AsWSoEconomy plans 2021 in Ghana.
In this article (economy plans 2021 in Ghana), Ghana’s parliament recently passed a resolution approving a budget expenditure of GHS 27.4 billion (EUR 3.97 billion) for the first quarter of 2021. The approval came at the behest of the Finance Committee Chairman, Dr Mark Assibey-Yeboah. It was second by Minority Leader, Mr Haruna Iddrisu. Next year, the use of these funds would firmly place the Ghanaian economy on a path to growth and recovery. Let’s see how.
Ghana faced a depreciation of the Cedi. Therefore, inflation is at 7.2%, on the brink of the middle of the Bank of Ghana (BoG). The inflation rate should increase to 9.7% in 2020 and reduce slightly to eight .5% in 2021 (April 2020 World Economic Outlook IMF). However, The general deficit reached 7% of GDP thanks to lower-than-expected revenues. The unexpected security is associated with emerging security challenges within the region. Gross debt reached 63.8% of the country’s GDP, driven partially by exceptional energy and financial sector costs. The govt declared reforms aimed toward tackling corruption, boosting tax performances, and should pursue personal investment.
These recurrent power cuts have led the Ghanaian Government to launch an energy diversification strategy, mainly by increasing renewable energy and building nuclear plants. The International atomic energy Agency (IAEA) pledged to supply its technical assistance in March 2017. it established an independent Nuclear regulatory agency and enacted a nuclear law. For instance 2020, Ghana intends to bring its deficit back to six .4% of the GDP. Therefore, the country is aiming at a deficit of fifty of the GDP within the medium-term. So, this forecast is often affected negatively by factors. Similar, they were spending pressures before the 2020 elections, financing challenges, and better energy and financial sector costs. On the opposite hand, the IMF (estimates) may benefit from new oil discoveries, higher cocoa prices, and rapid diversification resulting from authorities’ industrialization efforts.
Economic slowdown during COVID-19
The COVID-19 crisis was a significant setback for the growing Ghanaian economy. A research paper by the International Food Policy Research Institute estimated the pandemic’s economic costs on the Ghanaian economy. Therefore, The study concluded the pandemic caused the country’s GDP to shrink by 27.9% during the lockdown period.
In other words, The timing was terrible. Ghana’s emerging economy had just started to grow. An ADB (African Development Bank) study in 2019 found Ghana to be among Africa’s ten fastest-growing economies. Ghana’s GDP was growing at 7.1% per year. It bolstered by an average annual industrial. Furthermore, the growth rate of 10% over the past three years. The crisis also put all that progress on pause.
Risks and Challenges: Maintaining a fiscal consolidation stance and staying on a sustainable path through the 2020 election cycle will be a challenge over the subsequent two years. Also, Ghana’s energy sector is in dire financial conditions. Without remedy, this poses severe fiscal risks within the coming years. the world is facing high costs from excess power capacity and gas supply, which exacerbate the prevailing revenue gap. An Energy Sector Recovery Program (ESRP) is approved in May 2019, Consequently, provides an action decision to the govt to bring the world back to financial balance over the subsequent five years.
In his address to the parliament, the country’s Minister of Finance stressed the need for a particular budget to account for the anticipated expenditure. And reduce the fiscal gap in his presentation on the quarterly budget proposal. He outlined how he would utilize it.
- 4.3 billion GHS (EUR 628 million) towards extending grants to other government units
- 1.9 billion GHS (EUR 278 million) for capital expenditure
- 813.6 million GHS (EUR 119 million) set aside for sundry expenses
- 259 million GHS (EUR 37.8 million) for subsidies
- 41.3 million GHS (EUR 6.3 million) for social benefits
- 7.7 billion GHS (EUR 1.12 billion) to compensate government employees
- 7 billion GHS (EUR 1.02 million) for interest payments
Firstly, The Ghanaian government had planned to make up for the fiscal deficit through a GHS 5.78 billion (EUR 845 million). It rapid credit facility from the IMF. Secondly, a GHS 1.45 billion (EUR 212 million) loan from the World Bank. GHS 13.3 billion (EUR 1.94 billion) expect to grant for Q1 2021. Therefore, Tax revenues also in the same period. It is a project at GHS 10.4 billion (EUR 1.52 billion). Non-tax revenue expects to bring in GHS 1.9 billion (EUR 276 billion). Above all, payments put together will help offset much of the fiscal deficit.
