid-19, to maintain a rapid rate of expansion in 2020, with real GDP forecast to grow by 6.8%, according to the 2020 budget. From this initial rate, real GDP is now predicted to grow by just 0.9% in 2020.
“This means the pandemic is expected to show worse effects on the economy than earlier projected. The grim fact is that a growth rate of 0.9% would be the lowest in almost four decades. However, the brighter side of the forecast is that the Ghanaian economy is not expected to experience a contraction as is the situation for many other economies, including some peer countries in sub-Saharan Africa.”
Advice to Gov’t
Owing to the foregoing, IFS has advised government to among other things refrain from engaging in fiscal populism, despite the looming 2020 elections, in order not to compound the country’s fiscal problems.
“Indeed, a critical analysis of the economic history of Ghana reveals that fiscal populism has been one of the main causes of the country’s recurring fiscal and economic distress since independence.
It has therefore urged government to immediately seek debt reliefs, including debt forgiveness, from its major creditors so as to minimize the enormous size of the country’s debt service expenditure, which is consuming the biggest chunk of the country’s revenues (projected to be 71.6% of total revenue and grants in 2020).
Also it noted, “Take steps to reduce the rate of growth in employee compensation in order to minimize its relative size over time, generate more revenue, particularly from the extractive sector of the economy in the short to medium term.”
BY Samuel Boadi