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COVID-nomics: 2021 Budget statement

BY: Samuel Okyere Donkor & Atta Takyi
Samuel Okyere Donkor, one of the authors
Samuel Okyere Donkor, one of the authors

IT is almost a year since the global economic community was hit by the COVID-19 virus, putting economies into disarray.

It has resulted in the urgency for nations to develop strategic measures, such as, the formulation and implementation of new budgetary plans as a means to control the pandemic and further minimise its effect on the economy.

Ghana had to provide a mid-year budget plan for 2020 in order to control the pandemic, sustain businesses and manage the economy.

The COVID-19 pandemic has opened the floodgates of risk and opportunities for every nation including Ghana.

We propose a five-step plan for the 2021 budget, namely Risk and opportunities, reviving, protecting, sustainability and driving the economy for the future.

Risk

COVID-19 is an active event and will stick around over a period. The rollout of vaccines in the country has raised hopes that recovery is in sight.

The nation's tolerability of risk will be dominated by the perception of risk of COVID-19 infections and new variants in testing the efficacy of the vaccines.

Let us be reminded that we are all not fully immune and, therefore, uncertainties and risk remain unchanged.

Both micro and macroeconomic indicators will continue to go wrong in this level of economic dispensation until there is certainty.

It is advisable to use the indicators as a guide to recovery and not a metric of measure.

Economic indicators such as growth rate, budget deficit, revenue, expenditure and primary balance must be a measure for recovery.

The bounce back of the economy will be dependent on the right investments allocated to the real sectors of the economy and policy.

Opportunities

The National Board for Small Scale Industries (NBSSI) must be strengthened further to be an explanatory drive for the economy in the long-term.

The survival of every nation’s economy is anchored on the Small and Medium-sized enterprises (SMEs), which contribute about 70 per cent to the Gross Domestic Product (GDP) coupled with massive employment reduction.

The government’s stimulus packages to businesses within the private sector through the NBSSI must be entrenched and the scheme must not be subjected to rigid and compliant conditions that limit the large percentage of SMEs accessing the funds.

Injection of funds to the agency will help stir the SMEs during the implementation of African Continental Free Trade Agreement (AFCFTA) and will be the bedrock for entrepreneurship and innovation for the economy.

Cash flow under the Coronavirus Alleviation Programme (CAP), the IMF Rapid Credit Facility, COCOBOD Syndicated Loan facility, Contingency fund, World Bank, Commercial banks, Heritage Fund, COVID-19 Funds and the Bank of Ghana funds, must be re-assessed and channelled to areas that were highly impacted.

Revive

With the vaccines being rolled out, there is optimism that things will pick up and normalcy will be achieved.

Particular attention should be given to the revamping of tourist sites, the hospitality sector and the adoption of the concept of visa on arrival to increase tourist growth of the country.

Protect

Certain sectors of the economy must enjoy tax holidays, reduction in corporate tax and tax rebates particularly the hospitality, industry and aviation sector, as well an extension of tax reliefs to households and businesses under the mid-year 2020 budget review to other areas of the economy.

There must be special export tax reliefs and financial support for firms and businesses which could not produce to export in the pandemic.

The government should not lose sight of the fact that firms and industries in Ghana would need substantial tax regulation and financial incentives to be more competitive in doing business across the African frontiers under the AFCFTA.

Sustainability

Though the path to recovery is uncertain, it is expected that the fight against the virus through the vaccination would help restore confidence and boost economic growth in the long term.

It is in this respect that the policies that were carried out in the 2020 mid-year budget which included, but was not limited to CAP Business Support Scheme that provided over GH¢600 million to micro, small and medium-sized enterprises (MSMEs), the LEAP programme, NBSSI soft loan programme, Bank of Ghana Policy response programme, coupled with the social interventions rolled out under the CARES programme, should be sustained.

Further, the government under the 2021 budget must extend the unemployment scheme to the youth, who by the reason of the COVID-19 pandemic are jobless.

To sustain and complement the existing government interventions, we recommend that the government adopt other sustainable policy intervention programmes such as: Government Backed Loan Schemes (Equity Financing), Tech Investment, Road Infrastructure Development and Tourism Fund Support into the 2021 Budget Statement and Economic Policy.

Driving economy

The challenge is how the government is going to fund these medium-term policy measures.

Apart from assistance received from international development partners and the private sector, the government can raise funds from the public pension houses and other institutions through the capital market with a given reasonable moratorium.

It is also important that our trade borders are digitised to avoid smuggling and to ensure proper valuation of goods and services towards an efficient revenue mobilisation for the fiscal year 2021.

With the implementation of the AFCFTA, the government must pay attention to its priority of increasing the road infrastructure growth of the country to create local or urban opportunity zones, feasible for the immediate implementation of the One-District, One-Factory industrial agenda and increase the agriculture value chain of these zones.

The equity-financing model must be adopted as a strategy for the provision of the fund relief packages for business, firms and industries instead of the debt-financing option used under NBSSI.

This model of financing can be driven through the establishment of the National Development Bank, which would help provide support to the agro, industrial and export manufacturing sectors of the country without recourse to debt-interest payments.

The writers are an investment banker and policy advisor, respectively
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