Economy recovering from Covid-19 shocks -BoG

The outbreak of global Coronavirus (Covid-19) has shattered many economies across the globe, but the Bank of Ghana (BoG) says the country’s economy is steadily recovering from the novel pandemic shocks.

The apex bank announced that the Ghanaian economy had begun to experience some recovery, as price pressures that resulted from the pandemic-related restrictions and lockdown measures in March this year, are easing.

The Central Bank signalled that the drivers of economic growth are returning to normal with prospects for a good recovery, adding monetary and fiscal policies have been supportive, providing the necessary underpinnings for the economy to withstand the negative output shock arising from the pandemic.

The BoG, during a recent Monetary Policy Committee (MPC) press briefing in Accra, indicated that headline inflation, after edging up sharply to 11.4 percent in July 2020, had started going down – now at 10.5 percent in August – on the back of declining food prices.

Thus, food inflation has steadily declined from 15.1 percent in May to 11.4 percent in August, partly reflecting seasonal effects despite non-food inflation increasing from 8.4 percent to 9.9 percent over the review period.

The press statement, as presented by the Governor, Dr Ernest Addison, gives hope of how the easing underlying inflationary pressures, for which expectations of businesses, consumers, and the financial sector have moderated.

He added that the Bank’s core inflation measure, which excludes energy and utility, also declined marginally.

“From the Bank of Ghana’s surveys in August, consumer confidence is bouncing back strongly and is currently above pre-lockdown levels. Consumers seem to be responding to the gradual lifting of restrictions, providing some scope for meaningful economic activities. Business confidence also increased, but yet to reach pre-lockdown levels.

“About 95 percent of businesses surveyed showed strong optimism, reflecting the improving macroeconomic conditions, stability in the exchange rate, lower input prices, moderation in lending rates, and positive industry prospects,” he stated.

On fiscal policy, provisional data on budget execution for the first seven months showed an overall budget deficit of 7.4 percent of GDP, against the revised target of 7.2 percent of GDP, as the COVID-19 pandemic continued to impact on fiscal operations.

The primary balance also recorded a deficit of 3.7 percent of GDP, above the planned target of 3.4 percent of GDP. Over the review period, total revenue and grants amounted to GH¢27.7 billion, compared with the target of GH¢26.8 billion.

Total expenditures and arrears clearance amounted to GH¢56.2 billion, above the target of GH¢53.3 billion.

These developments impacted the stock of public debt, which rose to 68.3 percent of GDP (GH¢263 billion) at the end of July 2020, compared to 62.4 percent of GDP (GH¢218.2 billion) at the end of December 2019. Of the total debt stock, domestic debt was GH¢125.1 billion (32.5 percent of GDP), while external debt was GH¢138 billion (35.8 percent of GDP), representing 52.4 percent of the total public debt.

The pace of growth in broad money supply (M2 ) picked up in August 2020, reflecting the gradual uptick in economic activity. M2 grew by 24.8percent, year-on-year compared with 11.8 percent in the corresponding period of 2019. The increase in total liquidity was driven by Net Domestic Assets (NDA) and Net Foreign Assets (NFA).

However, he warned that this comes at the cost of moving away from the consolidation path and could pose a risk to long-term macroeconomic stability if decisive measures are not taken to define a feasible fiscal adjustment to stabilise debt.

The Governor said under the circumstances, the Committee’s view is that risks to the immediate outlook for inflation and growth are broadly balanced and decided to keep the policy rate unchanged at 14.5 percent.

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