Document o f The World Bank

FOR OFFICIAL USE ONLY Report No. 27838-GH

MEMORANDUM OF THE PRESIDENT OF

THE INTERNATIONAL DEVELOPMENT ASSOCIATION

AND THE

INTERNATIONAL FINANCE CORPORATION

TO THE

EXECUTIVE DIRECTORS

ON A

COUNTRY ASSISTANCE STRATEGY

OF THE

WORLD BANK GROUP

FOR THE

REPUBLIC OF GHANA

FEBRUARY 20,2004

Country Department 10 Africa Region

The International Finance Corporation Sub-Saharan Africa Department

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

Date of Last CAS March 30,2000

AAA AFD AfDB APL BOG BPEMS CAGD CAS CBRD CDF CEM CFAA CG CPAR CPPR cso D A DACF DRL DS W ECG ECOWAS EdSeP EFA ERP ERSO ESW FDI FIAS FINSSP FSAP GCB GDP GEF GIPC GLSS GNP GPRS HIPC AAP HIPC ICT

Currency Equivalents Currency Unit = Cedi ($)

USSl.00 = $8675 (as of February 1, 2004)

Weights and Measures Metric System

Fiscal Year January 1 - December 3 1

Abbreviations and Acronyms

Analytical and Advisory Activities Agence frayaise de developpement African Development Bank Adaptable Program Lending Bank of Ghana Budget Planning & Expenditure Management System Controller and Accountant General Department Country Assistance Strategy Community-Based Rural Development Comprehensive Development Framework Country Economic Memorandum Country Financial Accountability Assessment Consultative Group Country Procurement Assessment Review Country Portfolio Performance Review Civil Society Organization District Assembly District Assembly Common Fund Debt Recovery Levy Department of Social Welfare Electricity Company o f Ghana Economic Community of West African States Education Sector Project Education for A l l Economic Reform Program Economic Reform Support Operation Economic and Sector Work Foreign Direct Investment Foreign Investment Advisory Services Financial Sector Strategic Plan Financial Sector Assessment Program Ghana Commercial Bank Gross Domestic Product Global Environmental Facility Ghana Investment Promotion Center Ghana Living Standards Survey Gross National Product Ghana’s Poverty Reduction Strategy HIPC Expenditure Tracking Assessment and Action Plan Heavily Indebted Poor Countries Information and Communication Technology

FOR OFFICIAL USE ONLY

Callisto Madavo Vice President Mats Karlsson Country Director Nichola Dyer Task Team Leader

IDA IEA IFC iL0 IMF IPPD JSA M&E MDBS MDG MFEP MIGA MMDE MSME MTEF NDAP NDC NGO NPP NTE NTFP OED PAC PER PIU PLWHA PNDC PPMED PRGF PRSC PUFMARF' SFIA SMEs SPGs SWAP TOR UEMOA VAT VRA WAGP WAMZ WAFJP WBI WTO

Assaad Jabre Vice President Haydee Celaya Director Solomon Quaynor Principal Investment Officer

International Development Association Institute for Economic Analysis International Finance Corporation International Labor Organization International Monetary Fund Integrated Personnel and Payroll Data System Joint Staff Assessment Monitoring and Evaluation Multi-Donor Budget Support Millennium Development Goals Ministry o f Finance and Economic Planning Multilateral Investment Guarantee Agency Ministry o f Manpower Development and Employment Micro, Small and Medium Enterprises Medium Term Expenditure Framework National Decentralization Action Plan National Democratic Congress Non-Governmental Organization New Patriotic Party Non-Traditional Exports Non-Timber Forest Product Operations Evaluation Department Parliamentary Accounts Committee Public Expenditure Review Project Implementation Unit People Living with HIViAIDS Provisional National Defence Council Policy, Planning and Monitoring and Evaluation Department Poverty Reduction and Growth Facility Poverty Reduction Support Credit Public Financial Management Reform Program Strategic Framework for IDA in Africa Small and Medium Enterprises Sectoral Partner Groups Sector-Wide Approach Tema Oil Refinery West African Economic and Monetary Union Value-Added Tax Volta River Authority West African Gas Pipeline West African Monetary Zone West Africa Power Pool World Bank Institute World Trade Organization

Table o f Contents

EXECUTIVE SUMMARY ............................................................................................... i

COUNTRY CONTEXT ........................................................................................ 2 Historical and Social Context ..................................................................... 2 Poverty: Profile, Trends, and Policy Analysis ........................................... 4 Recent Economic Developments ................................................................ 7

I . INTRODUCTION ................................................................................................. 1

I 1 . A . B . C . D . Structural Issues .......................................................................................... 9

i . Progress and Challenges ......................................................................... 9 ii . Sources o f Potential Growth ................................................................ 11 iii . Governance and Corruption ................................................................ 12 i v . Other Cross-Cutting Issues ................................................................. 14

GHANA’S DEVELOPMENT PROGRAM AND PROSPECTS ................... 17 Country Priorities and Agenda .................................................................. 17 i . Ghana’s PRSP ....................................................................................... 17 Economic Outlook .................................................................................... 24 i . External Environment ........................................................................... 24 ii . Medium-Term Prospects ..................................................................... 24

BANK GROUP ASSISTANCE STRATEGY .................................................. 26 Implementation o f the Last CAS .............................................................. 26

Client Surveys ................................................................... 29

i . Participatory Process Followed ............................................................ 30

Proposed Assistance Strategy ................................................................... 32 i . Bank Group Support to Results Pillars ................................................. 32 ii . Lending Program ................................................................................. 41 111 . Scenarios and Triggers ........................................................................ 44 iv . Non-lending ........................................................................................ 46 v . Regional Programs ............................................................................... 49 v i . Global Environmental Issues and Role of GEF .................................. 50 v i i . Selectivity and Choice o f Instruments ............................................... 51 v i i i . Portfolio Management ...................................................................... 52

V . Risks ................................................................................................................... 54

I11 . A .

B .

... 111 . External Debt ...................................................................................... 25

I V . A .

i . What Worked Well and What Worked Less Well ................................ 27 ii . Lessons from Operations Evaluation Department (OED) Work and

iii . Evaluation o f Bank Performance ........................................................ 30 Participation and Partners ......................................................................... 30

ii . Partnerships and Donor Coordination ................................................. 31

B .

C .

...

... i x . Core Monitoring and Benchmarks ...................................................... 53

V I . Concluding Remarks .......................................................................................... 55

List o f Charts Chart 1 : Access to Education. Health and Water by Locality (1 999) ................................. 5 Chart 2: Ghana: Budget Execution o f Domestically-Financed Poverty Related

Expenditures 2002-2003 ............................................................................................. 6 Chart 3: Inflation ................................................................................................................ 9 Chart 4: GPRS Targets for Growth, Poverty Reduction, Human Development and

HIV/AIDS Prevention -- 2000 to 2005 ..................................................................... 21

List of Tables Table 1: Recent Economic Developments ........................................................................ 8 Table 2: Linkages between GPRS and CAS .................................................................... 27 Table 3: Ghana - FY04-07 Lending Scenarios (US$ million) ........................................ 43 Table 4: Triggers .............................................................................................................. 45

List o f Boxes Box 1 : Public Procurement Law: Ghana’s Institutions Working Together to Strengthen

Box 2: Civ i l Society Consultations ................................................................................... 31 Box 3: Ghana’s Efforts to Facilitate Trade are Getting Results ....................................... 34 Box 4: A New Approach to Service Delivery to Poor and Marginalized Groups: The

Experience o f the Community Development LIL .................................................... 40

Accountability ........................................................................................................... 22

List o f Annexes

1

EXECUTIVE SUMMARY

1 . One o f the few countries in sub-Saharan Africa to have a chance o f meeting the Millennium Development Goals (MDGs), Ghana’s economic potential and strong social capital base set i t apart from a troubled sub-region. Development partners are strongly supportive. This results-focused CAS, prepared by an IDA-IFC team, joins with donors to support Ghana’s Poverty Reduction Strategy (GPRS) for 2004 to 2007.

2. post-electoral fiscal situation, Ghana made good progress in achieving 2003 macroeconomic targets. The growth outlook i s positive, with signs that a 5 percent real GDP growth target can be achieved, sustained over the next two years, and possibly accelerated. Ghana i s likely to achieve the HIPC Completion Point in 2004. Nonetheless, the underlying structure o f the economy needs to change. I t i s vulnerable to external shocks, dependent on a few commodities and subject to sub-regional fragility. Historically, cyclical and external factors, and slow progress on structural issues, have constrained economic growth. Despite progress on poverty reduction, inequalities present a continuing challenge, with poverty more acute in the three northern regions and in the rural coastal zones. For continued progress on poverty reduction, i t will be necessary to raise growth and target the deprived. Non-traditional exports, especially in agriculture, which s t i l l has unexploited potential, may be key to l i f t ing growth rates.

Following a major terms-of-trade shock in 1999, and recovery from a difficult

3 . While fiscal and monetary discipline have recently improved, structural performance has remained uneven. The energy sector, a critical growth bottleneck, i s now targeted for substantial reform; progress i s s t i l l needed on the investment climate. There i s weak policy and implementation coordination in the public sector, financial management needs further strengthening, and the GPRS and budget management need to be better linked. Cross-cutting issues include HIV/AIDS, disability, gender and child labor. Ghana rates fourth among sub-Saharan countries on Transparency International’s survey o f perceptions on corruption, just behind countries such as Namibia and Mauritius; nonetheless it i s an issue on which the government intends to maintain a high- level focus.

4. During the previous CAS, the Bank provided analytical and advisory support to help the new government take cognizance o f the situation. Multi-donor approaches and decentralization o f Bank Group activities worked well. However, many o f the targets set in the last CAS were not achieved, as a result o f significant implementation delays, some overly ambitious targets, and slow progress in key structural areas.

5, partnership strengthened in 2003 with the government’s implementation o f the Multi- Donor Budget Support (MDBS) framework with nine development partners, including

Overall development partner coordination in Ghana i s strong. Development

.. 11

the Bank. Sector-level support i s shifting to programmatic lending and multi-donor funding.

6. The GPRS, approved by Parliament in February 2003, mapped out a medium- term strategy for promoting growth and reducing poverty. The GPRS aims at maintaining macroeconomic stability and increasing production and employment, and targeting accelerated economic growth. Further, i t seeks for Ghana to achieve the human development targets under the MDGs. Finally, to ensure good governance through accountability and transparency, the GPRS seeks to build a democratic and inclusive state, and improve public sector management for better service delivery.

7. The Bank Group’s proposed assistance strategy, rooted in the Strategic Framework for IDA’s Assistance in Africa, rests on three pil lars to support the GPRS: (i) sustainable growth and jobs creation; (ii) service provision for human development; and (iii) governance and empowerment. There i s an intensive and integrated Bank Group approach to growth, exemplif ied by the jo in t Bank-IFC work in the power and related sectors. The specific results that are being sought are spelled out in a results matrix, and particular emphasis will be given to monitoring and evaluation.

8. correspond to a shift to a path o f accelerated growth, while the l o w case wou ld be triggered by a serious and sustained decline in performance. In the base case, IDA’s proposed lending program provides for US$1.06 b i l l i on over the four-year period o f the CAS, through three ma in clusters o f operations. First, a series o f annual PRSCs will continue to support GPRS implementation. Second, infrastructure constitutes a significant port ion o f the lending program. Third, complementing the PRSC i s a series o f specific investment and technical assistance operations, covering education, HIV/AIDS, public sector reform, and finance and private sector development, including support to Ghana’s decentralization process. National-level interventions, such as in energy, will complement regional support delivered through the implementation o f the West Af r ica Regional Integration Strategy. T w o operations are being prepared for possible GEF support.

Ghana i s currently considered to be in the base case. A move to the high case will

9. diligence requirements, enhance the effectiveness o f Bank support by in forming pol icy reforms and new lending, and help improve the results focus and support implementation. Dialogue, stakeholder involvement and active dissemination will feature prominently. The Bank’s non-lending services will be coordinated more closely with those o f other development partners, to ensure complementarity, avoid duplication, and explore opportunities for jo in t production. Stakeholders are to be involved more closely in AAA at al l stages.

Analytical work and economic dialogue are proposed, to meet the Bank’s due

10. on improving the investment climate and assist with implementation o f key reforms; (ii) attract the private sector to the provision o f infrastructure services and utilities, including energy and telecommunications; (iii) help build and expand services o f competitive financial institutions; (iv) enhance micro, small, and medium enterprise

IFC’s program will complement IDA’s to: (i) strengthen public-private dialogue

... 111

development through expansion and integration o f financing and technical assistance interventions; and (v) promote non-traditional exports.

1 1, performance improvement action plan will be agreed. A Readiness Assessment o f Ghana’s monitoring and evaluation will be conducted. A results-focused progress review, joint with development partners, i s planned midstream in CAS implementation.

To support the continued results focus, a comprehensive IDA portfolio

12. relation to the electoral cycle; operational risks, especially o f delays or inappropriate instrument choice; and the risk o f external shocks, including from events in the fragile sub-region. Specific risk mitigation measures are foreseen.

The major r isks to the proposed program include: political risks, particularly in

13. transient, though, if structural inertia persists. The coming elections present an immediate fiscal challenge; governance improvements and social capital accumulation may help sustain Ghana through this period. There i s strong and increasingly harmonized development partnership. This CAS aims to support Ghana’s efforts to make significant progress on i t s structural agenda and in so doing put i t s e l f on a growth path leading to achievement o f the Millennium Development Goals and eventually to middle-income status.

Ghana i s well-poised to sustainably lift growth rates. Recent gains could be

14. The following issues are proposed for Board discussion:

0 Alignment with the government’s results agenda and adequacy o f Bank Group’s response: Does the results matrix focus on the key priorities for Ghana’s development, and help to map out a four-year strategy for continued progress towards achieving these results? Lending program and triggers: I s the mix o f programmatic, investment and technical assistance lending appropriate to help achieve the desired growth, service provision and governance results? Do the base case triggers capture a scenario o f continuous improvement on growth and poverty reduction, and are the triggers for the high case achievable, while challenging Ghana to move to a higher growth path? Harmonization: Development partnership has strengthened significantly through the Multi-Donor Budget Support framework as well as at the sectoral level. Does the strategy provide the Bank Group, development partners, and Ghana with an adequate framework for continued progress on the harmonization agenda?

0

0

MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION AND THE INTERNATIONAL FINANCE CORPORATION

TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY

FOR THE REPUBLIC OF GHANA FOR 2004-2007

I. INTRODUCTION

1. countries in Africa with the potential to achieve some, if no t all, o f the Millennium Development Goals (MDGs). Ghana’s economic potential and strong social capital base set i t apart f rom i t s troubled sub-region. The country has ambitions to achieve middle- income status within one generation, driven by private sector-led growth. Development partners are strongly supportive and have been harmonizing their approaches. This CAS aims to j o i n with them in a results-focused approach that would strongly support Ghana’s poverty reduction and growth strategy for 2004 to 2007.’

Ghana i s a strong performer in sub-Saharan Africa and i s one o f the few

2. strategy document, was discussed by the Board on March 30,2000. Since then, fo l lowing pol i t ical transition in 2001, c iv i l society has continued to strengthen, and a revised national strategy for wealth creation and poverty reduction, Ghana’s Poverty Reduction Strategy (GPRS) Paper, has been developed. However, Ghana faces important challenges if i t i s to successfully harness i t s growth potential and sustainably reduce poverty.

The previous CAS, which was prepared o n the basis o f the Vision 2020

3. This CAS emphasizes resul ts at three levels. These are: (i) describing the current situation, for a robust baseline; (ii) identi fying the government’s desired results and strategy to achieve them; and (iii) defining the Bank Group’s contribution to the achievement o f those results within the relevant implementation period, through the existing portfol io and with new operational assistance. Moni tor ing and evaluation (M&E) will provide key inputs in to the midstream progress review to be carried out with the government and other development partners.

4. The CAS process entailed significant engagement with the country authorities and the Bank Group team in an explicit attempt to foster a results- driven implementation culture. The document i s jo in t l y prepared with International Finance Corporation (IFC), by a team consisting o f staff based in Accra, Washington, and Johannesburg. The consultative process employed for this CAS i s described in detail in Annex 1.

’ While Ghana i s not an official pilot for a Results-Based CAS, this CAS has incorporated key elements o f the results methodology that i s being developed by the pilots.

2

11. COUNTRY CONTEXT

A. HISTORICAL AND SOCIAL CONTEXT

5. emerge from colonialism, achieving independence in 1957. Following independence, the country experienced a series of military takeovers. From 1982 to 1992, Ghana was governed by a military regime, the Provisional National Defence Council (PNDC), and thereafter until 2000 by the National Democratic Congress (NDC), both under President Jerry John Rawlings. In December 2000, the New Patriotic Party (NPP) won the presidential vote and parliamentary majority, and on January 7 , 2001, the new government, headed by Mr. John Agyekum Kufuor, took office. With the next presidential and legislative elections scheduled for December 2004, the incumbent will be running against a number of opponents including Professor John Atta Mills, Vice President in the previous N D C government and a presidential candidate in the last elections. As the next election draws near, i t i s occupying greater space in public discourse.

Robust political culture. Ghana was the first country in sub-Saharan Africa to

6. institutions that play a mediating role critical for promoting national consensus and easing social tensions. The traditional authorities, explicitly apolitical, play a crucial role in societal discourse. They are represented formally through “Houses o f Chiefs” at regional and national levels, with the National House o f Chiefs supported by a secretariat. Public dialogue i s open and facilitated by a burgeoning independent media, including a plethora o f newspapers, popular FM radio stations countrywide, and several licensed private television networks. Social discourse covers a wide range o f social, political and economic issues, animated by civ i l society organizations that reach out to the poor and provide an avenue, through advocacy, to give them voice on national issues, by think- tanks providing solid local analyses, and by other social institutions, such as labor unions. The government has made important strides to deepen i t s dialogue with the growing civ i l society movement and with the private sector. The formulation process o f the Ghana Poverty Reduction Strategy (GPRS), and continuing plans for participatory GPRS monitoring and improved access to information, have contributed to increased participation in Ghana’s development process. A strong precedent for dialogue between the government and civ i l society now exists where l i t t le existed before, and i t s value i s widely recognized within Ghana.

Strong social capital. Ghana i s a nation characterized by strong social

7 . Ghana i s at a vital geographical, political and economic crossroad. Situated in the middle o f the West African coast, between C6te d’Ivoire to the west, Togo to the east and Burkina Faso to the north Ghana i s the third largest member (after Nigeria and CBte d’Ivoire) o f the 15-country Economic Community o f West African States (ECOWAS) and a major trading partner o f i t s three neighbors, all o f them also members o f the West African Economic and Monetary Union (UEMOA). Ghana i s a signatory to the Accra Declaration that in April 2000 created the West Africa Monetary Zone (WAMZ) a second monetary zone within ECOWAS, as a f i rst step toward a wider monetary union that i s eventually to include all the ECOWAS countries. Under the WAMZ agreement, Ghana i s expected to host the headquarters o f the West Africa

3

Central Bank. Ghana i s a key player in on-going regional activities, including trade and transport facilitation and energy.

8. capital, continues to enjoy peace in a sub-region plagued with political and ethnic problems. In light o f the fragility o f the sub-region and concerns regarding ethno- religious conflicts, Ghana’s authorities are paying careful attention both to domestic and external stability. Within the sub-region, Ghana i s actively supporting peace efforts. Beyond i t s contribution o f troops to the UN peacekeeping force in Sierra Leone, in i t s current capacity as Chair o f ECOWAS, Ghana has been involved in the peace dialogues for C6te d’Ivoire and Liberia. On the domestic front, a protracted chieftaincy dispute that erupted in early 2002 has resulted in the maintenance o f a state o f emergency in the Dagbon traditional area in the Northern Region.

Stable regional player in a fragile sub-region. Ghana, with i t s strong social

9. 1999 to pilot the Comprehensive Development Framework (CDF). I t moved Consultative Groups (CGs), traditionally held in Paris, to Accra to facilitate participation by civ i l society and the private sector. To further facilitate regular dialogue with and among development partners, the government introduced quarterly mini-CGs as well as sectoral partner groups (SPGs) that meet regularly and are led by national agencies with clearly-defined focal support points from specific development partners. Ghana has taken on increasing leadership as co-chair with the Bank. Stronger sectoral dialogue has led to the pioneering o f Sector-Wide Approaches (SWAPS) in several sectors, including roads, agriculture and health. In the health sector, Ghana and i t s development partners have broken new ground in partnership arrangements, having gone beyond the SWAP to implement multi-donor pooling o f funds, together with joint monitoring arrangements, a common reporting format for financial management and auditing and the use o f the government’s own procurement procedures. The Health SWAP serves as a model for other countries, and has influenced.the design o f Ghana’s programmatic approach in education. Strong partnership also contributed to Ghana’s eligibility to participate in the Education For All Fast Track Initiative in 2004. Such innovations were important precursors to the multi-donor budget support (MDBS) framework introduced in 2003 with the participation o f several o f Ghana’s key development partners, including the Bank through i t s Poverty Reduction Support Credit (PRSC). Under the MDBS, good progress has been made to align policy support with the GPRS, advance agreement on policy actions, and pool funds for budgetary support, as well as to harmonize mission schedules and the timing o f assessment reviews. In changing their way o f operating, development partners have significantly freed up country capacities.

Leader in partnership innovations. Ghana was among the first countries in

10. Ghana i s one of the few countries in sub-Saharan Africa to have a chance of meeting the MDGs. A recent study2 found that Ghana could achieve most o f the MDGs if the policy environment and the commitment to achieve set targets are sustained over the medium- to long-term (2000-201 5). Ghana has already made good progress, over the

National Development Planning Commission: Ghana, Report on the Millennium Development Goals, 2002.

