Can economy survive another lockdown?

As COVID-19 cases continue to spike in the country, in a new wave accompanied by increases in the number of deaths, many are calling for a second lockdown to get the situation under control – but such a call comes with huge economic consequences which the nation may not be ready for.

Granted, the calls are well-intentioned; they are right calls, given the number of active cases in the country at some point dropped to as low as 300 toward the end of last year, but now active cases are nearing 4,000 with more than 370 deaths recorded – a genuine cause for worry and concern.

Panic-buying, soaring inflation

However, the happenings before, during and after the first lockdown in March/April at Accra, Kumasi and Kasoa pushed the economy into a recession – breaking a 37-year record – are reasons enough to argue that the country is not ready to usher in another lockdown as the outcome would be dire.

The first thing to consider is public reaction ahead of such an announcement. Prior to announcement of the March/April 2020 lockdown, panic-buying was triggered among the public. People wanted to stock up food and first-aid medical supplies, as they didn’t know how long and what form the lockdown would take. But this move came with repercussions on the economy.

Traders took advantage of the high demand and applied the basic rule of economics – the higher the demand, the higher the price. Prices soared – and lo and behold, inflation jumped to 10.6 percent from a three-month flat rate of 7.8 percent since the beginning of 2020. This surge continued throughout the year, breaking a three-year single-digit inflation cycle as it ended the year at 10.4 percent. For this and other reasons, the monetary policy rate could not come down anymore after April; thereby keeping lending rates high.

Negative impact on jobs

The second reason why the nation should fear another lockdown is its negative impact on jobs and livelihood of the people. According to the COVID-19 Local Economies Tracker published by the Ghana Statistical Service (GSS), as a result of lockdown measures and other restrictions imposed by government to contain spread of the virus, about 72 percent of businesses experienced a decline in production – resulting in 90 percent of businesses also seeing a drastic decline in sales. Furthermore, 41,952 lost their jobs in May/June 2020.

The mid-year budget presented by Finance Minister Ken Ofori-Atta also revealed very horrifying figures regarding job losses after the lock down. From the budget, 1,531 job losses were recorded between April to June 2020 from eight companies within the ceramics, timber, food and agro-processing industries in the manufacturing sub-sector.

Also, based on data collected by the Ghana Tourism Authority, as at the end of May 2020, 979 accommodation facilities had shut down. This represents almost 25 percent of licenced facilities. The related job losses are over 2,300 personnel. In addition, the Tour Operators Association presented evidence of 11,558 tourists cancelling their visits to Ghana.

Transportation ground to a halt

The transportation sector was also not spared the consequences. The operations of Metro-Mass Transport experienced a decline in monthly revenue from GH¢5.5million to GH¢2.1million. The Intercity STC Company witnessed a decline in bus services and luggage revenue from an average of GH¢5million in previous months to an average of GH¢3million since March 2020. The Driver and Vehicle Licencing Authority also experienced losses, as revenue fell drastically from GH¢3.5million to about GH¢1million between March and April 2020.

The woes of educators, teachers

In the education sector, just after the three-week lockdown, 856 job losses were recorded from 32 Montessori, Day Care and Primary schools between April and June 2020 for private sector educational institutions, according to the Ministry of Employment and Labour Relations.

Informal sector’s troubles

Then, the informal sector also suffered its share. Truth be told, it was the hardest hit with the decision to go on a lockdown – given it is the main source of employment and livelihood in Ghana and sub-Saharan Africa for many. Most of the jobs in this sector are what is termed ‘hand-to-mouth’ jobs – meaning those engaged in this sector mostly earn what they will need for the day from their jobs. No wonder the voices behind the call for another lockdown are coming from public sector workers who earn monthly salaries regardless of whether the economy moves or stands still.

In fact, the GDP data from the GSS actually confirm how the informal sector was devastated by the lockdown decision. The sector saw growth plummet to a miserable 0.6 percent in the second quarter.

Interestingly, the World Bank has warned African countries to desist from what it terms ‘copycat’ lockdowns, as it rather works effectively for advanced countries due to the structure of their economies. And this was clear in the way those advanced countries were able to dole out freebies to their citizens in the form or food and cash, which took care of them the entire period they were in lockdown. That couldn’t be said of Ghana, as government could only afford to provide cooked food for some select-few communities once a day.

Impact on government expenditure and revenue

Besides the jobs and livelihoods that were lost due to enforcement of the lockdown, government had to introduce some interventions to provide some relief for citizens – and this came at great cost. As noted earlier, some communities benefitted from dry and cooked food; and this, according to the mid-year budget, resulted in cost of GH¢54.3million to government; in addition to an amount of GH¢50.2million transferred to the 400,000 most-vulnerable individuals under the Livelihood Empowerment Against Poverty (LEAP) Programme.

That notwithstanding, government had to subsidise electricity and water for both industry and households. Consumption of electricity for one million lifeline customers and a subsidised 50 percent of consumption for all other customers – resulting in an unplanned GH¢1.02billion addition to government expenditures, states the mid-year budget.

The same source also adds that total cost of the Water Relief Programme to government was projected to be GH¢275.5million at the end of 2020.

Furthermore, businesses affected by the pandemic had to be helped to stand on their feet. Government had to introduce an intervention known as the Coronavirus Alleviation Programme Business Support Scheme (CAP BuSS), at a cost of GH¢600million, to specifically support micro, small and medium-sized enterprises.

Other measures also included tax waivers and reliefs for businesses, all in the interest of relieving them from some of the effects brought upon them by the lockdown; also, and not to talk of money government had to spend in providing PPE and other items used in preventing spread of the deadly disease in hospitals and other public areas.

All these and other unplanned expenditure more than doubled the fiscal deficit target, taking it to 6.3 percent as of the first half of the year. And due to revenue shortages because of economic inactivity during the lockdown and subsequent restrictions on some sectors, government had to rely on borrowing from the IMF, World Bank, AFDB and other sources; effectively pushing the debt stock to 71 percent of GDP as of September, and projected to rise further at the end of 2020.

Impact on Ghana CARES

As noted earlier, the economy went into a record-breaking recession in the third quarter of 2020, and government has indicated its readiness to bring it back to life – to its pre-pandemic levels or even better – by launching the ambitious GH¢100billion Ghana COVID-19 Alleviation and Revitalisation Enterprises Support (Ghana CARES) programme.

The three-and-half-year programme, dubbed ‘Obaatan Pa’ and to be rolled out in two phases, aims to raise 70 percent of its financing from the private sector and the remainder from government to assist in reviving once-booming economic activities. And if the same private sector is to be locked-down again, how can government raise such a whopping amount from this source?

All that another lockdown means is that government won’t be able to effectively implement this all-important programme if its modalities remain the same. It’s either the intervention is delayed or the modalities changed when money has to be borrowed to roll it out. With the rising debt situation, it would be a very unpopular approach as it also has very serious repercussions on the economy.

So, the matter’s conclusion is that calls for a lockdown won’t be the ideal solution for containing the pandemic’s spread in the country. It couldn’t do that during the first lockdown, and this won’t change in another one either.

What’s more, the current economic situation – judging from the points of revenue mobilisation, fiscal deficit, and debt to GDP – shows the country does not have what it takes to initiate another lockdown, as its consequences will far outweigh any gains from that decision. The best that can be done is to educate people and enforce the safety protocols outlined by health professionals, and possibly use whatever funds are available to procure vaccines for citizens.