Economic crises or recessions are often caused by market corrections, market failure, external
trade and price shocks political instability and civil unrest through protests. Ghana had expected that the Coronavirus disease 2019 (COVID-19) which began in Wuhan-China would have been controlled in a manner such that its spread would not have been global but restrained. But this was not to be. As at April 15, 2020 11:14 GMT, there were 2,014,554 confirmed cases and 127,598 deaths globally. Out of this number 491,842 have recovered. The Coronavirus covid-19 has affected 210 countries and territories around the world and 2 international conveyances. There are now more cases outside China (1,932,259) than in China (82,295); data from John Hopkins University. Myths about the virus not being able to survive in Africa were soon
busted, with at least 52 countries in Africa, including Ghana (636 cases confirmed). According to the Ghana Health Service (GHS) as at 13th April, 2020 a total of 44,421 persons have been tested for covid-19. Out of the 636, 17 have been treated and confirmed negative and discharged, 605 are categorized as mild cases, 2 moderates to severe cases, 8 deaths and none in critical conditions. A total of 10 Regions have confirmed cases with a male to female percentage ratio of 59:49. That the Corona virus is now a pandemic is not an issue to debate. What is now crucial in the economic front is to trace origins of the economic effects of the pandemic, count the cost, and see how to mitigate the headwinds and repercussions. Most crucial is its effect on macroeconomic factors especially inflation which will be considered greatly.
- Impact on Covid-19 on inflation and the Ghanaian economy.
The emergence of the Novel Coronavirus in November 2019 has led to tremendous changes in projections of the global economy. The virus has not only had a toll on the health of people across the globe, but also, it is projected that, the virus may lead the global economy to a recession, worse than the financial crises of 2009; (International Monetary Fund). According to the Organization for Economic Cooperation and Development (OECD), global growth prospects remain highly uncertain with a projected annual GDP growth rate of about 2.4%.
The effect of the virus in an economy includes the rising unemployment levels due to closure of businesses. For instance, in the United States alone, about 10 million people applied for unemployment benefits in the last two weeks in March (IMF). Coupled with the rising unemployment rate is the increase in inflation rate which is caused by global shortages of not only health equipment, but also, global food supplies.
Inflation rate is basically the rate at which prices are increasing in an economy. This is usually as a result of either an increased in demand or increased in cost of production or both.
The inflation rate in Ghana has fallen from 15.2% in 2016 to 7.8% in 2020 (BOG). However, key among the concerns in Ghana ever since the break out of the pandemic in the country, is the rate at which the prices of certain goods and services will rise. The following explains the impact that the novel corona virus has on the inflation rate in Ghana.
Due to the mode of transmission of the virus, government has imposed partial lockdown in some parts of the country, whilst certain areas of the country have restrictions on movement and gatherings. In order to properly enforce the lockdown directive, government has prepared some packages for poor families as well as businesses that would be hit hard. For instance, government has increased the salaries of front-line health workers whilst absorbing the water bills of all households in the country for three months. All these relief packages are to ensure that, the burden of the ordinary Ghanaian is reduced during this lockdown period.
However, the impact of all these policies is that, even though people are not working, they are still able to spend more because government has absorbed some of their cost of living. People can now spend on goods that they could not afford prior to the lockdown, notwithstanding the fact, people in the informal sectors will see a likely fall in income levels.
Now in analyzing the impact of this lockdown on families, individuals who are in formal type of employment especially in the public sector, will become better off because, whilst they are enjoying some of these relief packages due them, they still receive their salaries. This means, people within this kind of situation will rather witness an increase in income, hence, they are likely to spend more on certain essentials like food etc. On the other hand, people in informal types of employment are likely to experience a drop in income since they are unable to work.
In addition, prior to the announcement by the president on the lockdown, there were various calls on the president to impose stricter restrictions on movements of citizens. These calls led to a general suspicion that, sooner than later, the government was going to impose a lockdown. This led to an expectation of a possible shortage of certain important commodities like food in the market. This informed an expectation of a possible increase in prices. Consequently, panic buying resulted in the spike of prices of food items and even some key materials which are necessary for fighting the virus like “Veronica bucket”, hand sanitizers among others.
According to a Bank of Ghana’s press release on 18th March 2020, as part of measures to aid cash flows during this time of the virus, the Bank of Ghana announced a reduction of the policy rate to an 8 year low of 14.5%. In addition, they reduced the reserve requirements from 10% to 8%, the capital conservation buffer from 3% to 1.5%. These measures are to enable banks provide loans to businesses and individuals at a lower rate. This simply means that, the central bank increased the supply of money in the economy. These policies by the Bank of Ghana has also triggered some banks such as the Republic which also deferred payments of their loans by six (6) months. All these policies culminate into higher income levels for people, especially those in formal sector employment since they are those who easily access loans. And with production of many goods and services at halt, coupled with the closure of bothers by many countries, it means if covid-19 persists, people will have money, but limited goods to buy. This will definitely lead to a spike in the general price levels of especially, food and medical stuff.