4

past decade, in reducing overall poverty f rom around 52 percent to just under 40 percent3 Most o f the social development targets, as well as long-term debt sustainability, are l ikely to be achieved if growth i s accelerated and partnership for poverty reduction i s deepened. Two MDG areas requiring concerted attention are maternal mortality and malnutrition.

B. POVERTY: PROFILE, TRENDS, AND POLICY ANALYSIS

11. including tackl ing inequalities. As outlined above, Ghana has begun to make progress o n poverty reduction and the incidence o f poverty has declined over the past decade, but considerable effort will s t i l l be required to reverse the post-independence slide in living standards (see para. 20). Poverty in Ghana has been found to be related to a number o f factors including geographic location, access to services, demographic, educational attainment, and socioeconomic group.4 For instance, in 1999, the incidence o f poverty among food crop farmers was 50.4 percent, compared to those in private formal employment, where only 1 1.3 percent were considered poor.5 Access to both potable water and electricity improved over the period f rom 199 1 to 1998, and poorer rural groups benefited f rom these gains. Whi le overall social indicators have improved, public facilities for education and health have generally favored urban rather than rural areas, with a tendency, for example, for urban-based hospitals to be better financed. As a consequence, urban areas have registered better poverty and inequality reduction results than rural areas; Accra in particular showed improvement in a l l poverty indicators.

T h e r e has been progress on poverty reduction but m o r e needs to b e done,

12. Poverty i s m o r e acute in the three regions o f the n o r t h and in the rural coastal zones. Regional inequalities have persisted, with large numbers o f households in the savannah and rural coastal zones appearing to be in a situation o f chronic or persistent poverty, owing to their relative isolation f rom markets. There remain significant disparities in household access to health, education and water by local i ty (see Chart 1). Whi le Accra and the urban coastal and forest zones have enjoyed significant improvement in their living standards, with even the poorest groups in these areas appearing to benefit, the savannah and rural coastal areas have seen very l i t t le improvement in economic well-being. Uneven quality o f service delivery and availability o f funding for new priorities have contributed to increasing poverty concentration in these areas. A large contributing factor i s inadequate development o f rural infrastructure. Households in these regions have remained largely disconnected f rom economic growth taking place in the rest o f the country, with l imi ted opportunities to escape f rom poverty because o f their l imi ted access to education, markets and public services.

Source: Ghana, 1998-99 Ghana Living Standards Survey (GLSS). Source: Ghana Statistical Service, 2000, “Poverty Trends in Ghana in the 199Os,” Accra. Ibid.

5

Chart 1: Access to Education, Health and Water by Locality (1999)

Source Data derived from Ghana Lving Standards Survey 3 & 4 , Cou lombe and

24

- I

9 6 G

e 3

18

7

43

45 38

Incidence o f Poverty

i 70

Consm iption

T

m s

m L m

m r/)

L

v)

I - C 2 9 g

C m 2 s s L? B a: e a:

I + s

- - - 2 e 3

3 0 Health (% consulting In hospital)

Net Primary Enrollment (Boys) Water (% w t h access to potable water)

1

I3 Net Primary Enrollment (Girls) 1 Zone

1 Mckav 1200 II

13. Raising growth f o r continued poverty reduction, and targeting the deprived, will be key. Annual real GDP growth o f 5 percent i s projected to bring poverty down to 32 percent by end 2007. A per capita growth rate o f just 2 percent will be sufficient to achieve the MDG poverty goal, as Ghana has already made significant progress on reducing headcount poverty.6 While growth i s important for poverty outcomes in Ghana, growth alone wil l not reduce poverty. Policy interventions to empower rural populations and target all vulnerable groups including women, children and disabled persons will be required to bridge the gap in access to social services. The cost as well as the quality o f services and infrastructure provided will need to be considered.

14. budget execution for poverty-related expenditures (see Chart 2) have increased due in part to timely inflows o f external support, including HIPC releases originally scheduled for 2002. B y September 2003, poverty-related programs had executed 80 percent o f real allocations (the fiscal year corresponds to the calendar year). Basic education and primary health care, along with feeder roads, were among the programs with the highest rates of budget execution, while water and housing programs lagged the furthest behind.

There has been good progress on poverty-related expenditures. Rates o f

Source: World Bank Report No. 26220-GH, “Ghana: Reducing Poverty and Improving Human Development”, June 13, 2003.

6

To accommodate needed expenditure in the fourth quarter o f the year, while s t i l l remaining within overall fiscal targets, the government approved a supplementary budget on November 4, 2003, providing additional funding to local governments and to the educational fund.

Chart 2: Ghana: Budget Execution o f Domestically-Financed' Poverty Related Expenditures 2002-2003

Total Government Expenditures Poverty Reduction

Feeder Roads Basic Education

Education Sector Primary Health Care

Health Sector Poverty -Focused Agriculture

Agriculture Sector Roads & Highways

Energy Sector Works & Housing

Rural Water

Improving budget execution rates for poverty-related programs (percent o f GDP)

0 Yo 20% 40% 60% 80% 100%

15. non-governmental provision expanded. Whi le government has made progress on increasing poverty-related expenditures, the decentralized structures at the front l i ne o f service provision are not yet able to ensure efficacy o f expenditure. As major providers o f water and sanitation, education and health services, the efficiency and effectiveness o f public sector delivery structures need to become more effective and efficient if service provision i s to improve. The capacity o f decentralized public service provision structures to plan and execute programs, manage financial resources and processes, and monitor and evaluate interventions must be strengthened. The private sector and non-governmental sector can and should p lay a larger, better role alongside the public sector. In education, the private sector i s expected by 201 5 to account for at least 20 percent o f a l l pupils enrolled, but mostly in urban areas. Private schools will provide the needed space for the government to concentrate o n provision to deprived rural areas. In health, a Health Insurance Act, wh ich has the f lexibi l i ty for participation by private insurance companies and i s financed pr imar i ly with borrowed pension funds f rom the state social security trust, i s in the early implementation phase. In the provision o f urban water and sanitation, the government has been mov ing towards increased private sector participation, although progress has been slower than anticipated.

Public structures for provision o f basic services must be strengthened and

7

C. RECENT ECONOMIC DEVELOPMENTS

16. two main exports, gold and cocoa, plunged, while petroleum prices increased. This shock, together with a delay in adjusting fiscal and monetary policy accordingly, led to a sharp deterioration in macroeconomic performance, including a build-up in external arrears. The exchange rate depreciated rapidly in the latter part o f 1999 and inflation increased significantly. These problems were compounded by delays in the adjustment o f domestic petroleum prices and electricity rates, resulting in an accumulation o f large bank debts at the state-owned monopoly importer, Tema O i l Refinery (TOR), and threatening the financial viability o f the power ut i l i t ies. Fiscal and monetary discipline faltered once again in the run up to the December 2000 elections. As the terms o f trade worsened further, exchange rate depreciation and rising inflation continued through 2000.

In 1999, Ghana suffered a major terms-of-trade shock when prices for i t s

17. the 2000 elections, the new government inherited a challenging economic situation, and had initially to focus on restoring macroeconomic stability. After early progress, however, serious fiscal and quasi-fiscal slippages in 2002 prevented the completion o f the final review o f the Poverty Reduction and Growth Facility (PRGF)-supported program. In late 2002 and early 2003, the government redoubled reform efforts, implementing a number o f important measures to improve the fiscal situation, including significantly increasing petroleum prices at the pump and moving towards automatic electricity and water tari f f adjustments. On the strength o f the reforms undertaken and the economic program set out by the authorities, the International Monetary Fund (IMF) Board approved a second PRGF arrangement on May 12,2003. In i t s f i rs t review under the PRGF, conducted December 17,2003, the IMF commended Ghana on i t s strong macroeconomic performance and prudent fiscal and monetary management, but also called for acceleration o f structural reforms and indicated that in view o f past history in election years, the year 2004 poses a particular challenge.

Recovery from a difficult post-electoral fiscal situation was a challenge. After

18. fiscal and monetary management and a favorable external situation Ghana made significant progress in achieving macroeconomic targets for 2003. Real GDP growth increased from 4.5 percent in 2002 to an estimated 5.2 percent in 2003, exceeding the 4.7 percent target. This stronger growth was led by robust performance in cocoa and gold exports as well as increases in private remittances. A one-time jump in the annual inflation rate, from 15.2 percent at the end o f December 2002 to an all-time high o f 30 percent in April 2003, was due to the 95 percent increase in petroleum prices in February 2003 (see Chart 3). That spike dampened progressively, with year-on-year inflation declining steadily to close the year 2003 at 23.6 percent, slightly higher than the revised target o f 22 percent. L o w monthly increases now indicate that a considerably lower annual inflation rate may be achieved in 2004. The value o f the domestic currency also depreciated by a modest 4.7 percent against the US dollar, compared to 7.4 percent in 2002. The overall budget deficit o f 3.4 percent o f GDP was marginally above the revised target o f 3.3 percent, although an improvement over the previous year’s 5 percent. Ne t domestic financing registered a repayment o f 0.4 percent o f GDP against a target o f zero.

Financial authorities are acutely conscious of past slippages; wi th careful

8

Table 1: Recent Economic Developments

INDICATOR

GDP growth Agriculture Industry Services

Inflation (year-on-year)

Net domestic borrowing (% o f GDP)

Overall Budget Deficit (%GDP)

Domestic primary balance (% GDP)

Current Account (US$ million)

Gross Reserves (monthsiimports)

2002 Actual

4.5 4.4 4.7 4.7

15.2

8.7

2.0

30.0

2.0

2003 Budget Target

4.7

9

0

3.3

2.2

2.3

2003 Actual

5.2 6.1 5.1 4.7

23.6

0.4

3.4

2.5

40.8

3.9

I Source: 2004 Budget Speech * Minus = net borrowing; Plus = N e t repayments

19. has been uneven. Expenditure controls have been strengthened, tax revenue collection improved and in f lows o f external support higher than anticipated. Revenue-raising measures introduced in 2003 include the national reconstruction levy, the debt recovery charge on petroleum products, and timber licenses. Improved fiscal performance in turn facilitated a decline in the pace o f monetary expansion, which in 2003 had been driven primarily by a substantial accumulation o f foreign reserves at the Bank o f Ghana. The decline in inf lat ion also opened room for the central bank to gradually reduce i t s prime interest rate, with yields o n three-month treasury bills sliding f rom 38 percent in December 2000 to 16 percent in January 2004. However, high levels o f publ ic domestic debt (two-thirds o f wh ich was being rol led over at maturities o f three months) and ensuing high interest rates continued to crowd out private investment and constituted a significant drain o n public expenditures. Approximately three-quarters o f total interest outlays in 1999-2001 stemmed f rom the domestic interest burden. By end-2003 the government had reduced domestic publ ic debt to 22.6 percent f rom 29 percent o f GDP at end-2002 . Nonetheless, there has been only modest progress o n structural reforms in some key areas, such as the public sector, business environment, energy, finance, and telecommunications.

While fiscal and monetary discipline have improved, structural performance

9

Char t 3: Inflation

I

Inflation Rate (year-on-year)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Month Source:Bank o f Ghana and IMF

D. STRUCTURAL ISSUES

i. Progress and Challenges

20. good endowment o f natural resources and strong export base, Ghana was well-poised to achieve a sustained increase in economic growth after independence. Yet, that outcome was not achieved. Ghana experienced spurts o f growth in the 1960s, propell ing it into a higher per capita income bracket (Ghana borrowed f rom IBRD until March 1977) but rapid economic decline set in during the mid- 1970s. An Economic Reform Program was launched in 1983, marking a change in policy direction f rom state-controlled to market- driven economy. By that time, though, standards o f living had declined so sharply that Ghana had jo ined the ranks o f other low-income Afr ican countries. The economy was able to rebound in the mid-1980s with the aid o f buoyant cocoa and gold prices. A period o f sustained output growth, punctuated by episodes of weak macroeconomic management associated with the electoral cycle, followed.

Cyclical and external factors have constrained economic growth. With i t s

21. Growth prospects stymied by slow progress on structural issues. Beyond the economy’s vulnerabil ity to external shocks and weak economic management associated with the electoral cycle, however, Ghana’s growth prospects have repeatedly been stymied by slow progress on structural reforms. Despite recording average real GDP growth in the 4 to 5 percent range over the last 20 years, the structure o f the Ghanaian economy has remained broadly the same since independence. Agriculture remains dominated by smallholder farming and the natural resources sector has not yet been able to operate efficiently and effectively, while the manufacturing sector has not diversified much beyond the industrial activities developed as a result o f the industrial-cum-trade

10

policy reforms o f the 1980s. In addition, budget rigidities have curtailed f lexibi l i ty to address poverty issues. During the 1990s the share o f wages and interest payments in total budgetary expenditures rose substantially, and n o w account for 69 percent o f total budgetary revenues including grants. In this context, the scope for shifting the allocation o f expenditures among wages, goods and services and investment has shrunk considerably. Since 2002, improvements in managing wage expenditures have helped to keep the share o f wages and salaries in the total budget in check. However, quasi-fiscal deficits have become a major source o f financial imbalances, with the ma in source being the state-owned enterprises sector.

22. The state-owned enterprises sector weighs heavily on the economy, and state involvement i s extensive, including in the public enterprises and utilities; divestiture experience has been mixed. In spite o f the large privatization program o f the mid- 1990s, the size o f the government remains large. Divestiture o f key public ut i l i t ies has had a mixed experience, including significant midstream shifts, such as in the finance sector, or delays arising f rom disputes with the strategic investors involved, such as in the telecommunications sector. The central government owns a 50 percent o r greater share in nearly 50 companies, many o f which have been operating at less than cost recovery pricing, thus perpetuating inefficiency in service delivery, generating financial imbalances to the government, and leaving a significant debt burden to future generations. Between 1999 and 200 1, while the overall deficit o f the general government averaged 7.5 percent o f GDP, the consolidated overall deficit o f the f ive largest state- owned enterprises’ averaged 9.25 percent o f GDP. Recent estimates suggest that the planned subsidy payments f rom the budget to public enterprises in 2003-2004 i s l ike ly to reach 1.6 percent o f GDP. Nonetheless, with the establishment o f the Public Uti l i t ies Regulatory Commission (PURC) in 1997, there has been gradual progress o n introducing automatic tar i f f adjustments, especially for utility companies, and electricity and water tariffs have begun to be adjusted to begin to cover costs at these ut i l i t ies.

23. The energy sector, critical for growth, i s now targeted for substantial reform. Until recently, subsidies to the loss-making Tema Oi l Refinery (TOR), an o i l importer, presented a significant burden o n the budget and the size o f i t s debt affected the financial sector through i t s overdraft faci l i ty with the Ghana Commercial Bank (GCB). To address some o f the crit ical energy sector issues, in mid-January 2003, the authorities raised petroleum prices by 90 percent o n average, bringing retail prices to impor t parity levels. In addition, the Parliament enacted a Debt Recovery Levy (DRL) o n petroleum products, estimated to generate 1.6 percent o f GDP in 2003, to help retire the bonds issued to cover the losses at the TOR. A major re form program covering generation and distribution i s now underway. These actions drew o n the lessons f rom the energy sector performance during the 1990s when the Electricity Company o f Ghana (ECG) and Vo l ta River Authority (VRA), the t w o major energy sector publ ic enterprises, became financially weak due to delays in adjusting electricity tariffs and petroleum retail prices. Until recently, VRA, wh ich manages the Akosombo Dam, provided power at highly-subsidized rates to a private aluminum smelter, the largest power consumer in the country. Also,

Volta River Authority, Ghana Water Company, Tema Oil Refinery, Electricity Company o f Ghana, and 7

Ghana Commercial Bank.

11

delays in maintenance and needed investments further contributed to weakening the performance o f these enterprises, making a comprehensive improvement in sector performance urgent.

24. Investment climate constraints still hinder private investment. High real interest rates driven by excessive local borrowing by government have long hindered private enterprise access to affordable financing. Compared to other sub-Saharan Afr ican countries, Ghana’s financial intermediation i s weak, as a result o f historically poor allocation o f pension resources, and continued distortions in the financial services markete8 Other constraints to private sector development include: inefficiency o f institutions that interface with the private sector, including the dominant Ghana Commercial Bank (GCB) and to some extent the commercial banks; poor trade-related infrastructure; unreliable provision o f and relatively high cost utility services; non- conducive pol icy framework relating to factors o f production; bureaucratic red tape; and corruption. The government has recognized these adverse factors, and has recently begun to take action to address some o f the issues. To help improve the dialogue between government and the private sector, the President established the Ghana Investors Advisory Council; it has been effective in setting forth a clear agenda. However, a 2003 FIAS analysis o f administrative barriers to investment, that measured progress in meeting identif ied constraints since 1995, found only a few areas where identif ied reforms had been implemented, and those were not comprehensive enough to make a significant i m p r ~ v e m e n t . ~ Results f rom at least two surveys” suggest that small- and medium-size firms bear a relatively high share o f the costs o f the business environment in Ghana, preventing them f rom expanding and reaching a size sufficient for entering wor ld markets.

ii. Sources o f Potential Growth

25. The agricultural sector still has unexploited potential, and fostering non- traditional exports (NTEs), especially in agriculture, will be key to lifting growth rates. Agriculture accounts for about 35 percent o f GDP. I t has done better than the manufacturing sector, main ly because i t s exports, both cocoa and non-traditional crops, have performed quite well . Indeed, Ghana has seen strong growth in non-traditional crops, especially tropical fruits and vegetables, over the last f ive years. However, crop losses are high and access to markets i s limited. Mak ing better use o f Ghana’s agricultural potential wou ld require giving i t s farmers more options and better incentives to develop crops that have emerged in the last decade and others with potential for growth. Access to infrastructure, technology, international markets and quality control systems wil l be crit ical to improve storage, enhance marketing and processing o f agricultural commodities, increase the volume o f non-traditional exports, improve land use, and foster environmentally-friendly agronomic practices. Agricultural development

Source: World Bank and IMF, FSAP Update, July 2003. Foreign Investment Advisory Services (FIAS), “Ghana Administrative Barriers to Investment Update,”

June 2003. l o “World Business Environment Survey, 2000” and “Regulatory and Administrative Cost Survey, 2003,” conducted by Bruks and Associates and sponsored by FIAS, Ghana Investment Promotion Council.

12

strategies, both in traditional and non-traditional crops, will need to be guided by market demand and by their environmental soundness.

26. manufacturing: other non-traditional sectors with potential. The potential cross- cutting impact f rom a well-functioning I C T environment o n growth and employment, improved government services, and accountability and empowerment, i s high. For example, a dynamic I C T sector in Ghana has the potential to bring greater efficiencies to day-to-day operations of both government and private sector, as we l l as a platform for value-added services, such as outsourced data and call center services for overseas corporations. Strengthening the pol icy environment and regulatory capacity, and improving ICT infrastructure and access in both urban and rural communities, including resolving an investment dispute between the government and a shareholder o f Ghana Telecom, are necessary preconditions to realizing this potential. Ghana’s ICT policy, developed in June 2003 fo l lowing extensive consultation with stakeholders countrywide, seeks to engineer an ICT- led socio-economic development process with the potential o f transforming Ghana into an infrastructure-rich, knowledge-based and technology-driven economy and society. Tourism i s another area in which Ghana may have a comparative advantage in niche markets such as community, cultural and historical tourism as we l l as eco-tourism. In 2002, earnings f rom tourism represented 8 percent o f GDP, up f rom 2 percent in 199 1 ; in 2003 tourism revenues were 25 percent higher than in 1999. l1 Growth in such non-traditional sectors, as we l l as manufacturing prospects, may hinge on Ghana’s effectively harnessing the potential for economic growth and poverty reduction that accompanies urbanization.

Information and communication technology (ICT), tourism, and

iii. Governance and Corruption

27. The current institutional setup in the public sector i s characterized by weak policy and implementation coordination among government ministries, subvented agencies and local governments. The current institutional structure o f the government includes 36 central ministries and some 280 subvented agencies, wh ich are departments and agencies operating under these ministries. The total number o f government employees in the subvented agencies i s large both in absolute terms as we l l as in comparison to other countries. The Auditor-General has tackled the problem o f ghost names, and the National Institutional Renewal Program (NIRP) recently completed a public employment census to consolidate efforts. As responsibilities for implementing crosscutting reforms involve various branches o f government, the fragmentation o f responsibilities makes the pace o f reform implementation uneven. T o consolidate publ ic sector reform efforts, oversight was transferred to the office o f the Senior Minister in early 2003. Overall, diff icult ies in policy coordination have also hindered rationalization o f government activities and reduction in the size o f the public sector, including, as described earlier (see para. 22), in the state-owned enterprises sector.

28. greater inclusion. First, districts are often unable to use their long- and medium-term

Greater empowerment i s being sought through strengthened institutions and

” Ghana, Tourist Board Datasheet and Ghana Export Promotion Council.

13

development plans to forecast the delivery o f infrastructure and other social services, due to uncoordinated implementation o f development partners’ programs with their own; these programs are not always consistent with the GPRS. The result i s that Distr ict Assembly Common Fund (DACF), HIPC, and other grant transfers are not used effectively enough. District-level capacity needs to be strengthened and streamlined, so that a l l district-level operators may work together effectively and to foster greater accountability at the local level. Second, the constitutionally-mandated entities have only weak oversight capabilities. In Ghana, the institutions that were established for that purpose have not yet acted as a strong counterweight to the executive. O f particular urgency i s Parliament’s abi l i ty to exercise effective oversight, including o n the budgetary process. Since 2002, watchdog and oversight institutions have received budgetary allocations, and support has been provided to modernization (for example, the “Fast Track” Courts are computerized). Third, participation by c i v i l society in the management o f public affairs has been constrained by lack o f access to information. The draft Freedom o f Information Bill i s intended to bring about fundamental improvements in polit ical and bureaucratic culture as regard access to information o n government business.

