EIU predicts further cut in monetary policy rate by BoG due to COVID-19

EIU predicts further cut in monetary policy rate by BoG due to COVID-19

Dr Ernest Addison - Governor, BoG

The Economic Intelligence Unit (EIU) is predicting a further cut of policy rate by the Bank of Ghana in the coming months.

This is expected to offer some reliefs to individuals and businesses seeking credit from commercial banks this year, in the face of the global outbreak of COVID-19

On March 18, 2020, the Bank of Ghana, cut its policy rate by 150 basis points, to 14.5%, reflecting its concerns over the outlook for economic growth.

The BoG then followed up by reducing the primary reserve requirement that commercial banks are obliged to maintain from 10% to 8%, as a way of freeing up more liquidity for lending.


“With economic activity set to weaken sharply over the coming months, further near-term monetary easing is, therefore, possible,” the EIU said in its latest country report on Ghana.

But it also expects average annual inflation to increase slightly in 2020, but to remain within the BoG’s target range of 6-10%.


“Reflecting ongoing currency weakness and upward pressure on the prices of some goods as a result of pandemic-related restrictions and shortages, annual average inflation is expected to edge up in 2020, to 8.7% (from 8.5% in 2019), despite a sharp downturn in economic activity,” it added


On the side of Economic Growth

On the economic growth of Ghana, the EIU has stated that the country is set to suffer a significant blow as a result of the depressive effect of the virus on global oil demand and prices.

The coronavirus fallout will also affect Ghana in areas such as tourism, inflows of foreign direct investment, international trade (in terms of both export receipts and imported goods) and the availability of financing through domestic and external debt.

In its report, it noted that:


“the coronavirus has already infected over 50 African countries. Ghana has lagged behind most other areas of the world with the onset of the infection and is still at the early stages. Nonetheless, the comparatively weak state of its national healthcare system (compared with those in developed countries)—including a shortage of capacity for screening, testing and quarantining suspected cases—leaves it vulnerable to significant socioeconomic fallout,”


“Meanwhile, the Ghanaian economy is already set to suffer a significant blow as a result of the depressive effect of the virus on global oil demand and prices. We expect global oil prices to slump to an average of US$32.1/barrel in 2020 and to remain low, at an average of US$36.3/b, in 2021. In addition, a UK­based oil company, Tullow Oil—the operator for both the Jubilee and the Tweneboa­Enyenra­Ntomme (TEN) fields in Ghana—is continuing to face operational and financial problems,” it added.


It further noted that the government’s original fiscal projections for 2020 have been thrown into disarray by the global pandemic and associated fall in oil prices.


“The authorities now estimate that oil receipts will be some GH¢5.7bn (US$989m) below the figure they previously forecast (which was based on an average oil price assumption of US$58/barrel). Non­oil revenue will also be about GH¢2.3bn lower, largely because of lost import duties—as borders are closed and companies are shut down, reducing global trade flows.”


“Alongside the hit to revenue, spending needs will rise. The government expects health outlays to increase by nearly GH¢1.6bn because of the extra demands resulting from the coronavirus. Against this backdrop, we expect the fiscal deficit to widen to 7.8% of GDP in 2020, up sharply from an estimated 5.1% of GDP last year,” it said.

Impact of COVID-19 on Ghana’s economy

On March 30, 2020, the Finance Minister, Ken Ofori-Atta revealed that the Coronavirus pandemic is expected to cost the country GHS9.505 billion.

This represents about 2.5 per cent of the country’s revised GDP, which will lead to a  fiscal gap of GHS11.4 billion.

Import duties, for instance, are expected to fall short by GHS808 million for the 2020 fiscal year.