Economist cautions gov’t to avoid overspending due to COVID-19

Economist cautions gov’t to avoid overspending due to COVID-19
Dr.Lord Mensah


Economist, Dr. Lord Mensah, has advised government to be measured in its expenditure for the 2019/2020 financial year particularly amidst the coronavirus pandemic.

His advice comes on the back of a government request for 10 billion cedis financial support from the Bank of Ghana to mitigate the economic impact of COVID-19.

The Finance Minister, Ken Ofori-Atta, on Wednesday May 28, 2020, presented a report to Parliament detailing the central bank’s support of 10 billion cedis to government.

But Dr. Lord Mensah has told Citi Business News government must be cautious in an election year not to balloon the debt stock.

“We have ourselves in a situation which we must be conservative. The prudent way to manage this country is to cut down on expenditure,” Dr. Mensah warned, adding that the 2020 budget already estimated a budget deficit of about 18 billion cedis.

This, he said is already piling pressure on the debt portfolio of the country, a situation that must be carefully analyzed to prevent the public debt from hitting unsustainable levels.

He stated that even though the country is struggling, government must be mindful not to overburden the financial sector with loans.

Giving some recommendations, Dr. Mensah stated that financial resources must be directed only  to the critical areas of the economy, while cutting down areas that do not require immediate funding.

He cautioned that with the negative impact of COVID-19, revenue will see a dip, hence government must also be measured in its spending and not resort to excessive borrowing.

COVID-19: Gov’t receives initial support of GHS5.5bn from BoG

Addressing Parliament after tabling a report on government’s request to BoG for financial support, Ken Ofori-Atta indicated that the Central Bank has already advanced 5.5 billion Ghana Cedis to government this month to meet its financial obligations.

The GH¢ 5.5 billion first installment of the bond was released on May 15, 2020.

By this, the Bank of Ghana has set aside a Memorandum of Understanding with the IMF which bars it from financing the government’s budget which had been the case in previous years.

An additional 4.5 billion cedis will be provided through the purchase of government assets, but that will be dependent on developments going forward.

The outbreak of the novel Coronavirus has had dire consequences on the economy. As a result, government has been implementing various fiscal and monetary measures to fill the outstanding financing gap and mitigate the adverse effect and provide relief for businesses and households.

These include the IMF Rapid Credit Facility of US$1 billion, World Bank Development Policy Operation (DPO) of US$350 million and the Stabilization Fund of $ 219 million.

The outbreak has brought three years of economic growth of 6% or more to a sudden halt, with the Minister of Finance anticipating that growth could slow to 1.5%, the least in 37 years.

He has already indicated that the cumulative effect of the novel coronavirus pandemic will cost Ghana GHS9.505 billion.

Meanwhile, the Ranking Member on the Finance Committee of Parliament, Cassiel Ato Forson, says the Minority will resist what he calls government’s ploy to obtain state funds for election 2020 campaign.

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