Increased focus on remittances
During, the first half of 2020, Ghanaians also received remittances worth GHS 13.33 billion (EUR 1.94 billion). Many Ghanaian overseas workers live in EU countries. They rely on app-based channels such as the Ria Money Transfer App to send remittances. The World Bank’s Development and Economics Department compiled a research paper titled ‘Remittances, consumption, and investment in Ghana.’ The 2008 report highlights many ways in which remittances help Ghana’s economy. However, Households receiving international remittances generally have a better standard of living than homes with no remittances. Families with remittance incomes were able to rise over the poverty line.
In 2018 the Ghana Statistical Service set the poverty line at GHS 1,760 per person per year (EUR 257/person/year). The Ghanaian Government has long understood the need for increasing remittance inflows. This is to say, Earlier this year, besides it also finally launched its Digital Financial Services Policy.
Digital Financial Services (DFS) Policy
In May 2020, Ghana launched the DFS policy to combat the impact of the crisis. According to the Bank of Ghana, there are 19 million adults in the country with over 14.5 million active mobile money accounts. The new DFS policy will leverage the use of mobile money services. The Government relaxed transaction limits and increased the wallet limits for mobile money. The Government removed fees for low-value remittances. So, the policy does not clearly define what it considers to be low-value. KYC (Know-your-customer) details are more comfortable transferable from SIM registrations. And the quicker opening of mobile money accounts. With a clear DFS policy, Ghana has taken a big step towards global financial inclusion.
The efforts are in line with what’s happening in other African countries. There is a cash-lite economy seen as a vital tool for surviving COVID-19 and any future pandemics. For instance, Kenya’s financial institution has raised mobile money transaction limits.
The policy establishes a four-year (2020-2023). The blueprint for achieving short- and medium-term progress in six areas:
- Improving governance of the DFS ecosystem
- Supporting fintech
- Creating an enabling regulatory framework
- Supporting the event of market infrastructure for DFS
- Driving the expansion of digital payment use cases
Some are implementing immediately; it might directly impact how effectively DFS I to support the COVID-19 response.
Infographic about Ghana’s digital financial services policy
For example, the policy details how it’d connect Ghana’s existing biometric ID and GhanaPost GPS digital addressing system to allow remote account opening. Recently, as mentioned above, the govt has allowed the use of SIM card registrations to open a mobile money account with the same provider. But the connected market infrastructure that allows an e-KYC utility, as proposed within the DFS policy, would go one step further to permit for remote opening of any formal financial account. So, With social distancing the new order of the day — and 42% of adult Ghanaians still without a legitimate financial account. It allows them to always transact even within the face of pandemic-related restrictions.
The policy also involves actions to support fintech innovation that might cause a more enabling environment for remittances, e-commerce, and contactless merchant and utility payments. as an example, as a result of COVID-19, remittances to Sub-Saharan Africa are expected to mention no by $37 billion in 2020. Remittances to Ghana will little question fall sharply also. So, The policy explicitly involves fixing a regulatory sandbox which may allow innovative new products and services to achieve the market while also providing adequate supervision. However, this might be especially important to Ghanaians who are going to be relying heavily on those transfers during these times of constrained economic activity.
The action areas around increasing digital government-to-person (G2P) and person-to-government (P2G) payments could strengthen. The Government’s ability to gather much-needed revenue from citizens while minimizing leakages in disbursements. Considering the economy’s expected contraction thanks to the pandemic, any digitization efforts that maximize government resources will be critical.
Ghana’s DFS policy is born out of a requirement to specify how might deploy DFS to support Ghana’s financial inclusion goals. While it had not developed in response to COVID-19, it’s a forward-looking DFS policy that ought to help make sure Government. And citizens have the digital financial tools they have to deal with a replacement era of social distancing and economic uncertainty.
It has been a challenging year filled with economic upheavals and uncertainties. IMF economists project. The Ghanaian economy will achieve strong GDP growth in 2021, to the tune of 6%. It will be well above the increase in other Sub-Saharan countries. Focus Economics panellists were more conservative in their estimates (GDP growth of 5% in 2021, 5.4% in 2022). However, they also share a positive outlook with the prospects of a ‘growth boom’ in non-oil sectors. These improvements will facilitate a change in the country’s policy direction. The DFS policy is a great start.