29. years o f public sector reform programs, the Ghanaian public service remains large and weak. Uncompetit ive compensation packages and an unrewarding j o b environment have made the public service an unattractive employment destination for talented managers and professionals, most notably in the areas o f medicine, tertiary education, economics, and public po l icy analysis. A dilemma for Government i s that i t s abil ity to improve the pay to recruit and retain crit ical skills in the public sector i s l imi ted by the size of the public service and by overall budget constraints. A perennial problem o f high economic significance i s the brain drain o f well-educated nurses, doctors and teachers. A comprehensive public sector re form strategy, to improve effectiveness, efficiency and accountability, i s under preparation.

Competence and professionalism of the public service: After more than 15

30. GPRS and budget management i s still needed. The I M F - W o r l d Bank H IPC Expenditure Tracking Assessment and Act ion Plan (HIPC AAP) concluded that in 200 1 Ghana met on ly 1 out o f 15 benchmarks in the areas o f budget formulation, execution and reporting. The 200 1 assessment highlighted that basic revenue, expenditure and cash management controls required strengthening. The assessment also pointed out that the budget preparation system needed to provide a better overview for planning, considering that budget deadlines were met with delays, meaning that the budget was generally enacted wel l after the start o f the financial year. Finally, accounting systems needed strengthening to produce reliable financial statements and meaningful figures for budgetary control. These latter problems were aggravated by auditing backlogs, and by audits that did not address high-risk areas. A new A A P i s to be conducted in February 2004.

Financial management needs further strengthening, and better linkage of the

3 1. Government has initiated several programs to strengthen its financial management processes. With the strengthening in the regulatory framework through new laws covering financial administration, auditing and procurement, as we l l as

14

improvements in the scope, timing and quality o f the reporting o f budget execution, there have been recent improvements in public financial management. Some o f the problems raised by the 2001 assessment were addressed in 2003 through the introduction o f cash and commitment controls, the prompt reconciliation o f budgetary and banking accounts, and more frequent and timely reporting on budget execution. The government has also identified a prioritized number o f public financial management issues to be addressed under i t s Short Term Action Plan over 2003-2004. The Medium Term Expenditure Framework (MTEF) i s part o f the government’s budget preparation system. Furthermore, the core government accounting system i s being replaced by a new integrated computer system (Budget Planning and Expenditure Management System or “BPEMS”) that i s being progressively rolled out, and the payroll system by the Integrated Personnel and Payroll Data System (IPPD 11). The final 2004 budget discussions sought to explicitly link GPRS priorities and sectoral budget allocations. Pre-payment audits o f arrears (both road and non-road) have been carried out. It should be noted that military expenditures are transparently audited and reported; Ministry o f Defence expenditures are reported in a manner similar to that for civilian entities. According to the 2003 budget, Ghana’s military expenditures were about 4.2 percent o f total discretionary expenditures in 2003 and are projected to be around 4.8 and 4.9 percent in 2004 and 2005 respectively.

32. address in 2001 emphasized the Government’s “zero tolerance on corruption”. At the sub-regional level, Ghana convened ECOWAS Justice Ministers in 2001 and sponsored the Accra Declaration against corruption and related crimes, the text o f which has since been adopted as a binding ECOWAS Protocol. Ghana acceded in 2003 to the African Peer Review Mechanism, providing an avenue for independent public critique o f the government. Ghana i s also a signatory to the African Union’s convention against corruption. Ghana ranked favorably on Transparency International’s Corruption Perceptions Survey in 2003 and was fourth among sub-Saharan African countries in the 2003 survey, behind Mauritius, Botswana and Namibia. Sti l l , the government intends to keep doing better on corruption. Tax administration, customs, exchange controls inter alia have been identified as important sources o f corruption that work as deterrents to new businesses in Ghana and should be tackled with commitment by the government in the very short term. l3

Corruption should be kept in focus. The President’s “State o f the Nation”

iv. Other Cross-Cutting Issues

33. among the surrounding c~un t r i es , ’~ although recent studies suggest prevalence may be approaching the five percent mark nationwide. Alarmingly, December 2002 data show prevalence in six cities significantly exceeds the five percent mark, with a further increase likely. Ghana has rallied to combat the disease. Awareness among Ghanaians

HIV/AIDS. Ghana’s HIV/AIDS prevalence rate, at 3.4 percent, i s the lowest

Source: 2004 Budget Statement. Ministry o f Defence as a share o f total government discretionary expenditures (including donor funding, and covering personal emoluments, administrative services and investment).

12

Source: FIAS, op. cit. By contrast, prevalence in CBte d’Ivoire i s 15 percent.

13

14

15

o f the risks o f contracting HIV i s very high. However, behavior has been s low to change and there i s reluctance to seek counseling and undergo voluntary testing. Efforts should be geared towards addressing the issues o f stigmatization o f people living with HIViAIDS (PLWHAs) and to caring for infected people.

34. their needs better addressed. While Ghana has special needs schools, there i s a deliberate effort to integrate disabled children into the school system. I t i s estimated, however, that at least two thirds o f a l l disabled children are not in school, as they are dif f icult to reach. With regard to the physically challenged, the capacity o f agencies that provide relevant services needs strengthening. A draft Disabil ity Bill outlines special incentives to improve livelihoods for disabled persons, and the government i s exploring health exemptions and training for the disabled.

Disability. The presence o f people with disability needs fuller recognition and

3 5. are a l l under strain because o f poor management and overexploitation. Although these sectors’ contribution to GDP growth, export earnings, j o b creation and livelihoods i s significant, human activities are threatening the role they play. For instance, land i s degraded by bush burning, resource overexploitation, and unsound agricultural practices. At present, exploitation o f renewable natural resources in the high forest and savannah zones far exceeds their natural regeneration and artif icial restocking capacities. The unsustainable pattern o f management o f natural resources has led to reduction o f forest cover, with an annual rate o f deforestation estimated at about 1.6 percent (about 65,000 ha annually), threatening the main source o f rural energy for heating and cooking and putting several timber species under severe threat o f commercial extinction. If unchecked, desertification and changes in climate on national, regional, international and global scales could result.

Natural resource sustainability at risk. Forests, wildlife, livestock and fisheries

36. reserves are emerging issues, even more so as ore processing methods, particularly those applied by small-scale artisanal (“galamsey”) miners, result in contamination and pol lut ion o f water bodies, soils and air. Beginning in the late 1980s, formal mining operators began to adopt environmental and social safeguards and social responsibility agreements (or Community Act ion Plans). Recent studies conducted by independent reviewers have shown that pol lut ion abatement and environmental cleanup at the mines has gained greater prominence. Companies’ performance in ensuring due diligence with social and environmental safeguards needs continued close monitoring by the public. Beyond mining, solid waste generation and disposal pose major environmental risks throughout the country.

Other environmental concerns include mining. Mining concessions in forest

37. environmental and natural resource management has been estimated to be on the order o f 4 percent o f GDP ann~ally. ’~ Further, the national environmental issues also pose a threat to the global environment. O f trans-boundary and international concern are: (i) ecosystem fragmentation; (ii) aquatic weeds invasion in the Black Vo l ta shared by

Overall, the cost to the economy o f inadequate attention to sustainable

l5 Source: Ghana Environmental Action Plan, Vol. 2, 1994.

16

Ghana, C6te d’Ivoire and Burk ina Faso and in the Tan0 River, particularly the Tano/Ehy lagoon shared by Cote d’Ivoire and Ghana; and (iii) deprivation o f free movement o f wild animals within and across frontiers. Under the Kyoto Protocol, Ghana benefits f rom support for integration o f cleaner technologies in production systems under the Clean Development Mechanism. In addition, the Ghana Environmental Protection Agency has adopted the Polluter-Pay Principle as law, and Ghana observes the principle o f Prior Informed Consent, under which as a receiving country, Ghana’s consent wou ld be required prior to any disposal or dumping o f hazardous or toxic waste. However, monitoring o f compliance and enforcement o f environmental regulations, guidelines and standards need to be strengthened and made more efficient.

38. W o m e n and m e n play equally central roles in economic production, yet women, compared to their ma le counterparts, experience greater poverty, have heavier t ime burdens, lower rates o f utilization o f productive assets, and lower literacy a n d numeracy rates. Most economically-active women in Ghana can be found in the informal economy, where they outnumber men; they are particularly involved in micro-enterprises and trade. In addition, women are active in food crop production, as wel l as marketing and processing o f agricultural products, including fish in coastal areas. While the majori ty o f cash crop farmers are men, women dominate the food crop sector, and as indicated earlier (see para. 1 l), the GLSS4 found that food crop farmers are among the poorest in the country. The situation i s further aggravated by dif f iculty in accessing land, wh ich tends to be determined by cultural and traditional practices related to land, that vary across the country.

39. improving and almost non-existent at the pre-school level, the gap between girls and boys enrolled increases significantly with higher levels o f education. In 2002, for example, girls represented 50, 47, 45 and 41 percent respectively at pre-school, primary, junior secondary and senior secondary levels. At university level, the proportion o f females declines to 30 percent.I6 The perceived quality and environment o f the school, in terms o f adequacy and condition o f school amenities and facilities (e.g. classroom blocks, availability o f water and toilets), affect girls’ enrollment d e c i s i o n ~ . ’ ~ With regard to health, maternal mortal i ty rates in Ghana, at an estimated 214 per 100,000 l i ve births,’* are considered to be unduly high since most immediate causes (including post partum hemorrhaging, obstructed labor, infections, eclampsia and abortion complications) are preventable. Unsupervised deliveries, and inadequate postnatal care, as we l l as malnutrition, high fert i l i ty rates and harmful traditional practices contribute to high maternal mortality. Water i s another area o f concern f rom a gender standpoint. Women are traditionally responsible for water provision for domestic purposes and they carry heavier t ime burdens in the quest for water. Whi le these problems and others are being addressed through several development interventions by government with the support o f

Gender and access to basic services. While gender disparity i s steadily

l6 Ministry o f Education, “Education Strategic Plan, 2003 to 20 15 - Volume 1 : Policies, Targets and Strategies,” May 2003.

Source: Awedoba, Albert K. et al., “Household Demand for Schooling in Ghana,” February 2003. Ghana, “Report on the Millennium Development Goals,” National Development Planning Commission,

2002.

17

development partners, and by NGOs, Ghana i s s t i l l a long way from making a significant impact on the issue o f gender disparity in the country, especially in the poorest regions.

40. Labor Standards. The distribution o f the labor force in Ghana has remained stable since 1995, with the agriculture sector accounting for about 50 percent, formal sector employment at between 14-18 percent, and the remaining 32-36 percent in the informal sector. Informal sector employment has been growing faster as the formal sector has been unable to absorb the increasing urban labor force. Labor rights are protected by the 1965 Industrial Relations Act, which sets out, inter alia, the framework for the formation o f trade unions at the enterprise level, procedures for obtaining the Collective Bargaining Certificate, and mechanisms for settling industrial disputes, and created a tribunal on unfair labor practices. The 2003 Labour Act (65 1) amended and consolidated laws relating to labor, employers, trade unions, and industrial relations. I t also established a National Labor Commission with a mandate to address issues related to tripartite dialogue. O f growing concern, nonetheless, i s the issue o f chi ld labor. About 1.2 mil l ion children in Ghana are estimated to be engaged in child labor, in activities such as street peddling, quarrying, illegal mining, fishing and providing household help. l 9 Ghana has several legal and policy instruments aimed at combating this phenomenon, including i t s ratification o f the I L O Convention o f the Rights o f the Child in 1990, establishment o f the Ghana National Commission on Children (1 991), passage in 1998 o f the Children’s Act (which directly addresses child labor issues, especially the worst forms o f child labor), and the National Plan o f Action to Combat Child Labor (November 2000).

Ghana has made significant progress in the implementation of the Core

111. GHANA’S DEVELOPMENT PROGRAM AND PROSPECTS

A. COUNTRY PRIORITIES AND AGENDA

i. Ghana’s PRSP

41. Boards of the Fund and the Bank together with the Joint Staff Assessment (JSA) in March 2003, mapped out the medium-term strategy for promoting growth and reducing poverty. The overarching goal o f the GPRS i s to achieve sustainable, equitable growth, acceleratedpoverty reduction, and the protection of the vulnerable and excluded within a decentralized democratic environment. The government set i t s poverty reduction goals in alignment with the MDGs, and articulated i t s strategy around five pillars: (i) maintaining macroeconomic stability; (ii) increasing production and employment; (iii) promoting human resource development; (iv) implementing special programs for the vulnerable and excluded; and (v) ensuring good governance through accountability and transparency.

Ghana’s Poverty Reduction Strategy (GPRS), which was considered by the

42. consultation process that involved all levels o f government and reached outside

The GPRS was approved by Parliament in February 2003. I t underwent a

Source: Ghana Child Labor Survey, Ghana Statistical Service, March 2003. 19

18

government to c i v i l society organizations, the private sector, labor unions, think tanks and academia. The preparation process enhanced ownership o f i t s content both within and outside o f the government, by increasing the level o f engagement in national strategy formulation beyond that o f any previous national strategy initiative. Though even deeper consultation was in demand, it la id the building blocks for deepening country ownership through plans for improved access to information and permanent mechanisms for dialogue o n M&E, local development planning, and revisions and updates consistent with the GPRS’ standing as a living document.

43. The Joint Staff Assessment of the GPRS found that it provides a sound framework for implementing the government’s anti-poverty agenda. Nonetheless, while the programs embodied in the GPRS are based on realistic assumptions about possible external financing, the medium term poverty reduction targets are subject to a number o f uncertainties. Under the projected average real GDP growth rates o f 5 percent per annum, some MDGs might not be attainable within the expected timeframe in the absence o f stronger actions in expanding the delivery o f social services in deprived areas, in removing impediments to private sector-led growth and in implementing public sector reforms including decentralization and public enterprise reform. Also, the GPRS updates need to continue elaborating pol icy measures in some areas to operationalize and priorit ize program implementation, strengthening the link between the diagnosis and medium term priorities, and translating policies into time-bound measures.

44. increasing production and employment, target accelerated economic growth over the medium to long term. The growth strategy focuses first o n continuing to ensure macroeconomic stability and to deepen poverty reduction. T o raise growth rates, the government intends to tackle the existing constraints to private sector-led growth, and harness the sources o f growth so that new opportunities are generated. T w o key issues need to be addressed to consolidate progress on macroeconomic stability and poverty reduction: high domestic debt, and a weak public expenditure management framework that inadequately targets poor people.

The first t w o pillars of the GPRS, maintaining macroeconomic stability and

45. part by the crowding out effect of the government’s excessive reliance on domestic borrowing to finance the budget. The net effect o f the government’s high domestic borrowing has been high real interest rates, which are driven main ly by high discount rates for government treasury bills. The government’s domestic debt, wh ich was dominated by short-term securities, increased f rom 3 percent o f GDP in 1994 to about 29 percent o f GDP in 2002, due to fiscal slippages as we l l as shortfalls in expected donor inflows. The government’s decision to use 20 percent o f the HIPC savings to offset domestic debt as well as i t s determination to maintain fiscal discipline, especially during this election year, are already yielding results. Lower demand for domestic borrowing helped to reduce treasury bill discount rates. Domestic debt stock i s expected to fa l l to 14.8 percent by end 2005, and to remain at reasonable levels for the remainder o f the

Over the last t w o decades, private sector performance has been hampered in

19

CAS period. The share o f total domestic credit to the private sector has r isen f rom 47 percent in 2002 to 54 percent in 2003 .20

46. Improvements in budget planning, execution and evaluation are key to maintaining fiscal discipline and to maximizing the impact of poverty-related expenditure. As outlined earlier (see para. 14), there has been solid progress in the past year o n the execution o f the poverty-related budget items. Further, in a significant improvement over past practice, during the budget conferences for 2004, the Ministry o f Finance and Economic Planning and individual spending ministries have met to clarify the linkage o f proposed expenditure programs with the GPRS. As budget rigidities are addressed (see para. 21), more space may be created for poverty-related expenditures. Over the coming years, the government i s aiming to significantly increase poverty-related expenditures as a percentage o f government domestically financed spending, with particular attention to non-wage poverty-related expenditures, and henceforth maintain that increased level.

47. reduce the high cost o f doing business and remove the obstacles to competitiveness, and on the other to improve the minimum infrastructure platform necessary for private sector operations. K e y to reducing the high cost o f doing business will be greater access to land and land tenure, a reduction in the t ime and cost o f registering a business, and an overall improvement in the legal, judicial and regulatory framework. In dealing with these issues, the government i s seeking to reduce significantly the time to register land f rom the current four years, to reduce the backlog o f pending c i v i l cases, and to slash the t ime to complete business registration f rom the current 120 days. Strengthening the regulatory framework for the financial sector entails implementation o f the government’s Financial Sector Strategic Plan (FINSSP), which calls for enactment and implementation o f new legislation, such as the Banking Act, and the Payments System, Bills and Checks, Anti-Money Laundering, Offshore Banking, Foreign Exchange, and Credit U n i o n bills. To ensure a reliable and cost-effective minimum infrastructure and services platform, the government aims to significantly increase private sector participation. A comprehensive intermodal transport sector strategy i s envisaged. Progress will be measured by the reduction in power distribution system losses f rom their current average o f 26 percent, improvement in the condition o f the road network, and increase in the local telephone cal l completion rate.

In addressing the constraints to growth, the government aims on one hand to

48. To catalyze new sources o f growth, the government i s seeking to address low growth in agriculture and non-traditional sectors, while improving natural resource and environmental management to ensure long-term sustainability, and tapping better into global knowledge. In addressing these issues, the government hopes to achieve the fo l lowing outcomes: (i) expanded and diversif ied production base and increased incomes, especially for rural communities; (ii) sustainable natural resources and environmental management and enhanced compliance with existing legislation and regulations; and (iii) increased income potential f rom knowledge- and information- intensive sectors. Progress towards these outcomes may be measured by an increase in

2o Source: Bank o f Ghana Statistical Bulletin, 2003.

20

the value o f nontraditional exports, an increase in the expansion o f forest cover, and increased access to internet services. The government has introduced the President’s Special Initiatives, a strategy to create jobs, diversify exports and above al l reduce poverty, by facilitating production and marketing o f products such as cassava, o i l palm, salt, and textiles. The Rural Enterprise Development Programme i s aimed at promoting improvements in the l iving conditions o f people in rural settlements by providing ample opportunities for poverty reduction, access to basic social and economic infrastructure and improvements in environmental conditions. The ICT policy, which sets out a road map for development o f Ghana’s information society and economy, foresees deployment o f core I C T network infrastructure, building human capacity and promoting ICT in education, supporting a transparent and inclusive policy process, providing access to financial capital and markets, and facilitating demand-driven content and application development.

49. The third and fourth pillars o f the GPRS aim at achieving the human development targets under the MDGs. With 40 percent o f the population living below the poverty line, and even more in times o f drought, overall poverty reduction arising from accelerated growth will need to be complemented with specific targeting o f vulnerable and excluded groups. In addition, to achieve the human development MDGs Ghana will need to improve water supply and sanitation coverage, quality and access to education, nutrition, and access to supervised deliveries. The rising incidence o f HIViAIDS and high stigmatization o f PLWHAs also need to be addressed. The government i s addressing these human development issues through specific interventions, sector strategies and plans, policy actions and programs, as well as studies to help inform interventions and better target the poor. Some o f these actions are the Community Driven Development interventions aimed at reducing poverty and the Poverty and Social Impact Assessments. A Private Sector Participation strategy for urban water i s currently being drafted. Legal aid i s available for the poor. Other actions are the strategic plans and programs o f work developed for the education and health sectors respectively and programs in health such as the Expanded Program on Immunization, Hand Washing and Rol l Back Malaria. For HIV/AIDS, in addition to the National HIV/AIDS/STI and Workplace H IV /A IDS policies, a program to introduce anti-retrovirals i s being implemented and a transport policy on HIV/AIDS i s being developed.

50. transparency, seeks to build a democratic and inclusive state, improve leadership and management s k i l l s , and improve public sector management for better service delivery. The GPRS views good governance as a system in which public and private entities and actors are empowered to contribute to the development process. Improving governance therefore rests upon the effective application o f legal, regulatory and institutional frameworks to facilitate accountability o f state institutions, the private sector and civ i l society groups.

The fifth GPRS pillar, ensuring good governance through accountability and

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Chart 4: G P R S Targets for Growth, Poverty Reduction, H u m a n Development and H I V / A I D S Prevention -- 2000 to 2005

~ GPRS Targets, 2000/2005

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source GPRS Progress Report. 2 0 0 4

5 1. oversight capabilities o f Parliament and the other constitutionally-mandated entities, to empower the people to participate effectively in the development process, and to enhance transparency and accountability and reduce corruption. One o f the key hindrances to effective parliamentary oversight i s inadequate financial, physical and human resources. The government has set up a National Governance Program that has prepared strategic plans for a l l the oversight institutions, and has also prepared a legal sector strategic plan. Elements o f these plans are currently under implementation. To achieve the goal o f empowering people to participate effectively in the development process, the key issues revolve around Ghanaians’ abil ity to effectively ho ld government and service providers accountable for service delivery failures, and the key outcome that i s sought i s improved access to information that wil l guide them in their participation in the development process. The government has developed a Development Communication Enhancement Program that seeks to enhance communication with the citizenry, and the Freedom o f Information and Whistle B lower bills have been approved by Cabinet. To enhance transparency and accountability and reduce corruption, the government i s prepared to implement i t s anti-corruption p lan through the Ghana Ant i -

T o build a democratic and inclusive state, it i s necessary to strengthen the

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Corruption Coalition. A diagnostic study o f anti-corruption agencies will also help to priorit ize resource allocations.

