EDITORIAL: COVID’s impact and debt sustainability issues

The World Bank has indicated that Ghana is among countries expected to see fiscal deficit increase significantly and hit double-digits by the end of this year (2020).

In its Africa’s Pulse report (October 2020), the Bretton Woods institution ascribed the trend to loss of revenue and increased spending.

The country now has its public debt figure standing at more than GH¢263billon, representing 68.3 percent of GDP – with external debt forming the largest part at 35.8 percent of GDP. According to the Ghana Revenue Authority, revenue mobilisation in the first-half of the 2020 fell short of its target by 26 percent.

Revenue mobilisation in first-half of the year, fell short of its target by 26 percent, resulting mainly from shortfalls in oil revenue, Customs receipts and non-oil Non-Tax revenues. “Curbing unnecessary spending includes terminating ghost-workers and avoiding permanent increases in public salaries,” a portion of the report states.

“Fiscal authorities need to spend their resources efficiently by cutting non-essential outlays and re-prioritising spending while maximising the impact of such expenditure on economic activity.”

Consequently, the Bank recommends broadening the tax net as a consideration to close the vast fiscal gap created by the coronavirus pandemic. Developing countries are already suffering from the health, social and economic consequences of the coronavirus. Thus, the Bank’s October Africa Pulse report doesn’t come as much of a surprise.

A looming debt crisis would be catastrophic. Particularly, as the government was poised to embark on a series of development projects to improve the country’s socio-economic outlook. However, the onslaught of the pandemic and the need to contain its spread has come with its own consequences.

Recent trends in debt accumulation for low-income countries have created vulnerabilities predating the COVID-19 crisis. Low-income countries, in particular, are being forced to drastically increase spending to respond to the health emergency, while creating social protection systems including unconditional cash transfers, a guarantee of income for those who lose their jobs and employment security

It is little wonder, therefore, that some African countries are beginning to ask for some form of debt relief. Whether it would be granted or not, remains the conundrum that is afflicting us all. At the outbreak of the COVID-19 pandemic, external debt stocks of developing countries and economies in transition reached US$9.9 trillion, their highest level on record.

AfCFTA’s potential to lift millions out of poverty acknowledged

While lamenting the unfolding crisis, there appears to be a silver lining in the horizon. The same report (Africa Pulse, October 2020) is hopeful that the implementation of the Africa Continental Free Trade Area (AfCFTA) has the potential to lift about 100 million people from poverty if countries commit to the agreement and put in the necessary reforms to make it happen.

The report notes the continent’s trade pact can lift an additional 30 million people from extreme poverty and 68 million people from moderate poverty.

Full implementation of the AfCFTA would contribute to a further decline by lifting an additional 1.5 percent of the continent’s population from extreme poverty. To achieve this, the World Bank says it is important that member states put in place policies that will maximise the full potential benefits of the agreement.

This involves addressing on-the-ground constraints that may weaken the daily operations of ordinary producers and traders through regulatory reforms and capacity building among the institutions that enforce these regulations.

While acknowledging the obvious benefits to the African economy as a result of implementing AfCFTA, the report also notes however that implementing the obligations in the trade agreement will likely prove challenging for many member states.

The World Bank report further acknowledges that one of the difficulties that the agreement will face will be enacting the non-tariff and trade facilitation measures, which would yield the largest (potential) economic gains.

AfCFTA’s full potential depends on agreeing to ambitious liberalization and implementing it in full. All in all, AfCFTA offers the African continent a glimmer of hope which must be seized upon.

In spite of initial challenges implementing AfCFTA will engender, one thing that is clear is that its implementation is expected to enhance competitiveness at the industry and enterprise level through the exploitation of opportunities for scale production.

The report further states that, in West Africa, the poverty headcount would decline by 12 million people, while the declines in Central Africa and East Africa would be 9.3 million and 4.8 million, respectively.

AfCFTA has the potential to lift 67.9 million people (about 3.6 percent of the continent’s population) out of poverty by 2035, the report states.

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