COVIDNOMICS: 2021 Mid-Year Budget Review – Never Too Late To Be Done
Introduction While the covid-19 pandemic continues to ravage the world, distort economic principles, create divergence in capital growth, ruin the lives of people and cause a steady global recovery from fiscal and monetary space, it is imperative that countries continue to implement sustainable and renewable measures that will propel economic and societal growth as well as combat the spread of covid-19 pandemic.
At this crucial moment when the world is working tirelessly to get the world vaccinated, it is important to acknowledge the relentless efforts nations have put together to produce the covid-
19 vaccines.
As the Government of Ghana prepares to deliver its 2021 Mid-Year Budget Review, it is
necessary to provide cogent and realistic policy directives that can help foster economic growth and development.
In doing so, let us consider the following strategic questions that can serve as a guide for
effective resource mobilisation and allocation particularly, in this era of fiscal constraints
emanating from the pandemic.
Firstly, how long can the Governments of the ‘World’ afford to persist with policies that seem to achieve so little or policies that seem to negate the gains made so far. Secondly, how does the Government of the ‘World’ realise that it’s ‘in economic crisis’ to wit-
policies are not working to the expectation of its citizenry. It is important that we think through
strategically especially at this crucial time of the raging pandemic.
Mid-Term Sustainable Measures
Notably without recourse to economic disarrays, this piece of work will be solely advisory and
not binding bearing in mind my professional background. It will also be unethical and
unconventional to pre-judge the Finance Minister’s work but my direction will be based on Strategy, Risk, Opportunities and Recommendations.
Strategy Ghana is in the ‘pole position’ amongst its competitors within the sub-region and if the nation were to be in a Formula 1 race, one mission will be required to drive and survive in the fast
lane.
Covidnomics has presented us with opportunities, unfortunately we seem to let odd theories
and unorthodox practices tie us to a path that will continue to create an unstable financial and
economic system in this era of the covid-19 pandemic.
It’s important to bring in different investment approaches such as building partnerships across
nations, persuading investors, regenerating new sites for homes, industrial development and artisanal jobs as well as securing investment to revitalize cities, towns and villages. These
creative investment ideas will help the regions and the municipalities to raise revenue, balance
fiscal books and reduce debts.
The Government’s stimulative policies are unprecedented in range and scale, however, it is
creating a slow growth economy as compared to a fired-up economy as expected. In situations
of such nature, research makes us believe that;
“In periods of benign financial conditions, disaster myopia is likely to lead to decisions regarding
allocations of economic capital, the pricing of credit risk, and the range of borrowers who are
deemed credit worthy, that make the financial system increasing vulnerable to crisis” (R.
Herring,1999, P63).
Another burning issue has to do with fiscal discipline especially, as the nation has run a deficit
economy for so many years. People are of the expectation that the government cuts down on
spending by enforcing the efficient implementation of the Public Financial Management Act.
This would help the government to accommodate some of the challenging issues for the next
six months without exceeding targeted budgetary expenditures and reduce the deficit of the
country for the end year 2021.
In effect, the mid-year strategic plan of the Government should consider such laid down
strategic measures above to ensure a proper allocation of economic capital and resources to
the appropriate real sectors of the economy to help drive growth and avoid short-term economic
shocks.
Risk
The Ghanaian economy needs a holistic policy framework to be re-engineer for future events
and avert any unforeseen situations. No country ever prepared for covid-19, it just surfaced
and till now the uncertainties of the future still remain a threat due to its impact on economies.
The late Herb Stein, an American Economist, pointed out that, “if something can’t go on forever,
then it will stop”. This draws attention to the rising debt due to successive governments inability
to reduce borrowing from the capital market, mostly attributed to shortfalls in revenue
mobilisation.
Moreover, figures released by the Bank of Ghana in May 2021, puts the country’s debt stock
at GH¢304.59 billion. The IMF has projected that the nation’s debt may reach 81.5% of GDP if
care is not taken. The mitigation factor is gradually fading out as a nation and the risk exposure
around debt management is high which makes it more critical for the Government and the
relevant stakeholders of the economy to break the cycle of unsustainability and forge a new
niche for equity(s).