Box 1: Public Procurement Law: Ghana’s Institutions Working Together to Strengthen Accountability

The Parliament o f Ghana approved the Public Procurement Bill on December 18,2003 and the President signed it into a Public Procurement Act on December 3 1,2003. Preparation o f the bil l began in 2000, and it was first presented to Parliament in November 2002. The Parliamentary Accounts Committee (PAC) invited public input in March 2003 and received comments from a broad cross-section o f stakeholders, including the Bank. The bil l was widely discussed in the media, in round table conferences, and in meetings with the PAC. Concerns were expressed about the bil l and i t s coverage, the role of the Bank, other donors, the WTO and the possible impact on Ghanaian businesses. The bill was one o f the most publicly-debated bills in Ghana, inside and outside Parliament. Following this open public debate over about nine months, Ghanaians made a choice about the objectives and expected impact o f the bill. The final version o f the Public Procurement Act i s considered a good procurement law according to global best Dractice.

52. T o improve public sector management for better service delivery, leadership and management skills, fiduciary management, M&E, and service delivery at the local level must be strengthened. To improve leadership and management sk i l ls in the public service, competence and professionalism must be sought, at a l l levels. T o attain that goal, the inadequacy and ineffectiveness o f the professional, managerial and leadership sk i l ls in the public service must be addressed, so that sk i l ls are effectively translated into outputs and outcomes. In order to enhance the efficiency o f the public service, the government intends to design and implement a human resource management pol icy and system, including a public sector pay pol icy that will address the recruitment and retention o f crit ical publ ic service positions. T o improve fiduciary management, aimed at the efficiency and effectiveness o f the system, the government has developed and i s committed to implementing a short term action p lan o n public financial management. In addition, the government intends to implement the Public Procurement Ac t enacted by Parliament in 2003 (see Box 1). The government also plans to conduct regular payrol l audits and install a new computerized payrol l management system. To strengthen monitoring and evaluation, Policy, Planning and Moni tor ing and Evaluation Department (PPMED) staff are being trained in pol icy and budget management and in M&E, and coordination between the PPMEDs i s being strengthened. T o improve M&E at the national level, the government has also been conducting annual reviews o f the GPRS with the National Development Planning Commission as the lead agency.

53. able to deliver services and manage their own development. In the short term, the government i s seeking to decentralize responsibility for service delivery, ensuring the provision o f the corresponding resources. The implementation o f the Local Government Services A c t aims to support that outcome, including through the establishment o f a local government service (along the lines o f the public service). Another issue i s inadequate

To improve service delivery at the local level, local governments need to be

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capacity o f district assemblies (DAs) in local revenue generation and expenditure management. The government’s approach i s embodied in the National Decentralization Act ion Plan (NDAP), which has been submitted to cabinet for endorsement. The N D A P has four ma in program areas - policy and institutional arrangement for decentralization implementation, district development funding facility, capacity building and human resource development, and partnership and participation for accountable local governance. H IPC funds have been distributed to a l l districts for implementation o f development projects at the local level.

54. importance as a transit country toward landlocked countries has increased as a result o f the recent crisis in CBte d’Ivoire. Conscious o f this role, Ghana has embarked o n a comprehensive program to improve procedures and infrastructure services, and to contribute to the building blocks o f the common market. Ghana i s committed to implementing UEMOA’s Common External Tariff, which i s quite similar to Ghana’s o w n and which E C O W A S has adopted as the base tar i f f for i t s own planned Customs Union. Customs information f lows were improved in response to the complaints f rom the private sector about cumbersome customs procedures, resulting in accelerated transit as we l l as increased customs revenues. However, other obstacles remain as demonstrated in a recent survey o f road blocks o n the Ghana-Burkina Faso-Niger corridor. Road infrastructure on crit ical regional itineraries i s in fair to poor condition, raising transport costs. Ghana was an early leader in air transport oversight, and i t i s key for the country to maintain and further develop a safe, reliable, and affordable air transport network. In the energy sector, the West Af r ican Gas Pipeline (WAGP) will enable Ghana, Benin and Togo to replace oil-based electricity generation with cheaper and environmentally cleaner gas n o w flared in Nigeria. It will also open opportunities in these countries to use natural gas in l ieu o f solid and liquid fuels for other industrial, commercial, and domestic uses, in the process boosting the respective economies through private investment and j o b creation. The pipeline could constitute the single largest private investment in the region and could ho ld the key to opening up private sector potential in several related industrial and commercial ventures. The West Afr ican Power Pool (WAPP) was established in December 1999, fo l lowing the declaration by the ECOWAS Heads o f State o f their intention to develop a comprehensive power reform program by actively supporting the build-up o f a regional power market in four successive phases, to be implemented over a 20-year period. The W A P P will complement the W A G P in promoting regional energy trade and integration, and at the same t ime i s expected to stabilize the regional economy in the longer term by mit igating some o f the regional fragilities alluded to earlier. Finally, West Af r ica has already been for some t ime at the forefront o f “research-action’’ efforts to analyze and address the factors causing the spread o f HIV/AIDS along the main transport corridors and to develop approaches that take into account the high levels o f migration o f both short and long duration within the sub-region.

Regional issues include transport, trade, energy, and HIV/AIDS. Ghana’s

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B. ECONOMIC OUTLOOK

i. External Environment

55. High vulnerability to external shocks. Ghana’s relatively small and open economy has over the years suffered f rom external shocks such as o i l price hikes and fluctuations in the prices o f primary commodities. Cocoa, go ld and timber together account for over 70 percent o f Ghana’s total export earnings. Even though Ghana has a comparative advantage and a premium price for cocoa, the strong dependence on a few primary commodities makes the country vulnerable to external price fluctuations. Ghana has made efforts to reduce i t s vulnerability through measures to enhance i t s international competitiveness, diversify the export base and improve productivity at the micro level. Ghana made important strides in developing non-traditional exports (NTEs) during the 1990s. NTEs’ contribution to total merchandise exports earnings rose f rom 10 percent in 1993 to about 20 percent in 1999. However, Ghana s t i l l remains largely vulnerable to negative effects o f global economic trends because o f the slow progress made so far in the diversification o f i t s export base.

56. parts o f the West Af r ican sub-region over the last two decades continue to pose significant challenges for sustainable growth in Ghana. About 48,000 Liberian, Sierra Leonean, and Togolese refugees l ived in Ghana at end-2003.21 Although instability in C8te d’Ivoire contributed to an upsurge o f international cocoa prices, and diverted freight traffic originally destined for Abidjan to other West Afr ican ports, overall the sub- regional crisis dampened Ghana’s growth and stability prospects. Last year’s forward sale o f the cocoa crop meant Ghana was not ini t ial ly able to reap the full benefits o f the increase in wor ld prices; inefficiencies at the port prompted shippers to go elsewhere; major trunk roads are deteriorating faster than anticipated owing to increased traffic o f heavy duty trucks transshipping goods to the landlocked countries to the North; and population displacements have exacerbated the risk o f rapid H I V / A I D S transmission. In general, anecdotal evidence suggests that sub-regional volat i l i ty has had a deterrent impact o n foreign investment.

Sub-regional fragility. The negative spillover effects o f the poli t ical turmoil in

ii. Medium-Term Prospects

57. outlook for the near future i s positive, with signs o f robust economic activity that should al low the economy to achieve and sustain i t s 5 percent real GDP growth target, and 2.9 percent average per capita real GDP growth, over the next t w o years. Current industry forecasts project cocoa production comparable to the record levels o f 2003. There i s also evidence o f strong investment activity in cement production, mining and agro-processing, as we l l as continued growth in the service sector (tourism, banking and communication). Finally, expatriate remittances, estimated to have reached over US$500 mi l l ion in 2003, are expected to remain high with the rising number o f Ghanaian

The economic outlook i s positive. In spite o f the inherent challenges, the growth

’’ Source: UNHCR.

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professionals work ing abroad and measures to improve the processing o f foreign transfers.

58. positive growth scenario assumes the continuation o f the current macroeconomic pol icy environment, in particular prudent fiscal policy, and a benign external environment. Prudent fiscal management would translate into domestic primary balances in the range o f 3 percent o f GDP. Achieving this target for the domestic primary balance would require sustained revenue growth, including f rom revenue measures introduced in 2003. Expenditures wou ld continue to track tax revenue growth owing to lower transfers to utility companies (resulting f rom timely adjustments in tariffs for electricity, water, and petroleum products) and lower interest payments on the domestic publ ic debt. The key for the realization o f this growth scenario i s the gradual recovery in private investment, which depends o n the increase in credit to the private sector. That in turn results f rom interest rates that are lower because o f the decline in inflation, and improved financial intermediation resulting f rom the ongoing strengthening o f the regulatory framework for the financial sector, reforms in the public banking system, and improvements in the enabling environment for private sector development.

Underlying assumptions for positive growth scenario. The realization o f a

59. remain roughly unchanged, in the range o f 23 to 24 percent o f GDP, and poverty i s expected to decline. Private investment i s anticipated to increase over the period. To finance this investment, publ ic savings are expected to increase substantially during the 2004-06 period, whi le private savings would decline to accommodate increases in private consumption. Whi le Ghana does not have a formal quantitative framework for projecting income poverty outcomes at different real GDP growth levels, estimates based o n income-poverty elasticities are available. These estimates indicate that at the projected 5 percent real GDP growth, the poverty headcount could have reached 32 percent by 2007.

Anticipated macro results. Under this scenario, gross investment i s expected to

iii. External Debt

60. Ghana i s likely to achieve the HIPC completion point in 2004. Ghana reached the decision point in February 2002 and i s expected to reach the completion point in 2004 (see Annex 2). At the decision point i t was determined that assistance amounting to US$2.2 b i l l i on in net present value terms would be required for Ghana to reach the targeted debt-to-fiscal revenues ratio o f 250 percent. Completion Point triggers have been met in the areas o f education and local government service. Progress has also been made toward meeting triggers in the use o f budgetary savings, procurement reform, installation o f a computer-based financial management system, and electricity and petroleum pricing. Corrective measures will need to be discussed for f ive pending conditions: (i) full staffing o f internal audit functions; (ii) month ly publishing in the government gazette o f reports o n cash expenditures and commitments by ministry departments and agencies; (iii) development o f a district composite budget; (iv) expanding rural water coverage to 46 percent; and (v) raising recurrent health expenditures at district and lower-level governments to 45 percent o f the total health budget.

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IV. BANK GROUP ASSISTANCE STRATEGY

61, Three pillars to support the GPRS. This CAS wil l support implementation o f the GPRS through a mix o f lending and non-lending activities. The C A S i s built o n three strategic foundations: (i) sustainable growth and jobs creation (supporting GPRS Pillars 1 and 2); (ii) human development and service provision (supporting Pil lars 3 and 4); and (iii) governance and empowerment (supporting Pillar 5). This design was a main outcome o f a C A S country team retreat held in March 2003 in Akosombo, Ghana, and attended by the Minister o f Finance and Economic Planning and other technical officials. I t was also developed and applied in the PRSC.

62. West Africa Regional Integration Assistance Strategy solidly in the SFIA and the RIAS. The twelve lessons o f the SFIA bear directly on Ghana’s development challenges and the strategy’s response to those challenges, including the importance o f growth, gender, HIV/AIDS, as well as addressing capacity constraints; the need for regional cooperation; and mitigation o f the risk o f external shocks. The three pil lars o f the CAS map directly into the pil lars o f the SFIA. Moreover, this CAS responds to the fourth SFIA pillar, building o n solid partnerships, moving strongly towards programmatic support through the PRSC as well as through sector-level operations, and building in M&E through strengthening Ghana’s o w n M&E systems, as we l l as periodic progress reviews o f the CAS to be carried out during i t s implementation. With i t s support to the national-level programs o f key regional operations, this CAS complements the RIAS.

Close linkage with Strategic Framework for IDA in Africa (SFIA)22 and the This CAS i s rooted

A. IMPLEMENTATION OF THE LAST CAS

63. the government’s V is ion 2020: (i) increasing economic growth, to raise incomes; (ii) redefining the role o f the state, to provide efficient publ ic goods and services and equitable distribution o f benefits; and (iii) increasing the effectiveness o f the implementation o f the national development strategy, by improving governance and making efficient use o f publ ic resources. The CAS was discussed extensively with the new government. Nonetheless, significant implementation delays were experienced as the new government sought to ensure that the programs and projects reflected i t s o w n priorities. As a result o f those delays, but also because the targets may have been overly ambitious f rom the outset, many o f the targets set in the last CAS were not achieved (see Table 2). For instance, the C A S target o f 7 percent growth by 2003, whi le ambitious, may not have been realistic. Ghana’s GDP growth averaged around 4.1 percent during 2000-2002, one o f the better performances in sub-Saharan Africa. On the other hand, progress in key structural areas could have been improved, particularly budget execution and operation o f publ ic enterprises.

Progress under the last CAS. The FYO1-03 C A S supported three objectives o f

22 World Bank, “Africa: Strategic Framework for IDA’S Assistance to Africa (SFIA): The Emerging Partnership Model,” Report No. 262 17, June 24, 2003. 23 World Bank, “West Africa: Regional Assistance Strategy,” Report No. 22520, July 1 1, 2001,

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Table 2: Linkages between GPRS and CAS

GPRS Pillars

1. Maintaining macroeconomic stability

2. Increasing production and employment

I 3. Promoting human resource development

4. Implementing special programs for the

vulnerable and excluded

5. Ensuring good governance through accountability and

transparency

I

CAS Pillars

1. Sustainable growth and jobs creation

:. Human developmenl and service delivery

3. Governance and development

CAS Outcomes Reduced dependence on domestic borrowing by

government, effective public expenditure management; Improved access and security to land, improved legal judicial and regulatory framework; reduced time and COI o f registering business; reliable and cost effective minimum infrastructure and services.

Expanded and diversified production base and increased incomes to rural communities; sustainable natural resources and environmental management and enhanced compliance; increased income and potential from knowledge intensive sectors.

Reduce the proportion o f people living below the poverty line, increased access to safe and sustainable water supply and sanitation.

Stigmatization reduced for PLWHASs through advocacy and increased awareness creation for HIViAIDS; target groups increasingly change risk behavior; maintain prevalence levels and make anti- retrovial treatment available.

Increased basic literacy and numeracy; increased access to basic education in deprived districts and for thi disabled.

Improved nutritional status o f children under five; improved health status o f communities and decreased under-five mortality from disease.

Reduce mortality associated with malaria and other preventable diseases among children.

Improved access to essential quality obstetric care an( implementation o f programs o f behavioral communications for change.

Improved ability o f Parliament and other institutions 1 perform oversight roles vis-a-vis the executive; improve capacity o f civil society groups to monitor government and provide feedback on policies and service delivery.

Strengthened transparency and accountability mechanisms, enhanced efficiency o f public services

i. What Worked Well and What Worked Less Well

64. Multi-donor approaches have worked well. As a result o f capacity building efforts in procurement and financial management, sector-wide approach (S WAp) projects/programs have worked well. The experience with SWAps has helped both to highlight capacity limitations and to begin to address them. The SWAP has led to a much

more coordinated approach: (i) moving away f rom a large number o f individual, typically donor-initiated and extra-budgetary projects towards a single sector strategy and expenditure program; and (ii) working towards strengthening and ut i l iz ing government systems and procedures for planning, budgeting and management, as we l l as for procurement, auditing, reporting, and M&E. At the project level, that experience was an important building block for the FY03 Health SWAp, and informed the preparation o f the FY04 Education Sector Project (EdSeP), which has a p i lo t programmatic component.

65. Decentralization strengthened responsiveness. During the previous CAS period, decentralization o f the Bank’s operations to the country office progressed rapidly and key decision-making capacity was firmly rooted in the country. Most decision- making o n procurement was shifted to the Bank’s Accra office, speeding up procurement processes sharply. Country Off ice staff n o w play a significant role in strategy and project design and implementation. I F C had removed investment staff f rom Accra, fo l lowing a regional p lan to consolidate staff in Abidjan and sub-regional offices. With the recent implementation o f further decentralization, IFC placed two investment officers in Accra beginning in January 2004, complementing the APDF staff who had remained throughout the period. Although the government had expressed concern about the lack o f IFC presence o n the ground, IFC staff have responded rapidly, in particular in the telecommunications and energy sectors.

66. Critical diagnostics not carried out; Analytical and Advisory Activities (AAA) insufficiently strategic or dissemination strategy inadequate. The Bank relied o n government Public Expenditure Reviews (PERs) and did not conduct any PERs during the previous CAS period, missing the opportunity to use the PER as a diagnostic too l to engage in dialogue o n strengthening budget formulation and resource allocation as we l l as learning f rom experiences o f previous public sector reforms. In addition, some AAA prepared during the last C A S period, while potentially useful, did not engage the client meaningfully and were not disseminated (for example, the Gender Assessment).

67. was mixed, as was IFC’s experience. Foreign direct investment (FDI), wh ich had previously been driven by mining and privatization proceeds, declined overall. High profi le privatizations and concessions such as Ghana Telecom and Westel experienced prolonged shareholder disputes, which further constrained private investment for expansion o f infrastructure and services. IFC’s major investment during this period, US$ IO0 m i l l i on in Ghana Telecom, was ultimately cancelled prior to disbursement given these problems. Overall, IFC’ s planned support for private provision o f infrastructure did not materialize, due to an unfavorable environment, including slow progress in sector reform in key areas such as power. On the other hand, IFC supported the second cement factory in the country, adding competit ion and helping lower prices to consumers. I F C helped establish a commercial micro-finance institution and a new l i fe insurance company. SME non-investment intervention was relatively successful at company levels and efforts were made, through APDF, to scale up to the wholesale level o f building business development services markets and strengthening the capacity o f providers. Key lessons f rom IFC’s experience in Ghana include: (i) comprehensive and integrated enhancement to the investment climate i s needed in order to realize measurable increase

IFC’s experience and lessons learned. Progress o n private sector development

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in FDI; (ii) financing for SMEs without the appropriate technical assistance i s unl ikely to result in sustainable development; and (iii) innovative risk capital investment sources have to be developed for financing SMEs.

ii. Lessons from Operations Evaluation Department (OED) Work and Client Suweys

68. sustainability, limited impact in the rural sector, and wavering government commitment, but also good impact in education and strong sustainability in health. O f the 22 projects completed since 1999, OED rated 64 percent as being successful by outcomes. However, on ly 35 percent are rated as l ikely to be sustainable, we l l below the Bank and Afr ica Region averages. Evaluations indicate that extensive Bank assistance in the agriculture sector has had only limited impact o n removing crit ical constraints and stimulating product diversification and sustained growth. Sustainability o f the Bank’s rural sector lending program has been particularly low, with none out o f the six projects completed since 1999 rated as l ikely to be sustainable. Four economic policyiprivate sector development operations have been completed since 1999. O f these, the outcome o f just one was rated satisfactory and Borrower Performance was rated unsatisfactory in three o f them. Evaluations indicate limited successes in several important areas, due largely to weak government ownership. For example, a focus on fiscal reform has produced periodic, but not sustained, fiscal discipline; privatization efforts have run consistently into roadblocks and the government s t i l l has significant commercial interests; several financial sector interventions were unable to help reduce the costs and increase access to finance. On the other hand, a forthcoming OED study o f the impact o f Bank assistance to the education sector suggests that the inputs financed by the Bank (mostly books and classroom construction) have been a significant factor behind improved school quality and consequent improvements in school outputs. Finally, OED has rated a l l three o f the operations in the health sector as l ike ly to be sustainable.

For projects completed over the past five years, OED found poor project

69. In February 2003 the Bank conducted a Client Survey, providing insight into the client’s perspective on the implementation of the previous CAS. Three major findings emerged. First, communities did not feel the impact o f Bank-financed programs and perceived the Bank as doing l i t t le to empower c i v i l society to participate more in development and implementation o f the programs it finances. Second, the survey suggested the need to strengthen Bank partnership with other development partners and some o f the major development-oriented NGOs. Third, the survey results suggested clients needed to know more about the Bank, i t s mandate and i t s w o r k in Ghana to reduce negative perceptions, misrepresentations and misunderstandings.

70. As a consequence, with this CAS the Bank i s actively addressing the issues raised by the suwey. First, the Bank i s seeking to step up the pace o f project implementation as we l l as participation o f beneficiary communities, to better empower them and in so doing, i t i s hoped, enhance accountability and reduce corruption. Second, under the last CAS, the Bank facilitated significantly deepened coordination between the government and development partners, notably through the “Mini-CG”. The GPRS and the extensive consultations that preceded it, together with the CDF framework, helped to

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lay the groundwork for the multi-donor budgetary support (MDBS) arrangement currently in place in Ghana. Third, over the past few years the Bank has sought to expand and improve i t s relationship with c iv i l society organizations, including working with the government to invite c iv i l society representatives to address the plenary o f the 2002 CG. Building o n this strengthening relationship, in 2003 the Development Dialogue series was introduced (see para. 73).

iii. Evaluation o f Bank Performance

71, take cognizance o f the situation through additional analytical and advisory support, including briefings and supporting forensic audits. The move to programmatic lending was well-timed and i s showing results at the level o f overall budget support as we l l as at the sector level, particularly in health. Nonetheless, despite the intent to put the country in the driver’s seat, the Bank’s program did not respond as we l l as it could have to the emerging GPRS and to critical needs, particularly in the area o f growth, for which ambitions had been high - perhaps unrealistically so. The energy and agriculture sectors, so critical to the growth agenda, did not receive adequate pol icy attention, and were supported with only aging or poorly-adapted operations, without new analytical work to in form pol icy development and shape the future package o f support.

