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Reducing economic impact of COVID-19 - Economists propose stimulus package for businesses

By: By Ama Amankwah Baafi
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The country is gradually feeling the brunt of the impact of the outbreak of the coronavirus disease (COVID-19) which has forced businesses to either halt or downsize their operations.

With the number of confirmed cases rising by the day, businesses are being forced to equally put in place measures that will ensure that the impact is minimised.

Some economists are proposing that the government provides a stimulus package to ease the burden on businesses.

Sharing his views on how best to manage the effects of the coronavirus on the economy in an interview on March 27, an Associate Professor at the Department of Economics at the University of Ghana, Professor Eric Osei-Assibey, said although a lockdown was the surest way of flattening the curve, the cost to the economy was high.

The Ghanaian informal sector constitutes about 70 per cent of the economy, which suggests that a vast majority of the workforce are self-employed, with many of them being in the category of the working poor or live by hand-to-mouth wage.

“Unless the government is in the position to providing a social safety net in the form of cash transfers or guaranteed wage to this vulnerable group during the lockdown period, the measure could be counterproductive,” he said.

An investment banker, Mrs Thelma Maclean-Apenteng, said due to the partial lockdown, the turnover of businesses would be affected, their revenues would dwindle and affect their bottom line cost."

“There is no way to reinvent the wheel. We could just look at what other economies are doing and we could cut our coat according to our size by putting up some stimulus package to help those that are going to be affected badly in terms of giving them some tax holidays,” she said.

Aside from that, she said, since everything was interrelated, the government would have to come up with some stimulus packages that would help cushion businesses a bit in terms of some tax holidays.

“Every sector has been affected; so if it is not managed well, the adverse effect on the economy will be dire. I think the government should also concentrate on more of local production looking at the fact that we are import-dependent,” she said.

Divergent view
A Senior Research Fellow at the Institute for Fiscal Studies (IFS), Dr Said Boakye, emphasised that the coronavirus still persisted. “So I don’t share the idea of trying to stimulate the economy while the underlying factor is still there.

“ What should be done is that now we should consider alleviating the financial stress on individuals, on businesses, not intending necessarily to boost economic growth and others,” he said.  

Dr Boakye noted that trying to stimulate the economy in the middle of an underlying factor that had not been solved was not the right thing to do.

Instead, he said if the government had a way of supporting businesses and individuals that were being affected financially, then it should do so.

“Of course, when it comes to the monetary sector, especially the exchange rate, the Bank of Ghana (BoG) can step in if it has the needed forex reserve to help manage it.
“But the real economy is very difficult to manage now. How do you stimulate a lockdown economy?” he quizzed.

He added: “When there is a lockdown, indeed then you should think about the social component more, which is the impact on individuals and businesses, and how when by God’s grace we are able to solve this problem the economy can quickly stand on its toes.”

The International Monetary Fund (IMF) has recommended three actions beyond the stimulus and liquidity recommendation to lessen the impact of COVID-19:
-    Containing the disease is the first step to mitigating not only the health impacts but also the economic impacts.
-    Strengthen safety net - cash transfers, sick leave, subsidised health coverage should be in place to help the most vulnerable survive and provide support to enterprises that serve those populations.
-    Measure the impact - systematic data on which populations are experiencing the greatest hardships and which industries are failing is essential to providing assistance.

Bank of Ghana
The Bank of Ghana (BoG) has given an assurance of its continuous assessment of the possible impact of the pandemic on the domestic economy and says it is taking the necessary steps to mitigate its impact to ensure financial and economic stability.

Last week, it announced a series of measures that included the reduction of the Primary Reserve Requirement from 10 per cent to eight per cent to provide more liquidity to banks and Specialised Deposit-Taking Institutions (SDIs); and reduction of the Capital Conservation Buffer (CCB) for banks from three per cent to 1.5 per cent.

Other measures include the reduction of provisions for loans in the ‘Other Loans Especially Mentioned’ (OLEM) category from 10 per cent to five per cent for all banks and SDIs as a policy response to loans that may experience difficulty in repayments due to slowdown in economic activity; and loan repayments that are past due for microfinance institutions for up to 30 days shall be considered as ‘Current’, as is the case for all other SDIs.

Background
President Nana Addo Dankwa Akufo-Addo on Friday, March 27, 2020 announced a stay-at-home measure to ensure restricted movement by people to fight the global pandemic, the coronavirus (COVID-19), that has hit Ghana.

Consequently, at 1 a.m. on Monday, March 30, 2020, the various security agencies and allied services were deployed to many areas in Accra, Kumasi and adjoining areas to ensure that the stay-at-home directives were carried through.

The President’s directive sparked a mad rush for food and other essential items by the citizenry. The markets in both Accra and Kumasi were choked with human and vehicular traffic as people bought items to stock up for the 14 days.

There were long queues at gas filling stations although the National Petroleum Authority (NPA) had issued a statement that there would be no shortage of liquefied petroleum gas (LPG) within the 14 days.

Prices of goods, particularly food items, have gone up.

Confirmed COVID-19 case updates by the Ghana Health Service (GHS) on March 30, 2020 as at 08:30hrs showed no new cases of COVID-19 had been reported since the last update at 11:00hrs on March 29, 2020.

The Kumasi Centre for Collaborative Research tested 17 samples from the Upper East (3), North East (3) and Ashanti (11) regions, all of which were negative. No new test results have been received from Noguchi Memorial Institute for Medical Research since the last update.

Total confirmed COVID-19 cases in Ghana stand at 152 with five deaths as of March 30, 2020 at 08:30hrs.