ARTICLE: THE REAL ECONOMIC REASONS BEHIND THE LOCKDOWN

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Following the COVID 19 pandemic situation, many Ghanaians have had their first experiences with macroeconomic theories and reasons behind government’s decisions. The Expansionary fiscal describes a situation where the government spends more and cut off/reduce taxes, regardless of its budgetary surplus or deficit.

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(Eg. Distribution of food items to the vulnerable and needy , Full absorption of electricity bills for the poorest of the poor, Payment of water and sanitation bills for 3 months, tax waiver for health professionals, allowance for health workers, transportation cost for health workers, soft loans to SME’s etc.)

Governments pursue expansionary fiscal policies as a tool to stoke an economy into growth and to create jobs. An expansionary fiscal policy is a powerful tool, but a country can't maintain it indefinitely. Eventually, its budget deficit will become too large, driving up its debt to an unsustainable level. Therefore, this policy is typically viewed as a short-term tool, not as a constant. That's why governments typically turn to expansionary policies during recessions and economic slowdowns rather than during times when the economy is doing well.

On the 9th of April 2020, Ghana’s Parliament approved GHS 1.2 billion for the CoronaVirus Alleviation Programme. Below were the figures:

•GHC280 million will be used for food packages and hot meals
•GHC40 million will go to the National Buffer Stock Company.
•GHC 200 million will be used to pay for bills on water and sanitation
• GHC241 million will cover tax waiver for health personnel.
•GHC 80 million will be spent on the allowance for health staff
•GHC2 million will go into the transportation for health workers
•GHC600 million will be disbursed as soft loans to businesses.
Nana Addo DANKWA AKUFFO Addo, President of Ghana in his famous quote said “ We know what to do to bring back our economy back to life. What we do not know how to do is to bring people back to life" . It seems the President of Ghana is doing his best in combating the COVID 19 as well as maintaining the economy rather than ‘killing’ it.

Macroeconomics is very complex and the expansionary policy will increase output in the economy because of an increase in aggregate demand. If the government reduces taxes, the theory assumes that individuals and businesses will use their tax savings to buy more goods and services therefore, brings about more output and productivity.

As producers increase their production and expand their operations to meet the new demand, they will also hire new workers to support their growth thereby creating job opportunities. Therefore, the lifting of the ban of the partial lockdown on some selected areas in Ghana is a good step in the right direction.

I urge all Ghanaians to support the government in this fight against the COVID 19 and the economy.
#SpreadCalmNotFear #ThisTooShallPass

By: Adu Richard
Level 400 student of KNUST
BSc.Agriculture (Agricultural Economics)

Comments

  1. UnknownApril 20, 2020 at 11:10 PM

    That was a good submission by the upcoming agricultural economist.

    ReplyDelete

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