During the previous CAS period, the Bank helped the new government to

72. Country Portfol io Performance Review (CPPR) was carried out in mid-2002 to help address the implementation delays mentioned previously (see para. 63). I t identified: delays in effectiveness; s low pace o f project implementation; and l o w uti l ization o f funds, indicated by disbursement lags, frequent extensions, and cancellation o f funds on closing projects. Ownership of projects by Government was identif ied as a crit ical factor affecting projects from preparation to completion. The CPPR Act ion Plan aimed at: reducing the number o f effectiveness conditions to only one (the legal opinion); strengthening overall implementation through the preparation o f project plans and improvement of monitoring and evaluation systems; and ensuring sustainability, for instance through mainstreaming of Project Implementation Units (PIUs). Effectiveness delays have been significantly reduced, but implementation o f the other action p lan elements has been uneven. An implementation improvement p lan will be developed in 2004.

Implementation o f portfolio review action plan has brought results. A

B. PARTICIPATION AND PARTNERS

i. Participatory Process Followed

73. In preparation for the current CAS, a number o f steps were followed to engage the Ghanaian authorities, civil society, and development partners (see Annex 1). In March 2003 a retreat was held in Ghana, to do early design w o r k o n the strategy (see para. 61). The Development Dialogue series was launched in the f i rst quarter o f 2003. In June 2003 the Bank carried out consultations with c i v i l society in f ive regions .

across the country, with the assistance o f the Institute for Economic Analysis (IEA), an Accra-based think tank (see B o x 2). The main C A S mission conducted in

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October/November 2003 fol lowed up o n these consultations. During that mission stakeholders f rom the government, c i v i l society, and development partners were consulted o n the evolving strategy and key aspects o f the process, and the mission’s aide- memoire, which included the draft results matrix, was widely circulated. In a follow-up mission in January, officials f rom the administration reviewed the matrix in detail, and the resulting version was shared with development partners. There are many ways in which these consultations have been incorporated into the strategy and i t s presentation, including increased attention to informal mining, correction o f inaccuracies in the results matrix, and modifications to the indicators and the way in which development partnerships are presented.

Box 2: Civil Society Consultations

consultations with civi l society organizations, covering all ten regions o f Ghana, with the objective o f giving civil society organizations the opportunity to provide input into the Bank’s Country Assistance Strategy for Ghana. About 400 participants participated in consultations involving NGOs, trade unions, women’s groups, the private sector and district assemblies. The meetings focused on the Ghana Poverty Reduction Strategy (GPRS), and included representatives o f the administration. IEA’s report i s available upon request.

modernizing the agricultural sector. Participants also called for the govemment to commit more strongly to private sector development by facilitating access to capital by MSMEs. Contributions were also made on the development o f education, including suggestions for priority attention to be given to basic education, upgrading Teacher Training Colleges and supporting polytechnics in practical training and establishing a sustainable loan scheme for tertiary education. Discussions on good govemance focused on the need to deepen Ghana’s decentralization program and enhance the capacity o f governance institutions such as the judiciary. Participants suggested that infrastructure development should focus on the construction o f feeder roads to facilitate the movement o f food crops to markets, the intensification o f rural electrification programs, and universal extension o f telecommunication facilities to rural Ghana. The establishment o f the National Health Insurance Scheme and the development o f small rural clinic were two Health sector priorities identified by participants.

For instance, in the North there was a call for interventions to alleviate poverty, improve irrigation and explore the use o f altemative energy sources like solar energy. Participants in southern Ghana raised issues o f discrimination against disabled persons, improving maternal health and the need for actions against environmental pollution and the disposal o f plastic waste. The rich discussions revealed the diversity o f concerns, strategies and a strong determination for Ghanaians to find altemative solutions to their problems and take charge o f their own destiny.

In June 2003, the Institute for Economic Analysis organized for the Bank five

There was strong backing for the GPRS’ aim to accelerate rural development in Ghana by

Some issues raised in the northern part o f Ghana were distinct from those o f the south.

ii. Partnerships and Donor Coordination

74. include Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Switzerland, the UK, and USA. Mult i lateral donors include the Afr ican Development Bank, EU, FA0 IFAD, ILO, Nord ic Development Fund, UNDP, UNICEF, and WHO. China and India have also introduced cooperation programs. Annex 4 indicates the sectors in which development partners are active, either in lending or non-lending activities. The “Mini- CG”, created by the government and development partners, meets quarterly under the co-

Overall coordination i s strong. Key partners among the bilaterals in Ghana

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chairmanship o f the Minister o f Finance and the Bank’s Country Director, i s attended by major bilateral and multilateral agencies, and was the forum for the launch o f the CDF in early 1999. Currently, 14 CDF Sectoral Partner Groups (SPGs) are active, with the sector ministries, departments and agencies as lead national agencies, and Ghana’s development partners as ”focal points” for support. The partnership process has resulted in greater selectivity facilitated by much better coordination o f donor activities, with a concomitant avoidance o f undue duplication, and closer alignment between the national strategy and the business plans o f individual donors.

75. Building on that experience, coordination and partnership among development partners strengthened significantly in 2003 with the government’s implementation of the MDBS framework with nine development partners, including the Bank. With the signature o f a framework agreement by the Bank and other participating MDBS development partners June 30,2003, a major watershed was achieved in donor coordination. The Bank contributes to the MDBS through the series o f Poverty Reduction Support Credits (PRSC). Good progress has been made in aligning mission schedules, advancing agreements on policy actions and on the timing o f assessment reviews. While a few differences remain between the broader actions o f the MDBS 2004 policy matrix and those envisaged under the Bank’s planned second PRSC, the triggers are identical. Stronger donor coordination has achieved another important objective, namely reducing the government’s transaction costs through the establishment o f a focal point for sharing information and for policy dialogue with development partners, as well as through greater complementarity between the budget support provided by the MDBS and the government’s own poverty reduction strategy.

76. funding. The SWAp, exemplified in Ghana’s Health sector, i s also being applied to donor support in roads and agriculture. In changing their way o f operating, donors have significantly freed up country capacities in the sector. About 60 percent o f the total external financial assistance to the health sector i s now pooled into a Common Health Account managed by Ministry o f Health institutions in parallel with the national budget. Building on that experience, the government i s introducing a pi lot programmatic support through i t s Education Sector Program.

Sector-level support i s shifting to programmatic lending and multi-donor

C. PROPOSED ASSISTANCE STRATEGY

i. Bank Group Support to Results Pillars

77. Ghana wishes to achieve. The results matrix i s shown in CAS Annex B9. In this section, an overview o f Bank Group support to the desired development outcomes i s followed by a comprehensive presentation o f the lending and non-lending programs. The lending program (paras. 1 12-1 16), i s followed by sections describing the non-lending program (paras. 1 19-126) and regional programs (paras. 127-1 32) as well as a discussion o f selectivity and the choice o f instruments (paras. 134-139). Bank Group support to achieving the desired results would be through a m ix o f the full range o f lending, non- lending, IFC, MIGA, and WBI activities. These are outlined below for the base case.

The Bank Group strategy i s designed around key development results that

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Pillar I: Growth and Employment

78. central objective o f the Ghana Poverty Reduction Strategy to achieve the 5 percent economic growth rate that historically has represented an upper limit, and subsequently accelerate growth significantly and sustainably. A market-responsive private sector i s identified as the single most important source o f growth and productive new jobs. The strategic support by the Bank Group i s therefore aimed at assisting the Government o f Ghana to continue making progress on macroeconomic stability and poverty reduction, remove the constraints to private sector investment, and harness potential sources o f growth.

Growth and Employment Generation. The Wor ld Bank Group shares the

79. Managing public finances for macroeconomic stability and poverty reduction. The Bank strategy wil l assist in reducing dependence o n domestic borrowing, and thereby reducing pressure o n interest rates, and strengthening public expenditure management. To do so, the proposed series o f PRSCs, as the ma in vehicle o f support to the GPRS, and aimed at reducing poverty and ensuring a more equitable distribution o f resources and provision o f basic services, i s strongly geared to ensure that this basic objective o f publ ic po l icy i s achieved.

80. T o help improve the effectiveness and efficiency o f publ ic expenditure management, in addition to the PRSC series the Bank intends to provide support through several non-lending activities, including the FY04 Country Economic Memorandum (CEM), the annual PERs, the Country Financial Accountabil ity Assessment (CFAA), and the Country Procurement Assessment Report (CPAR). The Bank wil l also support the government in assessing progress made in the use o f H IPC savings for poverty-related outcomes through the HIPC AAP, and will be ready to present Ghana’s progress towards the HIPC Completion Point (which could take place around mid-2004).

81. domestic debtfrom 29percent of GDP in 2002 to 14.8percent of GDP in 2005 and to increasing total poverty-related expenditures by 3 percent annually through 2007.

Expected results: The Bank w i l l contribute to the government’s efforts to reduce

82. Removing constraints to private sector investment. T o help Ghana to improve access and security o f land, to improve legal and judicial systems as well as the business regulatory framework and reduce the time and cost o f business registration, and to help ensure provision o f a reliable and cost-effective framework o f minimum infrastructure and services, the Bank Group strategy will employ a range o f lending and non-lending instruments.

83. (US$5Om, FY99-05) to attract a crit ical mass o f export-oriented-investors to Ghana, to accelerate export led growth, and facilitate trade; (ii) newly effective Land Administration SIL (US$20.5m, FY04-08) to help develop a sustainable, fair, efficient, cost effective, and decentralized land administration system to increase land tenure security; (iii) Road Sector Development SIL (US$220m, FY02-06) with the objective o f achieving sustainable improvements in the supply and performance o f roads and road

Ongoing IDA lending includes the (i) Ghana Trade and Investment Gateway S I L

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Box 3: Ghana’s Efforts to Facilitate Trade are Getting Results

The Bank-financed Gateway project supported an initiative to enhance trade facilitation in Ghana, with the explicit intention to make Ghana more attractive for foreign investors. Inspired by the examples o f Singapore and Mauritius, Ghana set up a joint venture company (GCNet) to spearhead the introduction o f the most modem information electronic system for processing trade and customs documents. GCNet i s owned by the Societe Gknerale de Surveillance, Ghana Customs (with Gateway Project financing to purchase IT equipment), two local banks and the Shipping Council. GCNet contracted with a Singapore enterprise to install the Electronic Data Interchange that i s to connect all members o f the trading community electronically. Thus traders, customs brokers, customs, the Shipping Council, port authorities, Ministry o f Finance and other regulatory agencies are all to be connected electronically. This phase o f the project made an excellent start in 2002; its hrther expansion w i l l require greater support o f the other trade related govemment agencies. GCNET has also assisted Customs in the introduction o f a computerized customs management system. The system i s now fully operational at the airport and the Tema port, as well as in Takoradi. Further extension o f the system i s programmed for 2004.

Results so far include third quarter 2003 revenues at the airport that are 40 percent higher than in the same period in 2002 (only one quarter of which is likely to be due to the increase in volume or the depreciation of the cedi) and a substantial decline in clearance times. At the airport 75 percent of all cargo is cleared in one day, at the Temaport 44percent is cleared in less than two days. This is at least four times faster than before the intervention of GCNet.

transport services in a regionally equitable manner; and (iv) Ghana Thermal S IL (US$175.6m, FY95-04) to assist VRA to maintain electricity supply by providing additional generation capacity and enhancing operational efficiency. The Thermal Power project i s putting in place the platform to facilitate other projects mov ing forward, particularly through a debt restructuring exercise with E C G and VRA and the strengthening o f ECG’s operations and financial management, including IFC’s proposed investment in Takoradi 11, as well as the West Afr ican Gas Pipeline. A proposed extension o f the project i s being prepared. Complementing the annual PRSC series, which will continue to provide strong support to removing hindrances to growth, will be investment lending for micro, small and medium enterprises (MSME), Urban Water, Energy, Public Sector Capacity Building and Private and Financial Sector Development (Capacity Building) Technical Assistance, investment lending for Infrastructure, and the regional West Af r ican Gas Pipeline and West Af r ica Power Pool. IDA funding under the MSME project will also support the IFC SME Solutions Center, through wh ich carefully selected SMEs with good growth potential can receive risk capital f inancing combined with technical assistance, hands-on involvement by the fund manager, training and necessary capacity building, and access to relevant business information.

84. ongoing Financial Sector Assessment Program (FSAP) update, including exploring the possibility o f developing an efficient financial intermediation system and creating markets for the transfer o f assets such as stocks, bonds and shares. Should the government so request, an anti-money laundering assessment could also be undertaken. MIGA intends to carry out a sector-specific competitiveness benchmarking study, which would a im at fostering an increase in non-traditional exports, development o f a trade policy, establishment o f entrepreneurship schemes, promotion o f agri-business, and increase in foreign and domestic direct investment in non-traditional sectors such as I C T and tourism. WBI proposes to organize judicial reform workshops to facilitate proposals

Proposed non-lending activities include follow-up o n the recommendations o f the

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for quick adjudication o f cases. Finally, should the government request the Bank Group’s assistance regarding the proposed sale to the government o f the aluminum smelter, the request wil l be considered on the basis o f the available information.

85. time for registering landfrom an average of four years to four months; (ii) reduction in the backlog ofpending civil casesfrom about 17,000 in 2002 to about 13,000 in 2007 (25 percent reduction); (iii) reduction in the time required for business registration f rom 120 days to 30 days; (iv) reduction in average power distribution lossesfrom 26 to 15percent by 2007; (v) shft in proportion of road network classiJed as good (29percent), fair (27 percent), and poor (44percent) in 2001 to good (45 percent), fair (30percent), and poor (25percent) in 2007; and (vi) increase in local telephone call completion ratesfrom 85 percent in 2002 to 95percent in 2006.

Expected results: The Bank wi l l help achieve from 2002 to 2007: (i) reduction in

86. Harnessing sources o f growth. To accelerate growth, the economy needs to be diversified in order to catalyze new opportunities and to reduce the risk o f international shocks. The Bank Group wil l bring together lending and non-lending support f rom IDA, IFC, MIGA and WBI to support an expanded and diversified production base, sustainable natural resources and environmental management and an increased income potential f rom knowledge intensive sectors. Strong cooperation in the government’s evolving strategy and other development partners i s foreseen o n this critical agenda for the future.

87. ongoing Agriculture Services Sub-sector Investment APL (US$67m, FYO 1 -OS), restructured to add relevant activities that will contribute to expanding and diversifying the agricultural sector; Rural Financial Management Services S I L (US$5.1 m, FY00-04); and Public Enterprise Privatization and Technical Assistance (US$26.5m, FY96-04). There are two GEF projects in support o f the natural resource management agenda: Forest Biodiversity and Northern Savannah. N e w lending wou ld be led by the proposed series o f PRSCs (US$125m, FY04-07). In complement will be the proposed Education Sector Development, Community Based Rural Development, the jo in t IDA-IFC MSME, and Agriculture. Proposed AAA are the Investment Climate Assessment, Country Environmental Assessment, Natural Resource Management, Productive Uses o f Electricity and Knowledge for Development, Mining , and Employment and Youth study, together with the new CEM.

Four ongoing IDA operations are supporting this agenda: the f i rs t PRSC, the

88. foster private participation in infrastructure development and service provision, the Bank Group support wil l be delivered seamlessly, and in a comprehensive and integrated manner, ut i l iz ing the combined expertise and experience o f sector specialists across the Bank Group. IDA support will be delivered through ongoing lending such as the Thermal Power project, as we l l as the new Energy and Infrastructure projects and the Capacity Building TA, and IFC support could include transaction advisory services and financing. Sector re form advice to government will be led by Bank teams, with IFC input appropriately integrated. T o manage potential conflicts o f interest, the Bank Group’s Conflict o f Interest off ice has been integral in f inal izing the work ing relationship across the integrated teams.

Intensive joint Bank/IFC approach in growth. To help the government to

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89. The power and related sectors offer a good example of this type of integrated Bank Group effort in Ghana. The assistance f rom the Bank Group would include IDA support through government dialogue and PRSP support to restore the financial soundness o f the whole sector; I F C investment to refinance the existing thermal independent power producer to lower costs and release funds for the second stage expansion; introduction o f private management with structuring assistance and advisory services f rom IFC; IDA funding for the expansion o f distribution and access; and IFC funding for the expansion o f the Takoradi thermal plant to combined cycle. The coordination o f Bank Group teams in the power sector extends to other key aspects o f the supply chain in the power sector, including the developing gas sector, wh ich would diversify and reduce the cost o f fuel sources for power generation and other industrial uses. IDA and IFC are coordinating closely o n the West Afr ican Gas Pipeline, recognizing that the crit ical drivers o f the financial health o f the o i l and gas and power sectors are either identical or interrelated. The overall approach presents a unique opportunity to dialogue with the government o n sector reforms with a uni f ied and coordinated Bank Group position.

90. benchmarking study (see para. 84). Currently, MIGA i s underwrit ing five projects, with total potential coverage o f US$145 mil l ion, in finance, infrastructure, manufacturing, services, and o i l and gas. In FY03, MIGA completed a capacity building needs assessment o f the Ghana Investment Promotion Centre (GIPC) and the Ghana Free Zones Board, and will support additional capacity building if progress i s made to restructure these institutions in to effective promotional agencies. Ghana i s also one o f four Af r ican countries where MIGA i s undertaking an investment facil i tation program, co-funded by the Swiss Government. This program identifies opportunities for Ghana to integrate better into the international economy, with particular attention to opportunities generated by the privileged trade access agreements with the EU and the Uni ted States. This information i s used to select investment target sectors. Also, MIGA, with GIPC and other appropriate investment intermediaries, i s jo in t ly undertaking an investment outreach program approaching selected potential investors. The first o f these initiatives was an apparel industry outreach program in China in September 2003. Currently, MIGA’s online investment promotion services (www. fdixchange. com and www. ipanet.net) feature more than 200 documents o n investment opportunities and the related legal and regulatory environment in Ghana. As they emerge, MIGA will continue to post notice o f suitable investment opportunities in Ghana o n these sites.

MIGA also intends to provide strong support to this pillar, beyond the

91. increasing non traditional exports by an average of 10 percent per annum over the CAS period, expanding forest cover from 20,000 hectares in 2002 to SO, 000 hectares by end 2007, and increasing access to internet services from 20,000 internet subscribers in 2002 to 100,000 subscribers in 2007.

Expected results: The Bank’s strategic support is expected to contribute to

Pillar 11: Service Provision for Human Development

92. Service Provision for Human Development. The Bank Group will assist the Government o f Ghana to reduce poverty, increase access to sustainable and safe water

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and sanitation services, combat HIV/AIDS, achieve quality universal education, reduce chi ld mortality and improve maternal mortality by targeting interventions especially to deprived areas and to poor and vulnerable persons.

93, people living below the poverty line, through the ongoing PRSC series as we l l as investment lending complemented by LILs to test new approaches to poverty reduction, and strong analytical support through CEMs and a Poverty Assessment. The Community- Based Poverty Al leviat ion LIL (US$Sm; FY99-05) tests approaches and mechanisms for delivering, coordinating, monitoring and evaluating community-based poverty reduction through nutrition, food security and support to street children. Lessons f rom this LIL on helping resources and services reach front-line implementers wil l in form future community-based operations the Bank may undertake. The LIL in support o f Promoting Partnerships with Traditional Authorities (US$Sm grant; FY03-08) tests ways to develop partnerships with government that substantively integrate and improve traditional authorities’ involvement in the social and economic development, and hence poverty reduction, o f their communities. In addition, the proposed CBRD would transfer technical and financial resources to rural populations to help reduce rural poverty. The FY04 and FY07 CEMs wil l analyze progress on poverty reduction and policies needed to accelerate it. A Poverty Assessment will be undertaken in FY07.

Reducing poverty. The Bank expects to contribute to reducing the proportion o f

94. percent in 1999 to 32percent in 2007.

Expected results: The Bank’s intervention wi l l help reduce poverty from 40

95. Increase access to sustainable and safe water supply and sanitation services. Coverage o f water and sanitation services i s low, especially in rural and deprived areas. To achieve the outcome o f increasing access to safe and sustainable water and sanitation for the poorest population, the Bank’s ongoing support comes through two Adaptable Program Lending (APL) operations. The first i s Phase 1 o f the second Community Water and Sanitation (CWSP2) APL (US$25m, FY00-04), designed to increase the coverage and achieve effective and sustained use o f improved community water and sanitation services in villages and small towns in four regions. The second i s Phase 1 o f the Urban 5 A P L (US$lO.Sm, -FY02-04) which i s seeking to strengthen the technical, financial and management capacities o f 23 participating towns and finance rehabil itation o f some basic infrastructure. Four additional operations are proposed as part o f the Bank’s strategy to increase access to water and sanitation services: the Urban Environment and Sanitation 2 SIL, the Urban Water SIL, the second phase o f the CWSP2 APL, and the proposed Decentralization for Community Empowerment.

96. Expected results: The Bank’s operations will help provide water to: (i) 500,000 additional rural population and 300,000 additional urban population; (ii) sanitation services to 50,000 additional rural population and 11 6,000 additional urban population.

97. Combat HIV/AIDS. The Bank expects to support a reduction in stigmatization for people living with H I V / A I D S (PLWHAs), to have a positive impact o n behavior change and risk behavior, and to halt the increase in prevalence in six major cities with higher than average prevalence rates. The major vehicle for support t o achieving these

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outcomes i s the Ghana A I D S Response Fund (part o f the Afr ica Region’s Umbrel la MAP) (US$25m, FYO1-05), which aims to reduce the spread o f HIV infection and impact o f A I D S o n those infected, by providing prevention and care services. In addition, the Traditional Authorities project and two regional projects, the H I V / A I D S Corridors Project and Treatment Acceleration Program, , are aimed at addressing local and regional dimensions o f the pandemic. A follow-up GARFund MAP i s planned. The Global Fund for Malaria, Tuberculosis, HIV and AIDS, managed in Ghana by the Ministry o f Health, supplements resources to the health sector and supports activities in the health sector Program o f Work.

