How COVID-19 Will Impact Ghanaian Economy
The Coronavirus (COVID-19) pandemic is expected to have a significant adverse impact on the global economy. Governments around the world are implementing various fiscal measures to mitigate the adverse effect and provide relief for businesses and households.
On 30 March 2020, Ghana’s Minister for Finance delivered a Statement to the Parliament of Ghana on the “Economic Impact of the COVID-19 pandemic on the Economy of Ghana”. The Minister outlined the expected impact of the pandemic on the Ghanaian economy and the fiscal and monetary measures taken by the Government of Ghana to mitigate the impact of the pandemic.
Deliotte Ghana in its assessment of the Government’s statement on the impact of COVID-19 as well as the proposed measures to mitigate the impact, noted that Ghana as an import-driven economy, is likely to experience significant adverse impact of the pandemic on the country’s international trade and reserves.
Adding that if the COVID-19 situation persists longer than anticipated, the economy could suffer from significant decline in government revenue and expenditure resulting in potential job losses. This could in turn erode the economic gains achieved in recent years and significantly slow down Ghana’s economic development.
In the light of the current developments, the government estimates a slump in projected GDP growth for 2020 at 2.6%, which is significantly lower than budgeted GDP growth of 6.8% for the year. Also, additional borrowing and related expenses that will be incurred is likely to increase the country’s debt risk.
The report pointed out that the unplanned increase in expenditure, particularly in the health sector, could adversely impact the fiscal deficit. Government estimates that events unfolding as a result of Covid-19, even with some mitigating measures, will result in a deficit of 6.6% of revised GDP, which is higher than the de facto fiscal rule of 5% established by the Fiscal Responsibility Law.
Estimated impact on petroleum receipts and tax revenue
Government has estimated a shortfall of GH¢1,058m in the Ghana Stabilisation Fund, GH¢453m shortfall in the Ghana Heritage Fund; GH¢3,526m shortfall in Annual Budget Funding Amount (ABFA); and GH¢642m shortfall in transfers to GNPC.
On tax revenue, it estimated a GH¢808m shortfall in import duties; GH¢1,446m shortfall in other non-oil tax revenues; and GH¢2,254m total shortfall in non-oil tax revenue.
According to Deloitte Ghana,in line with measures being adopted globally, Ghana is seeking to implement a mix of fiscal and monetary measures to mitigate the impact of Covid-19 on the economy. The key measures planned include: The establishment of a Coronavirus Alleviation Programme (CAP) to facilitate economic recovery; Lowering of the cap on Ghana Stabilisation Fund (GSF) from the current US$300 million to US$100 million to allow for transfer of excess funds to the CAP; Adjust expenditures on Goods and Services and Capex downwards by GHS1.2 bn; Amend the Petroleum Revenue Management Act (PRMA) to allow for withdrawal from the Ghana Heritage Fund to aid in fighting Covid-19; Reduction in the policy rate by 150 basis points to 14% and drop in regulatory reserve requirement from 10% to 8% to increase supply of credit to private sector; Amendment of Bank of Ghana (BoG) Act to allow for Government to borrow from BoG in excess of the stimulated threshold if need be; Commercial banks engaged to provide syndicated facility of GHS3 bn to support key industries; to grant six-month moratorium on principal repayments for selected businesses; and to reduce interest rates by 200 basis points, also to increase credit supply to the private sector.
According to the report, most of the measures the Government is seeking to implement are targeted at stimulating economic growth considering that Covid-19 has already begun to slow down economic activities and the impact could get worse in the next couple of months. Aside the stimulating measures being adopted, Government is seeking to cut down on expenditure, including Capex. This suggests that, Government’s initial plan to significantly uplift the country’s infrastructure in 2020 is not likely to materialize.
The Government is also implementing the following tax measures to mitigate the impact of the pandemic on businesses and households: Extension of due dates for filling of tax returns from the standard 4 months to 6 months after end of the basis year; Grant of waiver of penalties on principal tax liabilities owed by taxpayers who redeem their outstanding liabilities by 30th June 2020; Waiver of VAT on donations of stock of equipment and goods for fighting the Covid-19 pandemic; Waiver of taxes on selected withdrawals from third-tier pension funds; Grant of deduction against income tax for private sector contributions and donations made towards addressing the COVID-19 pandemic; and Institution of an email filing and direct transfer payment system to allow taxpayers file and pay taxes with the various Ghana Revenue Authority (GRA) offices remotely.
Companies have been granted an automatic 2 months extension for filing tax returns normally due 4 months after end of their financial years. The returns covered for companies will be corporate income tax and transfer pricing returns. The extension may also cover individual annual tax returns filing that also normally at the end of April each year for the prior year.
Gilbert Borketey Boyefio