Effects of COVID-19 on Ghana’s economy may be worse than feared

In the absence of a vaccine, countries globally have resorted to social distancing, travel restrictions and economic lockdowns to reduce transmission of the coronavirus. While necessary to preserve human life, the socioeconomic costs of these blunt policy measures are high, especially in Sub-Saharan Africa where many live hand-to-mouth and lack access to safety nets to sustain themselves when livelihoods are disrupted.

In a new IFPRI study, authors Sena Amewu, Seth Asante, Karl Pauw (corresponding author) and James Thurlow estimate the economic costs of COVID-19 in Ghana using a Social Accounting Matrix multiplier model, a framework suited to measuring short-term impacts of unanticipated, rapid-onset demand- or supply-side shocks. Results show that Ghana’s partial lockdown, although in force for only three weeks in April 2020 and restricted to major urban areas, has likely caused national GDP to fall by 27.9 percent relative to the baseline GDP during the lockdown period. Moreover, despite protection for the food sector, lockdown measures likely caused a 19.8 percent loss in agri-food system GDP (i.e., the sum of agriculture, agroprocessing, food services, and food trade and transport services GDP). Household income losses during the lockdown period could cause around 3.8 million Ghanaians to become temporarily poor during lockdown, although many will remain affected going into the third and fourth quarters of the year. Government support for Ghana’s most vulnerable households, both in urban and rural locations, is crucial.

Compared to the government’s projected GDP growth rate of 6.8 percent for 2020, which was revised to 1.5 percent at the onset of the pandemic, our analysis suggests GDP growth will instead be negative this year, with a range of –0.6 to –6.3 percent (see figure) depending on whether the recovery is fast or slow. While the results are sobering, co-author Karl Pauw warns that the analysis is preliminary and should be updated as new information about the impacts during the lockdown period becomes available: “accounting for all the possible impact channels is a tremendously complex task”. He also notes that the speed at which lockdown measures are lifted in the coming months—and the manner in which economic agents respond to the easing of those restrictions—will be crucial in determining final outcomes. With respect to further analysis, Pauw notes “our simulations do not yet consider the mitigating effects of business and household support measures, which is definitely something we need to incorporate”. Government has set aside GH¢ 1.2 billion (about US$200 million) for the Coronavirus Alleviation Program, which “will close only a small part of the US$ 2.3 billion GDP gap between our fast recovery scenario and government’s revised growth target.