98. (or the f ina l number, should the proposed increase in number of districts be implemented) districts to set up AIDS committees and implement district AIDS plans. It is expected that the Bank’s efforts w i l l also contribute to capping (at 5percent) the prevalence of H I V among pregnant women. A third outcome is implementation, by the end of 2007, of 1,000programs for high-riskgroups. A l l districts w i l l be expected to carry out behavior change and orphan care activities. The number of PL WHAs to receive anti-retrovirals (AR Vs) is expected to increase by 2,000 persons annually.

Expected results: During the CASperiod, the Bank w i l l support and fund all 11 0

99. influence are an increase in basic literacy and numeracy and an increase in basic education access in deprived districts and for the disabled. To help achieve these outcomes, the series o f PRSCs provides programmatic support for education pol icy reform. The Bank i s also financing the National Functional Literacy S I L (US$32m, FY99-04) aimed at increasing the number o f Ghanaian adults, aged 15-45 years, and particularly women and the rural poor, who acquire literacy and functional skil ls. In addition, the Traditional Authorities LIL has an education component. It i s proposed to provide new lending support through the Education Sector Project wh ich was negotiated in January 2004. ESW o n the disabled i s proposed, with a focus on disabled children and strategies for improv ing their access to education and achieving EFA. Finally, IFC i s developing a mechanism for providing a package o f financing and technical/managerial assistance to private pr imary and secondary schools.

Achieve quality universal education. T w o outcomes the Bank expects to

100. Expected results: From 2004 to 2007, the Bank intends to contribute to increasing the proportion of basic pupils f rom the 40 most deprived districts: (i) passing the Basic Education Cert i jkate Examination (BECE) English from 39.9 to 55 percent, and (ii) passing the BECE Math f rom 49.9 to 55 percent. The Bank Is interventions w i l l also contribute to increasing Gross Enrollment Rates (GER) in the 40 most deprived districts, from 70.7 to 93.2 percent, and for girls f rom 65.5 to 93.2 percent. From 2002 to 2007, primary completion rates are expected to increase f rom 65.6 to 79 percent in 2007, and for girls from 60.6 to 75.7percent.

101. Reduce child mortality and improve maternal health. Health outcomes the Bank will help achieve are improved nutrit ional status o f under-five children, reduced under-five mortal i ty f rom diarrhea-related diseases, reduced mortal i ty associated with malaria and other preventable diseases, and improve access to essential quality obstetric care.

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102. Bank wil l continue i t s support through the second Health Sector SWAP (US$89.6m, FY03-OS), whose objective i s to improve the health status o f the population while reducing geographical, socio-economic and gender inequalities in health outcomes. Other ongoing interventions aimed at health outcomes are the PRSC, CWSP2 Phase 1, and the CBPR and Traditional Authorities LILs. The pipeline operations are C B R D and UESP 2 and CWSP Phase 2. Finally, an E S W on the implementation o f the National Health Insurance A c t i s underway.

T o support the government’s efforts to achieve these key health outcomes, the

103. Expected results: The Bank’s strategic support is expected to contribute to reducing, from 2002 to 2007: (i) malnutrition rates of under-five childrenfrom 25 to 20 percent; (ii) under-Jive diarrhea-related mortality reported at health centers by 2.5 percent; (iii) under-Jive case fatality showing in malaria and inpatients departments f rom 4.4 to 3.5percent; as well as increasing (iv) immunization coverage from 80 to 90 percent, and (v) the proportion of births attended by skilled health personnel f rom 4.5 to 60 percent.

Pillar 111: Governance for Empowerment

104. growth and effective and efficient service provision include, among others, inefficiency of the institutions interfacing with clients. Ghana’s fifth GPRS pi l lar seeks to ensure good governance through the effective application o f accountable legal, regulatory and institutional frameworks o f public, private and c i v i l society institutions. The Bank’s strategy supports the government’s goals o f building a transparent, accountable, and inclusive state and improving public sector management for better service delivery.

While Ghana has a strong governance and social capital base, constraints to

105. Supporting Ghana’s efforts to build a transparent, accountable, and inclusive state. The Bank’s strategic support will contribute to: (i) improving the abil ity o f Parliament and other institutions to perform their oversight roles vis-a-vis the executive; (ii) improving the capacity o f c iv i l society groups to monitor government and provide feedback on policies and service delivery; and (iii) strengthening transparency and accountability mechanisms.

106. The Bank’s ma in lending instrument to help achieve these outcomes i s the series o f annual PRSCs. In addition, the Education Sector Project wil l help support the production o f citizens’ report cards in the 40 deprived districts. In terms o f non-lending support, the Wor ld Bank Institute Parliamentary Support Program seeks to strengthen the oversight capabilities o f Parliament and other constitutionally-mandated entities; other ongoing non-lending support includes the communication and outreach program, the Development Dialogue series and a media program to engage with stakeholders o n development issues. In addition, WBI proposes to conduct quarterly Parliamentary dialogue sessions and to undertake an anti-corruption training program starting in FY05.

107. regular and effective Parliamentary Committee meetings; (ii) increasing access to

Expected results: The Bank’s strategic support w i l l contribute to (i) enhancing

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information measured through annual surveys and publication of government information on-line; (iii) implementation of citizen’s report cards in 40 districts, and (iv) strengthened transparency and accountability mechanisms measured in part by the outcomes of two tracking surveys to assess the impact of corruption by 2007.

108. Improving public sector management for better service provision. The Bank expects to help to: (i) enhance the efficiency o f public services; (ii) institute an efficient and effective public financial management system; (iii) improve the capacity o f institutions to monitor and evaluate policies and programs under implementation; (iv) decentralize responsibilities for service provision; and (v) improve local government and public expenditure management.

Box 4: A New Approach to Service Delivery to Poor and Marginalized Groups: The Experience of the Community Development LIL

Poor and marginalized groups have had inadequate access to services in Ghana for the most part o f post independence. The Community Poverty Reduction Project aims at testing approaches and mechanisms for delivering poverty reduction interventions to street children through community nutrition and food security interventions and activities, and to test and build capacity, at national and district levels, for monitoring and evaluating poverty reduction programs. Just over one year into implementation, some lessons have been learned regarding targeting service delivery to marginalized groups.

What gains have been made?

communities are participating in growth promotion activities than with the traditional service delivery approach. Children are gaining weight. Mothers are taking better care o f themselves and the children. Men are getting involved in the activities. Utilization o f services providing iodized salt, bed nets, and family planning have also increased. Health personnel, environmental health officers and district assembly staff, communities and beneficiaries are al l collaborating in these efforts. Marginalized groups such as street children are receiving training, formal education and other services targeted at them specifically using non-government institutions, and as a result they are leaving the street.

A best-practice district level system o f data collection, analysis and utilization has been established, leading to improved capacity for decision making and resource allocation at that level. There i s considerable potential for application o f these methods in poverty monitoring, planning and budgeting by district authorities. The methodology and computer and training system could prove significant in promoting decentralization. Furthermore, these methods would have powerful applications if the collection and processing system were extended to the national level. With some extension o f the design, the statistical system could measure the receipt o f social services and quality o f social services and provide a basis for action to correct slippage in services.

What are the challenges? Community work takes time. Language issues may arise: high levels o f illiteracy among

community volunteers makes training longer and more difficult as most training manuals are in English, bringing to the fore the need to translate documents into local languages and to build in flexibility in project scheduling. Integration o f activities into the district assembly system, and hence nonpayment o f allowance to staff on project, affects their morale and commitment. Finally, once the project closes, the fact that most parents also are poor makes it difficult to solicit their involvement after project close.

With active involvement o f the communities and beneficiaries, more children in the project

109. addition to ongoing operations in many sectors that support capacity building in the Policy, Planning, Monitoring and Evaluation Departments within the MDAs o f their

The ongoing and proposed PRSCs w i l l be the main instrument for intervention, in

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respective sectors. F ive lending operations are proposed to support relevant outcomes, including the C B R D SIL, UESP 2 SIL, CWSP 2 APL, and the proposed Capacity Building and Decentralization for Community Empowerment operations. The proposed analytical package comprises the HIPC A A P Update, a Moni tor ing and Evaluation Readiness Assessment, and analytical support for decentralization and capacity building. OED i s prepared to fo l low up previous studies to build sustainable evaluation capacity and to support establishment o f a Ghanaian network to share insights into common problems and good practice approaches.

110. Expected results: The Bank w i l l contribute to: (I, implementation of a comprehensive human resources management policy, with client surveys to evaluate progress,’ (ii) effective implementation of the procurement law; (i i i) timely production of Jinancial statements and audit reports; (iv) setting up of an effective payroll system by end-2007; (v) budget management and monitoring and evaluation training of 70 percent ofpublic servants; (vi) development by at least 10 districts of composite budgets by end- 2005; (vii) number of functioning sub-district structures (sub-metro, area, urban, town and zonal councils) increasedfrom 300 to 800from 2004 to 2007; and (viii) 85percent of DAs submit their monthlyjinancial statements to the Ministry of Local Government within 4 weeks of the end of the month.

1 1 1. negotiated and agreed with the government. The report f rom the annual review o f the GPRS will also serve as a basis for monitoring the results o f the CAS. Monitoring and evaluating the results will employ existing mechanisms and structures wherever they exist. The M&E Readiness Assessment will address any gaps. Identif ied reports and surveys will also be collected f rom identif ied government agencies. The indicators to monitor service provision for human development have been negotiated and agreed with the government and wherever possible, they correspond to the government’s o w n indicators for monitoring the GPRS. The next Ghana Living Standards Survey (GLSS) planned for 2005 will provide much o f the data required to monitor the poverty indicator o f population living below the poverty l ine. The GLSS will also provide data for monitoring improved water and sanitation coverage as we l l as education and health outcomes. In addition to the GLSS, the annual Education Management Information System (EMIS) i s expected to provide data for monitoring pass rates in Basic Education Certificate Examinations (BECE), Gross Enrollment Rates (GER) and completion rates. The National Minimum Standards Test will be introduced in 2005, with the support o f USAID; it i s expected that this test will provide a better indicator o f education achievement than the BECE. Information provided by the Ghana AIDS commission will help in monitoring the results for HIV/AIDS. Through WBI, the Bank will strengthen the government’s capacity to monitor and evaluate the GPRS. The M&E Readiness Assessment, to be conducted jo in t with DFID, will produce an action plan to strengthen M&E.

Monitoring and Evaluating. Monitoring indicators have been discussed,

ii. Lending Program

1 12. the CAS, IDA’S lending support to Ghana’s desired development outcomes will be

In the base case, wh ich provides for US$1.06 b i l l i on over the four-year period o f

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through three main clusters o f operations: Annual PRSCs, lending in complement to the PRSCs, and strong support to infrastructure.

113. support the implementation of the GPRS. The PRSCs reflect the three C A S pillars: growth and employment, service provision for human development and governance and public sector management. The Bank will continue focusing o n these areas, deepening the reforms already begun under the first PRSC. The rationale for Bank support to the country’s program through the PRSCs i s defined both by the instrument and the Bank’s commitment to work aligned with the development community. The instrument i s programmatic lending, grounded in clear country commitment and capacity to reform, structured in a series o f operations supporting a medium-term reform program, and disbursed on the basis o f completed actions rather than future commitments. The partnership aims at reducing the government’s transaction costs in dealing with development assistance by ensuring greater complementarity between the Bank’s assistance and the government’s o w n poverty reduction strategy, and by developing a focal point for information sharing and pol icy dialogue. Over the coming years, i t i s expected that in addition to continuing to cover the present areas, the PRSC may in future support natural resources management, financial sector development, capacity building and decentralized investment and services. By presupposing and building o n strong ownership, the PRSC seeks to address a major factor behind l o w evaluation ratings on sustainability in the previous lending portfolio.

The PRSCs (FY04-07; each about US$125-150 million) will continue to

114. assistance operations, covering the education sector, HIV/AIDS, public sector reform, and finance and private sector development. The proposed Education Sector Project (US$78m, FY04) will address and promote equitable access to, and efficient delivery of, quality services at basic and higher levels. With three components (capacity building, a p i lo t programmatic component, and tertiary education), it will lay the foundations for Education for All (EFA) and renew support to tertiary education. The Pilot Programmatic component o f the EdSeP will provide additional resources for improving education quality at basic leve l to the 40 most deprived districts. The proposed second MAP for Ghana (US$20m, FY06) will continue the Bank’s strong support to combating this disease. I t will draw on the lessons and results f r o m the regional project. Given the importance o f addressing the risk o f contracting H I V / A I D S at source, the Bank will ensure, through i t s country dialogue, that increased attention i s given by the government to implementing regional measures to facilitate transport f lows and reduce idle t ime at border crossings. The Public Sector Capacity Building/Private and Financial Sector Development TA (US$20m, FY06) would combine support for public sector reform with private and financial sector development; subsuming the project under the PRSC may be considered. A public sector w indow could help to build the state’s capacity at a l l levels to ensure effective and efficient service delivery, including through c i v i l service and public finance management reform; i t s character will be determined by the content o f the public sector reform strategy that the government i s currently developing. A private/financial sector window could accompany the state in i t s evolving role as facilitator for private sector investment, in l ine with the government’s Private Sector Development Strategy, informed by the Public-Private Partnerships E S W

Complementing the PRSC i s a series o f specific investment and technical

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PRSC 2 Education Sector Development

Second Urban Environment and Sanitation

Community-Based Rural Development

and by the government's FINSSP and the Bank-IMF FSAP Update. In additional support to private sector development, IDA and IFC will jointly provide advisory and business development services for micro, small and medium enterprises through the IDA-IFC MSME (US$25m, FY05). The MSME project will involve an integrated program, to support SME needs and key activities o f the government's Private Sector Development and Financial Sector strategies, and to develop a Community-Based Challenge Fund.

Table 3: Ghana - FY04-07 Lending Scenarios (US$ million')

0 125 125

65 78 78 0 62 62

30 50 50

PRSC 3 0 1 125 1 150

Micro, Small and Medium Enterprise Support: Joint

Community Water and Sanitation 2 (2) Urban Water

West African Gas Pipeline (Regional)

West Africa Power Pool (Regional)

IDA-IFC MSME 0 25 30

25 25 50

0 100 130 25 25 25 15 15 15

FY05 total 65 315 400

I FY07 total I 45 I 220 I 390 1

PRSC 4

MAP 2

Energy

Public Sector Capacity Building and Private and

0 125 150 20 20 20 0 40 70

20 20 25

' Consistent with the indicative IDA allocation for Ghana, at an exchange rate o f US$l.SO/SDR.

Financial Sector Development FY06 total 40 205 26.5

FY07 PRSC 5 0 125 150 Infrastructure

Agriculture

Decentralization for Community Empowerment

0 40 100 20 20 70 25 35 70

FY04-07 IDA Commitments 245 1055 1370

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1 15. accompany Ghana’s decentralization process and help it move forward, strengthening institutions at the local level, and working with development partners to develop a common framework for harmonized donor interventions. The package o f Bank Group support t o results at the local level includes the fol low-up UESP2 (see para. 116), CBRD (itself a fol low-up to the successful Vi l lage Infrastructure Project), the second phase o f the CWSP2 APL, and the jo in t IDA- IFC MSME pi lo t (see para. 114). CBRD (US$5Om, FY04) aims to support the capacity o f the rural population to improve their quality o f life, through the transfer o f technical and financial resources. The second phase o f CWSP2 (US$25m, FY05) i s designed to increase the coverage and achieve effective and sustained use o f improved community water and sanitation services in villages and small towns in four regions. Together, and informed by parallel AAA on decentralization, community empowerment, and issues specific to the urban agenda (see para. 122), the implementation o f these operations would in form the design o f Decentralization for Community Empowerment (US$30m, FY07).

As a further complement to the PRSC, Bank support i s designed to

1 16. UESP2 (US$62m, FY04) builds o n the successful experience o f i t s predecessor, to help improve urban living conditions through improvement to sanitation, drainage, vehicular access, and solid waste management in a sustainable fashion, with emphasis on poor people. The Urban Water S IL (US$100m, FY05) aims to expand the reliable supply o f safe water in urban areas, in a sustainable manner, with affordable access for poor people. Energy (US$40m, FY06) aims to improve the provision o f electricity services where access exists, and to promote energy access in rural and peri-urban areas through grid and off-grid initiatives. The Infrastructure operation (US$40m, FY07), as a vehicle for support to private sector-led growth, could contribute to the implementation o f a comprehensive intermodal national transport sector strategy, should the strategy be at the implementation stage, and may also provide space for activities needed to cover the urban agenda. The West Af r ican Gas Pipeline (US$25m, FY05), and West A f r i ca Power Pool (US$15m, FY05), both regional projects, are described elsewhere (see para. 130).

Infrastructure constitutes a significant portion of the lending program.

iii. Scenarios and Triggers

1 17. Ghana i s currently considered to be in the base case. The macroeconomic situation i s sound and there has been progress o n poverty reduction expenditures and public finance management. T o stay in the base case, Ghana will need to show continued progress o n macroeconomic management, poverty reduction, and o n public finance management. Poverty-related spending wou ld maintain the current share o f domestically-financed expenditures (the average o f 2002-3 actuals). In v iew o f the proactive approach to address the current high proportion o f unsatisfactory IDA commitments in the overall portfolio, Ghana will need to show satisfactory progress on an agreed IDA portfol io performance improvement plan. During the C A S period, the strategic thrust o f portfol io improvement encompasses: (i) risk monitoring and mitigation, especially with respect to high-impact operations; (ii) satisfactory implementation o f agreed CPPR actions, including acceleration o f project implementation and disbursements (a trigger for the base case); and (iii) continuous improvement o f OED ratings o f outcome, sustainability and institutional development

45

impact during the C A S period (a trigger for the high case). The l o w case would be triggered by a serious and sustained decline in performance, with a corresponding retreat to support for basic needs projects, such as the support for the fight against H IV /A IDS.

Trigger Areas Macro

Poverty reduction

Governance

Portfolio performance

Trigger Areas Poverty reduction

Growth and Employment

Governance

Portfolio performance

Table 4: Triggers To Stay in the Base Case

Macroeconomic framework and external financing plan satisfactorv to IDA Maintain current share of poverty-related spending with respect to total domestically-financed expenditures

Progress on public financial management, in particular on the 15 points o f the HIPC Accountability Assessment and Action Plan (AAP)

Satisfactory implementation o f forthcoming IDA portfolio improvement plan

To Move To The High Case Sustained progress towards increasing share o f poverty- related spending with respect to total domestically- financed expenditures to about 33 percent by the end o f the CAS period Energy: Increased opportunities for private sector participation by (a) undertaking upstream and downstream reforms in the petroleum sector; and (b) establishing necessary policies and regulation in the electricity sector

implementation o f agreed strategy, especially significant reduction in the time and cost o f registering businesses Progress on Public Sector Reform (PSR), including continued progress on developing and implementing a civil service reform stratew

Private Sector Development: Successful

Maintenance o f good IDA portfolio performance, and continuous improvement in OED project evaluations

Means of Verification Regular Bank progress reviews Annual Public Expenditure Reviews; Annual GPRS Progress Reports and associated JSAs Regular Bank progress reviews including the HIPC Accountability Assessment and Action Plan (AAP) Bank project supervision reports Ouarterlv oortfolio review Means o f Verification Annual Public Expenditure Reviews, Annual GPRS progress reports and associated JSAs Regular Bank progress reviews

Regular Bank progress reviews

Bank project supervision reports Quarterly portfolio review OED evaluations

118. growth. This scenario i s predicated o n solid progress o n poverty reduction, growth and employment, and governance pol icy areas together with sustained improvements in portfolio performance and results. A trigger for the high case wou ld be sustained progress towards increasing share o f poverty-related spending with respect t o domestically-financed expenditures to about 33 percent by the end o f the CAS period. In view o f the crit ical importance o f an improved enabling environment for the private sector for a shift in the economy’s growth trajectory, the high case wou ld be characterized by good progress o n removing key hindrances to private sector development, including in the energy sector and implementation o f the private sector

A move to the high case will correspond to a shift to a path of accelerated

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development strategy. On the governance front, significant and sustained advancement would be made on developing and implementing key aspects o f the public sector reform strategy. With sustained development on the private sector development and governance fronts, which would help both to accelerate growth for sustained poverty reduction and to better target the poor, the Bank would be willing and able to provide higher levels o f financial support, directed towards those priority areas. For instance, in the energy sector, stronger progress on sector reforms could a l low for broader investments in improvements to the distribution system. Similarly, if significant progress i s made on a critical mass o f other po l icy issues underlying the minimum infrastructure platform, such as adoption o f a comprehensive intermodal transport sector strategy or o f an urban sector strategy, the financing needs may be correspondingly larger and the proposed infrastructure operation could be designed accordingly. Finally, implementation o f a c iv i l service reform strategy, a trigger for the high case, would l i ke ly involve more detailed design work and possibly financing for p i lo t reforms.

iv. Non-lending

119. Analytical work and economic dialogue will figure prominently in the Bank’s assistance program, with non-lending services to be used in several different ways. First, to meet the Bank’s due diligence requirements, core diagnostics will be carried out. Second, non-lending will be used to enhance the effectiveness of Bank support by informing pol icy reforms and new lending, including through fast turnaround pol icy notes as we l l as flagship studies that would help address key challenges in the lending program, for instance helping to define the community empowerment agenda. The Bank’s non-lending program will seek to help improve the results focus and support implementation. In v iew o f the number o f studies undertaken in Ghana in the past, an underlying principle wil l be to use existing analysis as effectively as possible. Finally, dialogue, stakeholder involvement and active dissemination will feature prominently in the non-lending services component o f the CAS, as complements to lending and formal analysis. Increasingly, the Bank’s non-lending services will be coordinated more closely with those o f other development partners, to ensure complementarity, to avoid duplication, and to explore opportunities for jo in t production. Implementation will be supported through greater attention to involving stakeholders more closely in AAA from the upstream design stage through dissemination.

