Returning economy to normal needs tough decisions – BoG Governor

The Coronavirus (COVID-19) pandemic has plunged public finances into unsustainable levels and placed the economy on edge, prompting the need for “difficult decisions” to help correct the imbalances, the Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has observed.

While warning that debt and deficit numbers had breached their respective thresholds and now required tough measures to reverse, the governor said there was the need for a framework from next year to “reorganise public finances,” prioritise expenditures and explore more sustainable ways to raise revenues.

In a tone that was akin to a warning rather than an advice, Dr Addison also stated that the government should not look to refinance the gapping fiscal deficit, estimated at 11.4 per cent of gross domestic product for 2020, through central bank refinancing.

“The wide fiscal gap raises important financing issues,” the governor said at a public lecture on the pandemic and its impact on the economy on December 17.

“Its financing should not be by recourse to central bank’s funds as this will weaken the central bank’s ability to serve as the anchor of monetary and exchange rate stability,” he said at the University of Ghana Alumni on the theme ‘Pandemic, the Economy and Outlook.’

Dr Addison further called for public reorientation that the state-sponsored freebies under the programme of interventions to revitalise businesses and cushion households would not “become permanent obligations of the government,” going forward.

Economic recession

His concerns came a day after data from the Ghana Statistical Service (GSS) showed that the economy had fallen into a recession, the first in nearly four decades.

The third quarter Gross Domestic Product (GDP) data released by the service on December 16 showed that growth had contracted by 1.1 per cent in the quarter under review, the second in a row after earlier data showed that the economy grew at negative 3.2 per cent in the heat of the viral spread.

A Professor of Economics, Prof. Peter Quartey, had said the contraction in growth in a row showed the magnitude of the havoc that the pandemic had wrecked on the economy.

Although Dr Addison said the 1.1 per cent contraction in the second quarter was consistent with the central bank’s forecast of a faster-than-expected rebound, he explained that the stage was now set for the government to revert the economy back to the path of fiscal consolidation to avoid a derailment.

He called for a medium-term macroeconomic framework that would aim to further consolidate macroeconomic stability to provide an essential lever for positioning the Ghanaian economy on a path of higher growth, job creation and faster pace of poverty alleviation.