An Economist, Dr. Lord Mensah, has cautioned the government to be careful in its expenditure for the 2019/2020 financial year, particularly amidst the coronavirus pandemic.
His advice comes on the back of the government receiving 10 billion Cedis financial support from the Bank of Ghana to mitigate the economic impact caused by the coronavirus COVID-19. Finance Minister, Ken Ofori-Atta, on Wednesday, May 28, 2020, presented a report to Parliament particularizing the central bank’s support of 10 billion Cedis to government.
But Dr. Lord Mensah in an interview has said the government must be cautious because the period is an election year, hence, the country’s debt stock should not accumulate some more.
“We have ourselves in a situation which we must be conservative. The prudent way to manage this country is to cut down on expenditure,” Dr. Mensah warned, adding that the 2020 budget already estimated a budget deficit of about 18 billion Cedis.
According to him, there is a lot of pressure already piled up on the debt portfolio of the country, a situation that must be carefully analyzed to prevent the public debt from hitting unsustainable levels. He stated that even though the country is struggling, the government must be mindful not to overburden the financial sector with loans.
Giving some recommendations, Dr. Mensah stated that financial resources must be directed only to the critical areas of the economy while cutting down areas that do not require immediate funding. He cautioned that with the negative impact of COVID-19, revenue is expected to see a drop, hence the government must also be measured in its spending and not resort to excessive borrowing.
Gov’t receives initial support of GHS5.5bn from BoG
While addressing Parliament after tabling a report on government’s request to BoG for financial support, Ken Ofori-Atta indicated that the Central Bank has already advanced 5.5 billion Ghana Cedis to the government this month to meet its financial obligations.
The GH¢ 5.5 billion first instalment of the bond was released on May 15, 2020. By this, the Bank of Ghana has set aside a Memorandum of Understanding with the IMF which bars it from financing the government’s budget which had been the case in previous years. The additional 4.5 billion Cedis will be provided through the purchase of government assets, but that will be dependent on developments going forward.
The outbreak of COVID-19 has harmed the economy. The situation has compelled the government to implement various fiscal and monetary measures to fill the outstanding financial gap and alleviate the adverse effect by providing relief for businesses and households.
These include the IMF Rapid Credit Facility of US$1 billion, World Bank Development Policy Operation (DPO) of US$350 million and the Stabilization Fund of $ 219 million.
What has COVID-19 caused Ghana’s Economy?
As a result of the pandemic, three years of economic growth of measuring 6% or more has been lowered, with the Finance Minister anticipating that growth could slow to 1.5%, which happens to be the least in 37 years.
Mr. Ken Ofori-Atta has already indicated that the cumulative effect of the coronavirus pandemic will cost Ghana GHS9.505 billion.