120. Ghana’s unfinished reform agenda in the CEM, to a very specific assessment o f public sector financial accountability arrangements under the CFAA. Core AAA include the annual PER, which will examine h o w to efficiently manage public resources, supporting ongoing work under the PRSC, as we l l as future lending in public sector reform. The FY04 CPAR and C F A A Update have been completed. Bo th reports contain actions plans for required improvements in public procurement and financial management; in l ine with the results focus, these also a im to support higher quality in development planning, budgeting, project management, and procurement. A H IPC A A P update will be carried out in FY04. The CEM o n “Growth, Poverty and Public Sector Management”, under preparation, highlights the ro le o f fiscal lax i ty in impairing growth, budget rigidities, inadequate infrastructure and l o w productivity in manufacturing and

The scope o f the core diagnostic work ranges from a broad review o f

47

agriculture, and recommends in the short term to streamline the government structure, improve coordination o f information within the government, and tackle corruption. As part o f due diligence in advance o f the next CAS, a Poverty Assessment will be conducted in FY07.

121, ongoing and new lending, formal and informal analyses will be carried out in several sectors and on several cross-cutting themes. In FY04, formal AAA pieces will address urgent policy issues in the health and energy sectors. A policy note will aim to help the government to develop an implementation strategy for the recently-approved National Health Insurance Act, to ensure i t s fiscal sustainability and poverty impact. The ongoing Energy AAA will help the government to formulate strategic interventions for implementing the energy sector reforms embedded in the PRSC, addressing energy related macroeconomic issues, and facilitating energy sector investments (including, for instance, the West African Gas Pipeline). Proposed ESW on the improvement o f Public- Private Partnerships would be a platform for continued dialogue on policy orientation, implementation o f an efficient regulatory framework, public debate, removal o f administrative barriers, and strengthening o f the legal and judicial system.

Enhancing the effectiveness of Bank support. Underpinning the Bank’s

122. management agenda, and to underpin planned lending in the context o f the PRSC and for community and district empowerment and public sector reforms, ESW on Decentralization, Service Provision and Social Accountability i s being proposed. WBI i s contributing to this effort by carrying out detailed capacity building needs assessments in priority areas where government programs have so far not been successful (e.g., delivery of education, health, and water services to poor people at community level). Upcoming government decisions on the strategy to pursue the public sector reform agenda will inform the Bank’s approach to design and implementation o f appropriate assistance. Further support may be provided through AAA delivered within the context o f the multi-donor support to capacity building, including through a common technical assistance pool. A flagship ESW on the urban strategy will provide important input into the design o f the Bank’s proposed support to decentralization and community empowerment.

With a view to advancing the governance, empowerment and public resource

123. The Bank’s non-lending will also plan for the analytical underpinnings required for the second round o f PRSCs (PRSC4-6) to be implemented in support o f the government’s new poverty reduction strategy. In this context, the non-lending activity in fiduciary management will continue to play a major role, and wil l involve (but will not be limited to) capacity building and dialogue, to help public officials to become more action-oriented, and empower c iv i l society to monitor implementation. Accordingly, the next C F A A Update i s planned for FY06, and a Poverty Assessment will be undertaken in FY07 following the release o f the upcoming GLSS 5 data. As for CEM/Development Policy Review work, decisions will be taken during CAS implementation in order to help feed the policy dialogue appropriately. Also underpinning the PRSCs will be a series o f PSIAs that will further examine issues such as electricity access, ability to pay, and consistency with macroeconomic targets.

48

124. Further to the FY03 FIAS Update, and the Post-FSAP Follow-up (FY04, designed to update FY00-01 FSAP analysis, and assist with formulating a fresh financial sector program), an Investment Climate Assessment i s planned. It would seek to understand conditions in Ghana’s investment climate, identify features that matter most for firm- level productivity and growth, and in so doing provide a basis for future private sector development lending. In l ine with the results focus, it will produce a baseline assessment to help track changes over time to gauge the impact o f reforms. IFC will be actively involved in furthering this agenda, in the areas o f business advisory services, and general privatization advisory services. As a complement, and to facilitate the removal o f the critical bottleneck to growth posed by the telecommunications sector, joint Bank-IFC AAA work wil l be carried out in FY05 to prepare the platform for possible IFC involvement in the sector in FY06. The recent study on micro-finance will further chart options for the sector, guiding both the PRSC and the cluster o f sector operations. Building on the lessons o f the f i r s t phase o f the Natural Resources Management APL, the Bank will engage in policy dialogue prior to considering a second phase o f lending, to be developed through ESW. The Disability Study (FY06) will help fill critical knowledge gaps in this area that i s new for the Bank in Ghana.

Helping to fill gaps in understanding and supporting the results focus.

125. T o build the results focus, the Bank will undertake work to highlight ways to improve the government’s ability to monitor and evaluate. A Readiness Assessment o f M&E will be carried out early in the CAS period, to assess Ghana’s ability to measure the key results, and identify areas where capacity building may be required. That work will be used as an input during the stock-taking exercise midway through CAS implementation.

126. Dialogue and stakeholder involvement. To raise awareness on emerging issues and promote capacity building and knowledge sharing, the Bank will employ various tools to develop and disseminate knowledge: from short pieces o f sector work and policy briefs to formal pieces o f analytical and advisory work; technical assistance; conferences; workshops and short, focused policy notes distilling conclusions from existing AAA. Workshops and conferences, to be organized in collaboration with the World Bank Institute, will be used to disseminate findings and facilitate the debate on economic reform. Work i s ongoing in four key areas in communications: the Development Dialogue Series, which in collaboration with leading Ghanaian think-tanks and institutions, promotes vibrant discourse on development policy choices; the Development Communications Enhancement Program, designed by the Ministry o f Information and supported under the f i rst PRSC, which promotes the f low o f information and gives people an opportunity to participate in the development dialogue; Development Communications Training which provides training for government projects staff in strategic communications; and the Media Capacity Enhancement Program which aims to enhance capacity for development reporting within the media. A Communications Review will be undertaken to identify ways in which communications can enhance implementation and support achievement o f the CAS outcomes. WBI will also lead on some flagship activities, such as workshops on capacity building for a knowledge-based economy. In general, increased attention wil l be paid to dissemination, in particular to fostering ownership in the dissemination process through early and sustained involvement o f

49

counterparts and development partners. The Ghana Off ice Public Information Center (PIC) has also been rehabilitated and re-equipped to serve as a major point for the dissemination o f development information. A key expected result i s strengthened l i n k s o f accountability between the government, the private sector, c i v i l society and development partners.

v. Regional Programs

127. West African countries and regional institutions are preparing a number of strategies and programs with support from the donor community; the Bank’s support will be delivered through the implementation o f the RIAS. These programs are in areas including transport (roads and air), energy, telecommunications, HIV/AIDS, and trade liberalization. Efforts in these areas are important to the eventual objective o f creating a common market among the ECOWAS states.

128. competition among more efficient corridors to boost internal and external regional trade. The Bank i s preparing a project which will focus o n a l imi ted number o f corridors where a minimum platform o f criteria i s met by the countries. The objective i s to set up the platform o f criteria and identify the corridors by end-February 2004, and to present the project to the Board in FY0.5. Two regional corridors in Ghana have been identif ied as potential candidates in the program: f rom Ghana to Burk ina Faso and Niger, and f rom Ghana to C6te d’Ivoire and to Togo. The f i rst i s mostly supported by the Afr ican Development Bank’s (AfDB) regional project, approved in November 2003. On the second, the section f rom Akatsi to Dzodze (border o f Togo) i s in poor condition and financing o f works i s being sought. Additional support i s required to complete corridor improvement such as jo in t border posts, long-term performance-based maintenance contracts, truck stations, road safety, and truck monitoring, which wou ld translate o n the ground the concept o f an efficient corridor. Support to improvement o f transit procedures and implementation o f the E C O W A S inter-state transit system as we l l as harmonization o f truck and axle-load regulation would be provided under a regional project,

The regional transport and transit facilitation program aims to increase

129. being prepared. The project, which includes Ghana, will have national components (loans) for security and safety projects, as well as regional funds (grants) for the development o f regional safety and security oversight capacity. Since the amounts involved for such projects at a national level are relatively modest (approximately US$3 mi l l ion for safety and security combined), the national-level project could be embedded in an appropriate national-level operation. In addition, I F C has embarked o n proactive project development for investment in select private airlines in west and central Africa, to bring rapid improvement and improved safety in regional air services, through investment for expansion o f services from leading and self-regulating private airlines. This effort i s being carried out in close coordination with the Bank o n the regional air transport project described above.

A regional project for Air Transport in West and Central Africa i s currently

130. (WAGP) and the West Africa Power Pool (WAPP), are under preparation. In

In the energy sector, t w o regional operations, the West African Gas Pipeline

50

supporting the WAGP project, the Bank Group would assist the respective countries to structure the project in an economically and financially robust manner, and reasonably share its benefits and risks, including providing: (i) advice for developing the required policy, institutional, legal and regulatory framework to optimize project benefits and ensure reasonable risk sharing among the project's stakeholders; (ii) selective polit ical risk guarantees to backstop government commitments; and (iii) lending to Ghana to part- finance i t s equity stake. The first phase o f the WAPP wil l cover the regulatory and contractual frameworks (both regional and national), priori ty investments in the transmission networks, and capacity building. The subsequent phases seek to further strengthen the frameworks and develop the regional market and supporting infrastructure. Although a l l participating countries have endorsed the proposed program, it will be important to assess the impact o f the Ivorian crisis on i t s structure and timing.

13 1. mi l l ion IDA grant to support an HIV/AIDS project in the Abidjan-Lagos transport corridor over an init ial four-year period. The project i s helping to increase access to H I V / A I D S prevention, basic treatment, support and care services, for underserved vulnerable groups. The Heads o f State o f the five participating countries - Nigeria, Benin, Togo, Ghana and C6te d'Ivoire - signed a declaration in April 2002 committing themselves to support a program o f common actions, including the establishment o f an institutional framework to manage the project, which explicit ly recognizes the sub- regional dimension to containing and eventually reversing HIV prevalence. The regional project focuses o n the cross-boundary issues that are not easily addressed through country specific projects and i s thus a complement to country efforts to reduce the spread o f HIV/AIDS.

HIV/AIDS. The Bank i s helping to concretize regional efforts through a US$16.5

132. provide the analytical work which will support the government's efforts towards trade liberalization in the regional context.

Trade. The Bank i s work ing closely with ECOWAS, IMF, and other donors to

vi. Global Environmental Issues and Role o f GEF

133. Forest Biodiversity (US$8.7m, FY98-04) and Northern Savannah Biodiversity (US$7.9m, FY03-09), and two are being prepared. The High Forest Biodiversity project i s supporting the development and implementation o f an integrated program to conserve and manage the biological diversity in selected high forest areas o f Ghana by creating globally significant biodiversity areas and providing alternative l ivel ihood support systems to communities living in or fringing these areas. The Northern Savannah Biodiversity Conservation project seeks to improve the l ivel ihood and health o f Northern Savannah communities and their environment through conservation and sustainable use o f natural resources and medicinal plants. The Community-based Integrated Natural Resources Management (US$850,000, FY04) project in Okyeman seeks to enhance biodiversity conservation and sustainable use o f renewable natural resources in collaboration with traditional authorities and community members who o w n the resources. GEF has also approved under i t s Medium-sized faci l i ty a grant o f US$200,000 to provide, o n a p i lo t basis, electricity to small businesses and service

Two GEF-supported operations are currently under implementation, High

5 1

providers in poor, isolated, off-grid communities. Electricity will be generated by locally-made wind turbines.24

vii. Selectivity and Choice of Instruments

134. underlies the CAS. A number o f criteria were applied to choose the set o f operations that the Bank would support, and the instruments by which that support would be delivered. The three C A S pillars have been derived directly f rom the GPRS, and the issues o n which the Bank i s focusing represent key constraints to achieving the desired development outcomes. The choices o f sectors in which to be involved, and the instruments through wh ich to provide the support, have been driven by strategic importance o f the sector in the eyes o f the government and the Wor ld Bank, by the Bank’s comparative advantage, and by the anticipated contribution to the ongoing harmonization agenda.

The Strategic Framework for IDA in Africa, with its emphasis on selectivity,

135. keeping with the principles o f the SFIA, especially the emerging partnership model, and to support and further the harmonization agenda, the PRSC i s the primary vehicle for the Bank’s contribution to the GPRS. The PRSC, already covering important po l icy aspects across the three C A S pillars, will evolve as significant progress i s made in particular areas and responding to new objectives, and issues may be dropped or added fol lowing the first three year series. For example, i t i s foreseen that natural resources management can be addressed in the forthcoming PRSC2. The PRSC program would support the pol icy aspects o f FINSSP, while specific investment and technical assistance needs would be addressed by the Capacity Building and Infrastructure operations. The Bank wil l also continue to strongly support multi-donor approaches at the sector level, through ongoing support to the S WAps in health and roads, and through proposed assistance to the education and water sectors. Beyond the timeframe o f this CAS, i t i s anticipated that the PRSC would support more of the programmatic sector-level interventions, such as in education and health.

Multi-donor budget support and financing for sector-wide programs. In

136. a comprehensive multi-donor approach i s being built to support Ghana in its development and implementation of its decentralization, urban and community empowerment agenda. The proposed package o f assistance to decentralization and community empowerment (see para. 1 15) informs the design o f the future support in this area. If conditions warrant (implementation o f the national decentralization strategy i s well under way, and development partners are ral lying under that as a common implementation framework), Bank support could henceforth be channeled through a single instrument, the proposed Decentralization for Community Empowerment program. Key to success o f this strategy will be to continue to build in the lessons f rom recent experience, to work very closely with development partners active at the local level, and to ensure the l i fe spans o f these intermediate projects are o f relatively short duration.

Through continued active engagement and partnership in a variety o f areas,

24 This project was a Development Marketplace winner.

52

137. Flexibility i s the watchword, particularly on natural resource management and the urban agenda. Lessons learned from the f i rst phase o f the Natural Resources Management APL suggested that a direct follow-up to the first phase o f the APL might not be the best vehicle to achieve the desired results at this juncture. In view o f the overall importance o f sound environmental and natural resource management to sustainable growth, however, the Bank Group intends to remain actively involved, through policy dialogue (supported through the PRSC) and analytical support, and with targeted activities at the local level that could be financed through the CBRD, MSME, or GEF operations. Should developments in the sector warrant, i t i s proposed to revisit the advisability o f this approach, and consider preparing the second phase o f the NRMP APL. The strategy incorporates similar flexibility with regard to the support to decentralization and the urbadrural split. If the experience with community-based operations and the accompanying analytical work on the urban strategy and i t s interplay with the rural agenda for growth suggest that it i s the best avenue, the Bank would reconsider providing separate support to urban development through the second phase o f Urban V. These issues will be explicitly revisited during the progress review.

138. growth. This i s an area in which historically the Bank has had a comparative advantage. Wherever other development partners are interested in engaging with the Bank, the Bank Group welcomes this involvement.

Investment operations are being proposed to support infrastructure for

139. alone i s providing support, due to i t s high strategic interest. While several partners are active in the sector overall, and participating in the pilot programmatic component o f EdSeP, only the Bank i s engaged in tertiary education. In telecommunications, the Bank Group will continue to advise and support the government in overcoming the regulatory obstacles constraining investment in the sector, which will enable potential investments in the sector including those that could be financed by IFC. Inpetroleum and railways, the Bank Group wil l support the government’s efforts to end ongoing subsidies to parastatals and bring in more productive forms o f public-private partnerships, through ongoing operations including PEPTA, informed by the Public-Private Partnerships ESW, and through new support such as the proposed Capacity Building and Infrastructure projects.

High strategic value in niches. Tertiary education i s an area in which the Bank

140. Use o f I D A grants. Ghana i s eligible for IDA grants under the low income category. In FY04, the indicative allocation o f U S 4 7 mi l l ion in IDA grants would be directed to the PRSC. The FY05 grant allocation for Ghana has not yet been determined, but grants that are available would be directed preferentially towards projects with a high social sector content, such as Community Water and Sanitation 2.

viii. Portfolio Management

141. performance improvement action plan will be agreed, including quarterly portfolio reviews to be led by the Ghana office in collaboration with the World Bank Desk at the Ministry o f Finance and Economic Planning. Base case and high case triggers are

As part o f the continuing CPPR follow up, a comprehensive I D A portfolio

53

proposed (see para. 117). There are 16 active projects (excluding GEF) totaling US$793m, o f which US$507m i s undisbursed. Three operations - Road Sector Development, AgSSIP, and National Functional Literacy - with a total commitment amount o f US$3 19m, are currently rated unsatisfactory. The unsatisfactory rating on the Road Sector Development Project i s due to the lack o f sustained progress with respect to road arrears, funding for road maintenance, efficiency in the use o f resources, management o f road fund revenues and plans for development and maintenance. The government has indicated i t s commitment to bring the arrears to closure and review institutional arrangements for road maintenance financing through a series o f studies, workshops and realistic action plans which include the redrafting o f the Road Fund Law. In addition, contract management i s being strengthened. The bulk o f the c i v i l works commitment under the project i s completed (about 70 percent) with three years remaining. Progress will be reviewed during the March 2004 road sector donor conference to be held in Accra. In v iew o f these specific actions, an upgrade to satisfactory i s l ikely. AgSSIP i s being restructured to remove the obstacles to speedier implementation, and to add new activities in support o f the government’s initiatives for rapid agricultural growth. Adequate progress i s being made o n fulfilling the A P L triggers, and the development objectives are expected to be met with the extension o f the closing date by three years and the implementation o f the activities envisaged for the restructured project. National Functional Literacy has retained i t s unsatisfactory rating in the interest o f proactive portfol io management; although performance has improved, the project has not yet caught up completely fol lowing the significant delays at i t s outset.

ix. Core Monitoring and Benchmarks

142. The government adopted a comprehensive GPRS M&E plan, which contains a presentation o f 52 indicators to track progress on the GPRS, in March 2003. With the government’s M&E capacity as yet fairly weak, i t i s to be determined whether the GPRS M&E system i s adequate to measure and demonstrate whether the Bank’s CAS i s achieving i t s stated goals and outcomes. A careful review o f the CAS outcome indicators for the three pil lars i s needed, to determine both the overlap and the gaps with the GPRS indicators.

143. assess government capacity to monitor and evaluate the GPRS goals and use the M&E system for the Bank’s C A S monitoring. This mission would review the key aspects o f the current M&E system, including institutional arrangements and capacity issues in the National Development Planning Commission (NDPC), Ghana Statistical Service (GSS), and l ine ministries. It wou ld also explore donor/partner collaboration with an explicit v iew to avoiding building parallel systems. The mission will draw o n existing support and capacity, including work by the government and by DFID, to devise a system to monitor CAS outcomes jo in t l y with the government, to identi fy who wou ld be in charge, have clear responsibility f low, and build in f lexibi l i ty to adjust t o changing country conditions.

A mission, j o in t with DFID, i s expected to take place in the coming weeks to

144. framework o f the CAS, a results-focused progress review, joint with development

T o keep attention on results, and to provide for flexibility within the overall

54

partners, i s planned midstream in CAS implementation. This progress review will comprise a portfol io review exercise focused o n the specific results attributable to each operation in the lending portfol io and on defining any necessary actions to improve impact during the lifespan o f the operation. Carried out jo in t l y with other development partners, i t will also seek to identify synergies and overlaps with a v iew to identifying major actions that could help improve the impact o f overall donor funding. In addition, again in close collaboration with other development partners, a comprehensive review o f the analytical and advisory work carried out to date and i t s results implications will be set out. This progress review wil l provide early input on the implementation o f the CAS and would be used as a proactive tool to manage portfol io issues and, if necessary, guide re- orientation o f the strategy. Building o n the consultations employed to develop this CAS, the midstream progress review would once more seek the feedback o f clients and stakeholders to better assess the impact o f the strategy on the ground.

145. further improve, al ign and harmonize i t s support with other development partners to better support the agenda for accelerated growth and the achievement o f the MDGs. In particular, the possibil i ty o f a Joint Assistance Strategy for participating DPs will be explored during 2005.

As the GPRS evolves in the coming years, the Wor ld Bank Group will seek to

V. RISKS

146. Political risks, particularly in relation to the electoral cycle, must be identified and mitigated. The incoming government, after the December 2004 elections, may wish to thoroughly review ongoing programs to ensure that they reflect i t s o w n development priorities, wh ich may lead to preparation and implementation delays. This C A S builds in the lessons learned f rom the previous CAS in this regard. Consultations have been broad-based and, importantly, focused o n outcomes as opposed to inputs or outputs. The operational calendar has also been designed with the elections in mind, with an acknowledgment that certain decisions are unl ikely to be taken as the elections approach. The progress review i s to be t imed to serve as an active dialogue tool with the incoming government. I t i s also wor th noting that the government has taken an active stance in mit igating the risk o f pre-electoral fiscal excesses. In preparing the 2004 budget, the Ministry o f Finance and Economic Planning has undertaken intensive consultations with each sector, with a v iew to best planning and implementing the 2004 budget. Finally, the FY05 progress review, with the FY05 CPPR, are designed to address the need to plan for and to mitigate any loss in implementation t ime in the post-election period.

