Bank of Ghana: Prospect for sharp fiscal correction unlikely in 2021

The Bank of Ghana says the prospect for a sharp fiscal correction in 2021 looks unlikely, as the second wave of the pandemic will require additional spending on testing and vaccines. John Gatsi, Dean of Business at the University of Cape Coast, Ghana joins CNBC Africa for more.

Fri, 05 Feb 2021 14:29:04 GMT

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AI Generated Summary

The Bank of Ghana's decision to maintain the key rate reflects the challenges posed by the second wave of the pandemic and the need for additional spending on testing and vaccines.
Ghana's fiscal situation is exacerbated by a shrinking revenue base, rising expenditures, and a mounting debt-to-GDP ratio, which hampers capital spending and economic development.
The lack of a clear policy direction, coupled with global economic uncertainties and the impact on key commodities, necessitates financial innovation and strategic planning to address Ghana's economic challenges.

The Bank of Ghana recently announced that the prospects for a sharp fiscal correction in 2021 look unlikely due to the ongoing challenges posed by the second wave of the pandemic. John Gatsi, the Dean of Business at the University of Cape Coast, Ghana, joined CNBC Africa to discuss the Bank of Ghana's decision and the overall economic outlook for Ghana moving forward. Gatsi highlighted the importance of maintaining the key rate unchanged, citing unfavorable indicators that did not warrant a reduction at the last meeting. Despite the difficulties in fiscal correction, he emphasized that COVID-19 is not the sole reason for Ghana's fiscal challenges, as issues existed even before the pandemic hit. Ghana's revenue base is shrinking, while expenditures continue to rise, making it challenging to achieve a fiscal turnaround. The rising debt-to-GDP ratio, which stood at 75 percent at the end of November, reflects the mounting pressures on the country's fiscal authorities and central bank. The situation is exacerbated by the significant portion of borrowed funds going towards interest payments and public sector emoluments, leaving limited resources for capital expenditure and economic development. Gatsi stressed the urgent need for clear policy direction and the mobilization of funds to address the country's economic challenges. However, he noted that the lack of a fully constituted government following the recent elections has hindered the articulation of a comprehensive economic strategy. Gatsi also pointed out the impact of the global economic downturn on Ghana's key commodities such as oil and gold, highlighting the need for innovative approaches to resource utilization and financial management. He underscored the importance of leveraging Ghana's resources and historical advantages to navigate the current economic landscape. Looking ahead, Gatsi expressed hope that the appointment of key ministers, especially in crucial portfolios like finance, trade, education, and health, would enable the government to outline a coherent economic roadmap and address the pressing financial issues facing the country. In conclusion, Gatsi emphasized the necessity of financial innovation and strategic planning to steer Ghana towards economic stability and sustainable growth amidst the prevailing challenges.