Likewise, one of the investment pots that the Government employed during the peak of covid-
19 was the National Board for Small Scale Industries now Ghana Enterprises Agency. The aim
of the investment portfolio was to elevate, revive, and sustain businesses as well as citizens, from experiencing major economic shocks from the pandemic through the provision of financial
support.
Nonetheless, the investment portfolio had been exposed to a considerable amount of risk such
as fraud, momo fraudsters, debt recovery impasse, data errors and many more. These
shortfalls limit the vehicle in exploring further under the current economic dispensation and as
such making it difficult to drive long-term growth of the country. The government must rather
focus on using the Ghana Enterprises Agency for short-term economic gains.
Opportunities
The covid-19 pandemic has been a blessing in disguise though the devastating effect on
economies is unbearable. This has created the green opportunity for nations to formulate their
own short-to-medium term economic policies to mitigate the risk of the pandemic on economies
and sustained growth. The current economic system requires a pivot-driven vehicle that can
efficiently and effectively oversee and facilitate the financial policies of the government towards
achieving its development goals through equity-financing. Which is critical for the Government
at this momentous time to implement the Development Bank of Ghana (DBG) to drive such an
agenda.
Moreover, DBG must be a catalyst of change and must address Ghana’s industrial capital gaps.
The characteristics of the bank must drive economic transformation and facilitate an avenue
for job creation.
The Bank’s success must be dependent on its Target Operating Model (TOM). The TOM must
envisage a long-term benefit to sustain, protect, and revive the economy. Any misstep in the
model will make it a duplicate function of existing state-owned banks such National Investment
Bank (NIB), Agriculture Development Bank (ADB), Universal Merchant Bank (UMB) etc.
Furthermore, the proof of concept for the bank must be modelled around a hybrid system that
would help accommodate entrepreneurs and start-up businesses. Since the model of the bank
is directed to agro-processing and manufacturing only. Such a limitation should be critically
looked at in order to enable entrepreneurs and start-up businesses including technological
companies, artisans, construction firms etc to access capital from the bank.
Luckily, the Government’s injection of GH¢100billion to the economy via Development Bank of
Ghana must be action oriented and with a sense of urgency to help bring the Ghana CARES
programme to fruition. It is our expectation that the establishment of DBG will help promote
industrial growth under the 1D1F factory programme, support capital markets growth and bring
a tremendous change to the citizenry.
Recommendations
The Government in combating and mitigating covid-19 impact on the economy and the lives of
the people, rolled out numerous social intervention programmes. In an interview with Richard
Quest (CNN) on 2nd July, 2021, Ghana’s Finance Minister was asked “what financial needs
the Government requires from the rest of the world, and what more was needed for Ghana…not
what you have done; and what is the unfinished business that you have to do for Ghana”. Much
has been done but more needs to be done to revive, alleviate, sustain and drive the economy
by equally considering the following suggestions for the short-to-medium term prospect of the
nation.
● Ensure the availability of the covid-vaccine by tapping into the IMF $50 billion fund.
● Increase the covid-19 vaccination coverage to sustain lives both aged and the young.
● Downward adjustment (reduction) of Telecommunication tax to support digitization
efforts and reduce the cost of online data.
● Ensure a policy adjustment of the Covid-19 levy and suspend other roll up taxes
earmarked for implementation as was indicated in the 2021 Budget Statement.
● Review and adjust the Energy Sector Recovery Levy (Delta Fund) to reduce the
transmission effect on the economy to alleviate hardship and the materialisation of the
tax incentives provided to the tourism industry.
● Ensure effective roll-out of the $1 million per constituency project to enhance the
financial strength of the District to help support community agriculture and infrastructure-
base projects.
● Increase the social reliefs to cover people who could not benefit from the Unemployment
Insurance scheme and other policy programmes.
● Ensure transparent allocation of resources to the real sectors of the economy to propel
short term growth and value for money.
● Ensures the establishment of the Development Bank of Ghana (DBG) to facilitate
transparent and efficient financial resource support to businesses in Ghana.
SAMUEL OKYERE DONKOR (INVESTMENT BANKER)
ATTA TAKYI – POLICY ADVISOR (CO-AUTHOR)
[email protected]