The Finance Minister, Mr Ken Ofori-Atta, has predicted a strong comeback in economic growth in 2021 after the raging novel coronavirus disease (COVID-19) combined with domestic challenges to weaken the rate at which the economy will expand this year.
He is optimistic that growth will end this year at 1.9 per cent – higher than previously projected – before tripling to 5.7 per cent in 2021.
At 5.7 per cent for 2021, the Finance Minister is aiming at growing the economy above the average growth rate projected for West and sub Saharan Africa (SSA), but lower than the forecasts for some of the country’s peers.
Mr Ofori-Atta’s prediction of a rebound in economic growth next year was contained in the Expenditure in Advance of Appropriation (EAA), a stopgap novelty for election years that he presented to Parliament on October 28.
His optimism was anchored on the expected outcomes of policy implementations and the results of a Bank of Ghana (BoG) survey that found that some ‘green shoots of rebound in economic activity’ had emerged and were now quickening the pace of economic recovery faster than initially anticipated.
“Mr Speaker, I want to assure this House that we will recover; we will revitalise and we will transform the economy,” he said to the half-empty chamber.
With the fiscal deficit widening and the three rigid expenditures – debt service cost, employee compensation and transfers to statutory funds – eating all domestic revenue, a strong rebound in growth is critical as it would help to loosen up the fiscal strain and also limit the need for a state intervention to cushion the citizenry.
Drivers of rebound
Speaking on the drivers of the expected rebound in growth, the Finance Minister said, “We expect growth to rebound strongly in 2021 at 5.7 per cent as a result of our implementation of the transformation and revitalisation phase of the ‘Ghana CARES’ (Obaatanpa) Programme,” the minister told Parliament”.
“As the BoG stated, ‘the green shoots of rebound in economic activity’ are already with us.
“This and other assessments provoke a degree of optimism and reveals that the swift, bold and effective measures implemented by the government have been key in quickening the pace of economic recovery,” he added.
While siding with the minister’s prediction, an economist, Dr Said Boakye, who is the Director of Research with fiscal policy think tank, the Institute for Fiscal Studies (IFS), said the COVID-19 pandemic remained the biggest risk to the growth projection.
“The drop in growth was not because the structures of economic growth had collapsed but because demand and supply were put on hold and so a comeback at 5.7 per cent will not be too difficult to achieve”.
“The challenge though is that, we still do not know what will happen with regards to COVID-19,” he said.
He said a rise in positive cases in the country could slowdown economic activities or at worse, lead to a second round of lockdown with its attendant consequences on growth.
He added that low demand for crude oil globally on the back of COVID-19-induced lockdowns could also result in a drop in prices of the commodity and a further slowdown in growth in the local oil sector.
That, he said, could undermine the overall growth projection.
Growth projection possible
A highly placed source at the BoG told the Daily Graphic that although the central bank was yet to conclude its modelling to be able to forecast growth for next year, a 5.7 per cent growth for 2021 was not out of place.
The source, who was not authorised to speak on the matter, explained that recent data compiled for the bank’s Composite Index of Economic Activities (CIEA) indicated a strong pick up in the industry and the tourism and hospitality sectors of the economy.
“The hotels are almost booked up till next year. Revenue from Value Added Tax (VAT) and other domestic tax handles are coming in strong and all these point to strong growth,” the source said.
It added that while the December 7 general election remained a risk to growth in 2021, the fiscal excesses that mostly muted growth in the year preceding the general election were largely contained this time round.
It explained that the budget overrun, high inflation and the steep fall in the value of the cedi – the three nightmares of almost every election – had been muted by the COVID-19 impact.
“When it comes to expenditure, what needs to be spent has been spent under the guise of COVID-19”.
“Inflation and cedi depreciation are largely calm and so we do not foresee these excesses returning to hurt us,” the source said.