The recently outdoored GH¢100bn COVID-19 Alleviation and Revitalisation of Enterprises Support (CARES) programme should be fully funded from domestic sources, economist and lecturer Dr. Raziel Obeng-Okon has said.

The Finance Minister, Ken Ofori-Atta, said in his mid-year budget statement last month that the three-and-a-half-year CARES programme is designed to stimulate the economy and restore it to the path of growth following the massive setback caused by the virus.

Although the Minister said at least 70 percent of the expected funds would come from private sources, both domestic and external, Dr. Obeng-Okon argued that seeking external funding would further compound Ghana’s public debt woes.

“The challenge for government is usually not the domestic debt but the external debt, which impacts negatively on our fiscal position due to the forex implications on interest and principal repayments,” he said in an article titled, “Quantitative easing through creating or printing money to fund COVID-19 pandemic budgets – lessons for Ghana”.

He said countries that have sought to resuscitate their COVID-19-hit economies have relied largely on central bank financing.

“From the analysis of funding sources of various countries, it appears that all of them continue to use almost 100 percent funding from domestic sources. Funding from domestic sources using quantitative easing provides a virtuous cycle that allows funds to stay within the country and grow the economy,” he said.

“Most of the debt created temporarily through quantitative easing in the developed economies tended to be permanent or written off by successive governments, so why shouldn’t developing nations also look inward for funding?” he added.

Generally, quantitative easing (QE) is a form of expansionary monetary policy in which the central bank of a country purchases a large number of financial assets, such as bonds, from commercial banks and other financial institutions.

Usually, the purchase of these assets in large amounts increases the excess reserves held by the financial institutions, facilitates lending, increases the money supply, drives up the price of bonds, lowers the yield, and lowers interest rates.

Dr. Obeng-Okon, who is a lecturer of public accounting at the Ghana Institute of Management and Public Administration (GIMPA), urged the Bank of Ghana to create more money in ways that will have underlying assets to check inflation.

“Most of the world’s greatest central banks have embarked on serious quantitative easing to solve the economic setback of the coronavirus pandemic, and the author recommends the Bank of Ghana to do same to improve market liquidity and confidence in the financial services sector, especially within the lower tiers such as savings and loans, finance houses, microfinance companies, asset management companies and other non-bank financial institutions.

“It is important to stress that quantitative easing through creating money and/or printing money can be done without creating high inflation, especially during recessions caused by pandemics, as indicated in the unrealistic assumptions of the quantity theory of money put forward by monetarists. Notwithstanding, it is the interaction between fiscal and monetary policies that determines inflation, and therefore the cooperation between BoG and MoF is central to keeping inflation on target,” he argued.

Local capacity

He stated that it is obvious the country needs to improve local production rather than depend on foreign imports. Local production, Dr. Obeng-Okon said, will help not only to create employment and increase income, but it has the potential to stabilise the local currency.

“The budget estimate of GH¢100bn for CARES by government for 2021-2023 must be strategically spent on boosting local production without any foreign intermediate goods so as not to contribute to the depreciation of our currency and thereby cause imported inflation,” he added.