In fact, the situation is aggravated because it’s a global pandemic. According to the OECD, Ghana imported food worth $13.2 billion in 2017 alone. Out of this $13.2billion, about $3.08 billion worth of food was imported from China, 1.1billion from the United States, followed by India, Belgium-Luxembourg and United Kingdom. Unfortunately, with most of these countries been hit hard by the virus means that, global supply of food will reduce drastically. This means that, individual countries will have to depend more on their internal buffer stock throughout this period. The Bank of Ghana in its monetary policy press release on 18th March 2020 indicated that, there is a likelihood of export restrictions from advanced and other emerging economies which could create supply chain shortages for Ghanaian businesses that depend on import as raw materials as well as food and other capital goods in Ghana.
The overall impact of these policies is that, demand for certain products like consumption goods are likely going to witness significant increases, which will in turn cause their prices to rise. This is due to the fact that, there is little to no production in the economy, coupled with no importations, yet households have money to spend on these products.
Fortunately, the Saudi Russia price wars has led to significant reductions in the prices of fuel products in the market. This will have a counter effect on general price levels. Sadly, the laxed nature of laws enforcing transport services to reduce fees corresponding allows these service providers to extort the system by maintaining fairs. In addition, the directive of social distancing in Ghana, public transport services still charge higher fair. However, according to the Bank of Ghana, it is expected that, inflation will stay between the target of 8% (+ or – 2).
- Further implicative consequences; short- and long-term perspective.
Aside the expected impact on inflation, trade, investment and oil price slump regressive effects will also be witnessed.
Table 1. Reported COVID-19 cases among Ghana’s top trading partners as at 13th April, 2020.
|Trading partner||Confirmed cases of COVID-19|
|United States of America||614,246|
The number of infections of the Ghanaian trading partners as illustrated in table 1 above keeps sky rocketing daily. Globally, as countries tend to look inwards, export trade would decline while local
manufacturing of domestically consumed goods would receive a minor boost, provided funds,
raw materials and intermediate goods are available. Lockdowns and other trade restricting measures taken by these countries would weigh heavily on the Ghanaian economy
The continuation of covid-19 going forward from a larger bigger will result in an economic recession. It will impact negativity on stock decline, travel services, restaurants, durable expenditure, supply chain, with the most affected sectors being tourism and hospitality, aviation, airlines, automotive, consumer products
The socio-economic impact of the COVID-19 on the economy of Ghana is by direct and indirect routes. Directly through the effects of the disease on production, trade and investment within Ghana and between Ghana and the rest of the world (especially China, Europe and the United States), on global commodity (crude oil, gold, and cocoa) prices, on tourist flows, on fiscal stance, and on human life, especially the health and life of the most vulnerable and Indirectly through the slowing of global economic growth, supply chain disruptions, and by extension, the negative impact on Ghana’s own growth. (MOF Covid-19 statement)
The Finance ministry Ken Ofori-Atta on Monday 30th March, 2020 on the floor of parliament in presenting the economic impact of the covid-19 pandemic on the economy of Ghana highlighted the effects on GDP. “Even though events on the coronavirus pandemic are still unfolding, a preliminary analysis of the impact of the Coronavirus menace on the real sector shows that the 2020 projected real GDP growth rate could decline from 6.8% to 2.6% with an outbreak and 1.5% with a partial lock-down Mr. Speaker, the projected growth will further worsen in the event of full lock-down.” In addition, Crude oil prices have declined from US$63.21 a barrel in November 2019 to US$22.9 per barrel as at 30th March 2020. The sharp decline in crude oil prices will result in significant shortfalls in petroleum revenue for the 2020 fiscal year. On trade and industry, the reductions in imported intermediate goods could significantly slowdown manufacturing activities in Ghana. Reductions in imports of goods and services is, however, expected to reduce the demand for forex for importation of goods and services. This has a favourable impact on foreign exchange volatility and on our net international reserves.
Conclusions and Recommendations
- With little or no government interventions, economic costs will be immense.
Government priority should be on health expenditure but need a strategy to flatten the
contagion curve that may spike back in the Fall of 2020 and beyond.
- Government spending should be now and as large as the predicted economic costs,
focusing directly on cash disbursement to firms and households
- Central banks should provide financial backing to the government, not just through their own reserves but also by printing money if necessary.
- Uncertainty, panics and lock-down policies key to drive large drop in demand.
- The investment of many firms (esp. small and young) and spending of many households (esp. renters and mortgagors) depend largely on cash flows. Large drop in demand thus force these firms to close. This leads to a rise in lay-offs and a further drop in consumption thus leading to a depressing loop.
Source: Yohaness Kofi Kuvor Awunyo | University of Ghana Business School