147. The main operational risks are that preparation o f specific operations will be delayed, o r that the choice o f instrument was not appropriate. For instance, Ghana’s progress on public sector reform by 2006 and o n decentralization by 2007 i s as yet unknown. The government may lack the implementation capacity, especially with respect to decentralization and institutional reforms, to implement the strategy as conceived. Further, the risk o f po l icy modifications or reversals, inherent to a situation

55

with an impending change o f government, must be addressed. The flexible approach described in the section on selectivity has been adopted to mitigate these risks, In addition, the consultative approach seeks to ensure continuity and ownership o f the strategy throughout the CAS period, including to work with the incoming government in case it should choose to review any pol icy decisions.

148. and o f vulnerability to external economic shocks, have been clearly set out in the document. On the former, Ghana’s own proactive stance in the sub-region i s an important mitigating factor. Also, the Bank Group support to the regional projects i s designed, in keeping w i th the SFIA, to draw the regional parties closer together. Second, terms o f trade shocks may be addressed rapidly and flexibly through modulation o f the timing and level o f the PRSC.

External shocks and fragile sub-region. These risks, o f sub-regional fragil ity

VI. CONCLUDING REMARKS

149. sub-region and indeed the continent. I t s recent excellent macroeconomic performance may constitute a major break with the past. With favorable terms o f trade, the country has a window o f opportunity. The fiscal picture has dramatically improved recently, as has inf lat ion performance, helping to address some o f the past hindrances to growth. Decentralization, while slow, i s taking place. On the other hand, if the inertia that has hindered structural change in the past prevails, these recent gains could be transient. It i s the s taf fs bel ief that the underpinning governance improvements and social capital accumulation can help sustain Ghana through a period that has historically presented i t s most dif f icult fiscal challenges. There i s strong partnership among development partners, with harmonized support at the macro level, increasingly so at the sectoral level, and the Bank i s committed to supporting strengthened government leadership to help keep Ghana at the forefront in this area. The Bank has long accompanied Ghana in i t s reform efforts. This CAS aims to support Ghana’s efforts to make significant progress o n i t s structural agenda and in so doing put i tself o n a growth path leading to achievement o f the MDGs and to middle-income status.

Ghana i s well-poised for growth that could propel i t to sustained leadership in the

B y : Peter Woicke

James D. Wolfensohn President

By: Shengman Zhang

Washington, DC February 20,2004

GHANA

COUNTRY ASSISTANCE STRATEGY

Annexes

Annex 1 :

Annex 2: Debt Sustainability

Annex 3: Ghana: Fund Relations

Annex 4:

Annex 5: CDF Thematic Group

Annex 6:

Annex 7: C A S Annexes:

Preparation o f the Ghana CAS

Ghana’s Extemal Partners and their Activit ies

Ghana’s Progress towards the Mi l lenn ium Development Goals

A1 A2 B2 B3 B3 B4 B6 B7 B8 B8 B9 B10

Key Economic and Program Indicators Ghana at a Glance Selected Indicators of Bank Performance and Management IBRDLDA Program Summary IFC & MIGA for Ghana Summary of Non-Lending Sewices Key Economic Indicators Key Exposure Indicators Statement of IFC’s Held & Disbursed Portfolio Operations Portfolio (IBRDLDA & Grants) Results Matrix CAS Summary of Development Priorities

Annex 1

PREPARATION OF THE GHANA CAS

This CAS was developed through a consultative process, both in-country and w i th in the Bank’s country team. Preparation began in January 2003, with the drafting o f short sector notes by country team members. Those notes and other preparatory material, including detailed analysis o f past portfolio performance, were inputs for a retreat to launch the CAS process in March 2003 at Akosombo, Ghana. That retreat, attended by country off ice staff, other members o f the country team, and several o f their managers, also benefited f rom the participation o f the Finance Minister and several other key Ghanaian officials, and o f the Bank’s Vice President for Operations Policy and Country Services.

society, organized by a local think tank, the Institute for Economic Analysis (IEA’s full report i s available upon request). These consultations were held in five regions across the country, with approximately 100 people attending each. They were conceived as listening events, with the discussion to be k icked o f f by a b r ie f presentation o n the GPRS by a government official, fol lowed by a b r ie f outline to explain the CAS process and provide some context on the Bank’s involvement in Ghana. The ongoing Development Dialogue series and other ongoing consultations incorporated the evolution o f the C A S thinking, and helped to provide a continuous feedback loop, including a session o n decentralizing the GPRS that was held in Tamale.

The next major milestone in CAS consultations was the main mission, held f rom October 27 to November 8, 2003. During the mission, sectoral ministers presented their development visions, a series o f consultations o n cross-cutting issues was held with stakeholders f rom govemment and c i v i l society, and the draft matr ix was thoroughly reviewed w i t h technical participants before discussion with the government. As part o f a fol low-up mission, a revised version o f the matrix as w e l l as a draft o f the C A S document were reviewed with Ghanaian counterparts in the administration.

w i t h counterparts in Washington. In the relevant government sectors, consultations were led by leaders representing the Ministry o f Finance, the National Development Planning Commission and the Governance Office. On other levels, dialogue was he ld with the private sector, c i v i l society and with development partners.

The C A S team sought wherever possible to use existing structures o f engagement and/or to fo l low up and expand the already existing consultation agenda, as well as to use the consultative process to facilitate consultations among Ghanaian stakeholders (e.g. bringing together diverse stakeholders o n gender). One area in which the consultative process could have been improved was the environment. Whi le two sessions were devoted to the environment during the ma in CAS mission, and previous IFC missions have carried out extensive dialogue o n environmental issues in mining areas, dialogue w i t h NGOs that are active in Ghana and internationally suggests there i s scope for expansion o f such consultations in future.

The next milestone in the consultative process was a series o f meetings w i t h c i v i l

Wi th in the Bank, consultations were led by pi l lar leaders in the Country Of f ice

Annex 2

GHANA CAS Debt Sustainability Analysis

EXTERNAL DEBT

Ghana reached i t s decision point under the Enhanced H IPC Init iative in February 2002. At that t ime it was determined that assistance amounting to US$2,186 mi l l ion (equivalent to a reduction o f 56.2 percent in the NPV debt stock after the full application o f traditional debt relief) wou ld be required for Ghana to reach the targeted debt-to-fiscal revenues ratio o f 250 percent. Since that date creditors including the Paris Club, IDA, the IMF, the Afr ican Development Bank and the European Un ion have begun providing interim rel ief , and a number o f additional creditors have committed to providing their share o f HIPC assistance at the completion point. Ghana could reach i t s H I P C completion point by mid-2004.

This annex updates the debt sustainability analysis conducted at the decision point with new disbursement data obtained f rom the largest creditors, and with exchange and interest rate parameters as o f end-2003. With these changes, the NPV o f debt after assuming the full delivery o f enhanced H IPC assistance wou ld stand at US$2,629 m i l l i on as o f end-2003, as compared with US$2,154 mi l l ion projected in the decision point document. While new borrowing was somewhat lower than projected, this was more than compensated by the fa l l in the dollar exchange rate and the discount rates, wh ich increased the NPV o f debt expressed in U S Dollars.

Over the next three years (FY04-07), Ghana i s projected to borrow around US$350 m i l l i on per annum, three quarters o f which will be on highly concessional terms (with a grant element o f at least 60 percent), with the remainder being o n concessional te rms (with a grant element o f 35 percent). Under these assumptions the NPV o f debt i s estimated to grow at 7.6 percent per annum over the next f ive years. Under the high case lending scenario the NPV o f debt wou ld increase by around 8.3 percent per year over the same period. In order to maintain stable debt ratios, the nominal (dollar) GDP, export, and revenue growth wou ld have to increase as rapidly as the growth in the debt stock and debt servicing requirements over the medium and long term.

The medium term growth assumptions underlying the PRGF-supported program and the PRSP suggest that GDP growth in current dollars wi l l be around 4.4 percent over 2004- 7. Over the same period nominal export revenues are expected to grow at 4.5 percent per annum. Under these assumptions the NPV-debt-to-exports ratio wou ld remain about the same over the projection period, fal l ing slightly f rom 101 percent at end-2003 to 100 percent at end-2007 (assuming full delivery o f enhanced H IPC relief). The NPV debt-

to-GDP ratio wou ld fa l l sl ightly f rom 37 percent to 35 percent, and the benchmark NPV o f debt-to-revenue ratio will fal l f rom 186 to 165 percent over this projection period.

The debt re l ie f awarded to Ghana through the HIPC init iative i s sufficient to reduce Ghana’s k e y extemal debt ratios to levels which compare favourably with other countries in the region. Under the favourable assumptions o f the baseline scenario, the NPV o f debt to revenues wou ld decline considerably, to about 133 percent at end 201 1. However, assuming that the fiscal revenues as a percentage o f GDP remained constant at the historical 2003 level, and dollar GDP growth remained at around 4.2 percent (the historical average for 1990-99), the NPV debt-to-fiscal revenues ratio could r i se under this lower growth scenario by about 30 percentage points between 2003-201 1 (see chart be low) .

Projected NPV debt-to-revenue ratio (Assuming full delivery o f HIPC assistance)

2003 2004 2005 2006 2007 2008 2009 2010 201 1

DOMESTIC DEBT’

The authorities noted in the decision point document their intention to use 20 percent o f the additional resources provided under the enhanced HIPC init iative to pay down the domestic debt. The rationale for this was that the high level o f publ ic domestic debt (two-thirds o f which was being rol led over at maturities o f three months) and the ensuing high interest rates were crowding out private investment, as we l l as constituting a

’ The information on domestic debt i s drawn from “Ghana: Selected Issues”, IMF Country Report No.031134, M a y 2003

significant drain on public expenditures - approximately three-quarters o f the total interest outlays in 1999-2001 stemmed f rom the domestic interest burden. A reduction in this stock o f debt would therefore p lay a key role in stimulating the private sector in Ghana.

Since the decision point in February 2002, a series o f fiscal and quasi-fiscal slippages (including an overrun in the c iv i l service wage bil l and a delay in the implementation o f increases in electricity and water tariffs) led to a recourse to domestic financing o f 3.6 percent o f GDP rather than 0.3 percent as outlined in the PRGF-supported program. Large quasi-fiscal losses also arose f rom a failure to implement an automatic adjustment mechanism for petroleum prices, which led to the Ghana Commercial Bank incurring losses amounting to almost two percent o f GDP. The central government was forced to recognize these losses in order to protect GCB’s balance sheet.

The net result o f the budget overruns, the quasi-fiscal slippages, and a financing shortfall was that as o f end-2002 the stock o f domestic debt stood at almost 29 percent o f GDP, rather than the 20 percent projected at the time o f the H IPC decision point.

LONG-TERM DEBT SUSTAINABILITY

The HIPC Initiative has provided Ghana with the potential to achieve long-term extemal debt sustainability. With NPV debt-to-export ratios around 100 percent and NPV debt- to-revenues ratios below 200 percent, Ghana’s extemal debt indicators n o w compare favourably with most other countries in the region. Given the government’s ambitious public investment plans outlined in the GPRS, these ratios may rise somewhat over the coming years, but should s t i l l remain at manageable levels. The government and the intemational community should pay close attention to these levels, so that in the event that the key indicators begin to show a consistent upward trend, an appropriate po l icy response including increased concessionality o f financing, lower borrowing, and policies to stimulate growth may be implemented.

The relatively favourable extemal debt situation i s not matched by similar positive developments on the domestic side. The immediate causes o f the recent fiscal slippages have been addressed; however, Ghana’s recent history exhibits a pattem o f pol icy- slippages followed by periods o f reform, accompanied by a continued growth in the stock o f debt. Domestic debt sustainability wi l l require a sustained commitment to fiscal discipline f rom the government.

Ghana: Fund Relations Annex 3

Press Release No. 03/222 December 17,2003

International Monetary Fund 700 19th Street, NW Washington, D.C. 2043 1 USA

I M F Completes First Review Under Ghana's PRCF Arrangement and Approves US$38.5 Million Disbursement

The Executive Board o f the International Monetary Fund (IMF) today completed the first review o f Ghana's economic performance under a Poverty Reduction and Growth Faci l i ty (PRGF) arrangement. The completion o f the review makes immediately available to Ghana an amount equivalent to SDR 26.35 mi l l ion (about US$38.5 mil l ion) under the arrangement.

Ghana's three-year PRGF arrangement was approved on M a y 9,2003 (See Press Release No. 03/60) for SDR 184.5 m i l l i on (about US$270 mill ion). So far, Ghana has drawn SDR 26.35 m i l l i on (about US$38.5 mill ion).

The PRGF i s the IMF's concessional facil i ty for low-income countries. PRGF-supported programs are based o n country-owned poverty reduction strategies adopted in a participatory process invo lv ing c i v i l society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This i s intended to ensure that each PRGF- supported program i s consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate o f 0.5 percent, and are repayable over 10 years with a 5 '/-year grace period on principal payments.

Fol lowing the Executive Board's discussion o n Ghana's request, Shigemitsu Sugisaki, Deputy Managing Director and Ac t ing Chair, stated:

"The authorities are to be commended for their successful conduct o f macroeconomic pol icy in 2003. The economy i s o n a steady growth path, fiscal discipline has been restored, and official reserves have exceeded targets. The fiscal framework for 2004 and the medium term wil l support the objective o f reducing the domestic debt-GDP ratio by at least ha l f over the three-year program period. Steadfast implementation o f the authorities' monetary targets should bring about single-digit inf lat ion in early 2004. As a result, prospects for achieving the medium-term macroeconomic and economic reform objectives set out in their poverty reduction strategy are good.

"The authorities are committed to steadfast implementation o f well-prepared structural reforms, which wi l l be further developed early next year. An immediate pr ior i ty wil l be to continue to adjust prices to achieve full cost recovery for petroleum, electricity, and

water. Although the planned divestiture o f the Ghana Commercial Bank (GCB) was suspended, the authorities are taking welcome steps to strengthen i t s financial management and operational efficiency.

"Successful implementation o f Ghana's poverty reduction strategy over the coming year wi l l depend o n avoiding further losses in the energy and utility companies, and liberalizing petroleum prices as intended in mid-2004. I t will also be vital that the authorities remain resolute in their commitment to counter pressures to raise government spending in 2004, an election year. Achievement o f these objectives wil l help to consolidate the progress already made under the 2003-2006 PRGF-supported program. This, together w i t h action on the remaining pol icy triggers under the enhanced Init iative for Heavi ly Indebted Poor Countries and continued strong program implementation, wi l l help pave the way for Ghana to reach the HIPC completion point around mid-2004," Mr. Sugisaki stated.

Contact:

Mr. Hugh Bredenkamp Div is ion Chief West Africa, Div is ion 3 (202) 623-8881

UNESCO UNICEF

nets and t t

Note F represents Financing v.+ile N indicates Non Financing actiuties.

n 0

L .- m c u (3 0 (3

I

I I o

I

E 0 P

S m 0 I

P Lu

m 0 5 -

a $

Annex 6

GHASA'S PROGRESS TO\\'ARDS THE JIILLENSIt'Jl DEVELOPJIEIVT GOALS

G O A L S

Extreme poverty and hunger Halve the proportion o f people below the national poverty l ine by 20 15

Halve the proportion o f people who suffer f rom hunger Universal primary education Achieve universal access to primary education by 2015 Gender equality Eliminate gender disparity in primary and junior secondary education by 2005

Achieve equal access for boys and girls to senior secondary by 2005 Under-five mortality Reduce under-five mortality by two- thirds by 2015 Maternal mortality Reduce maternal mortality ratio by three-quarters by 2015 HIV/AIDS & Malaria Ha l t and reverse the spread o f H I V / A I D S by 20 15

Hal t and reverse the incidence o f malaria Ensure environmental sustainability Integrate the principles o f sustainable development into country policies and programmes and reverse loss o f environmental resources

Halve the proportion o f people without access to safe drinking water by 2015 Global partnership for development Deal comprehensively w i th debt and make debt sustainable in the long term

WIILL GOAL BE R E A C H E D ?

Probably

Unlikely

Potentially

Potentially

Potentially

Probably

Unlikely

Potentially

Lack o f data

Potentially

Potentially

Potentially

STATE OF S U P P O R T I V E ENVIRONMENT

Strong

Fair

Fair

Fair

Fair

Strong Fair

Fair

Fair Weak but improving

Fair Weak but improving

Weak but improving

Fair

Strong

Annex 7

CAS ANNEXES

a h C C n

a (c C C n

a Ir: C C cv

V

3 C n - U c? C 8

U n C C n - a c? C 2 - a n C 2 -

a - C 8 - a C C 2

F s $ 2 i

>

Ghana at a glance 2119104

POVERTY and SOCIAL

2002 Population. mid-year (milllons) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population (%J Labor force (%)

Most recent estimate (latest year available, 199642) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) infant mortality (per 1,OOOlive births) Child malnutrition (% ofchildren under 5) Access to an improved water source (% ofpopulation) illiteracy (% ofpopulation age 15+) Gross primary enrollment (% of school-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

GDP (US$ billions) Gross domestic investmenWGDP Exports of goods and serviceslGDP Gross domestic savingsiGDP Gross national savingsiGDP

Current account balancelGDP Interest paymentsiGDP Total debtiGDP Total debt servicelexports Present value of debtiGDP Present value of debtiexports

(average annual growth) GDP GDP per capita Exports of goods and services

1982

4.0 3.4 3.3 3.7 3.5

-2.7 0.7

36.8 15.5

1982-92 1992-02

4.7 4.2 1.1 2.0 6.8 8.8

Ghana

20.1 270 5.5

2.1 2.4

37 55 57 25 73 26 80 84 76

1992

6.4 12.8 17.2 1.3 3.6

-5.9 1.3

69.6 28.2

2001

4.2 2.1

-3.6

Sub- Saharan

Africa

688 450 306

2.4 2.5

33 46

105

58 37 86 92 80

2001

5.3 26.6 45.2

8.8 21.3

-5.3 1.3

126.8 8.5

74.3 162.0

2002

4.5 2.6

10.2

Low- income

2,495 430

1,072

1.9 2.3

30 59 81

76 37 95

103 87

2002

6.2 19.7 42.5

5.9 20.2

0.5 1.2

119.3 7.8

50.1 116.4

200245

4.9 3.5 7.1

Development diamond'

Life expectancy

Gross GNI per capita -& enroilment primary

1 Access to improved water source

I Ghana Low-Income group

Economic ratios'

Trade

i

Indebtedness

Ghana I Low-income group

STRUCTURE of the ECONOMY

I% of GDPJ Agriculture Industry

Services

Private consumption General government consumption imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1982

57.3 6.2 3.6

36.4

89.8 6.5 3.0

1982-92

2.1 7.1 7.3 7.3

4.7 4.5 7.1 7.4

1992 2001 2002

44.8 35.9 36.0 17.4 25.2 24.3 9.3 9.0 9.0

37.8 38.9 39.7

86.6 83.3 82.7 12.1 7.9 11.4 28.8 64.7 54.5

199242 2001 2002

3.8 3.7 4.1 3.8 4.8 6.3 1.2 6.1 0.0 4.8 4.5 4.4

4.5 4.9 9.1 3.8 2.3 -4.4 2.0 23.9 -17.6 8.3 7.7 -4.4

1 Growth of investment and GDP (Oh) I 30 20 10

0 10

-20

30 20 10

0 10

-20

* GDI +GDP I Growth of exports and imports (Oh) I

l.40 1 * Exports -imports

Note: 2002 data are preliminary estimates * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will

be incomplete.

Ghana

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit

TRADE

(US$ millions) Total exports (fob)

Cocoa Timber Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995-700) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold IUS$ millions) Conversion rate (DEC, local/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Oificial grants Official creditors Private creditors Foreign direct investment Portfoiio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

1982

22.3 27.9

6.0 -3.2

1982

1982

71 1 813

-1 03

-89 -1

-107

106 1

21.4

1982

1,484 131 125

111 16 1

0 58 14 16 0

0 24

8 16 9 7

1992

10.0 11.2

18.5 4.2

-6.1

1992

986 302 114

1,589 38

162 277

85 103 83

1992

1,105 1,845 -740

-106 255

-377

253 124

437.1

1992

4,460 87

1,631

318 21 14

215 309 45 23 0

375 170

15 156 20

136

2001

32.9 34.6

18.0 3.8

-10.7

2001

2.380 381 169

3,781

257

78 99 79

2001

2,399 3,437

-1,038

- loa 866

-283

283 -79

344 7.170.8

2001

6,734 6

3,172

314 4

59

429 269 154 89

0

433 193 37

156 25

130

2002

14.8 22.8

21.6 2.4

-0.7

2002

2,681 463 182

4,099

275

81 96 a5

2002

2,613 3,355 -742

-129 901

30

-30 -291

636 7,942.6

2002

7,338 5

3,471

21 1 2

30

316 160 -23

0 0

0 99 12 88 20 67

'lnflatlon)

GDP deflator - 0 I C P I

1 Export and Import levels (US$ mill.)

4500 - 4 000 3 500 3 000 2 500 2 000 1500 1 000

500 0

96 97 98 99 00 01

0 Exports H Imports

I Current account balance to GDP ( O h )

1 ' T 0

2

4

6

8

-10

.12

1 Composltion of 2002 debt (US$ mill.)

~ G 5934 5 1

B 3471

C 363

A - IERD E - Bilateral B - IDA D - Other multilateral F - Private C . IMF G - Short-term

CAS Annex B2 - Ghana Selected Indicators* of Bank Portfolio Performance and Management

As Of Date 12/09/2003

Indicator 2001 2002 2003 2004 Portfolio Assessment Number of Projects Under Implementation a

Average Implementation Period (years) Percent of Problem Projects by Number Percent of Problem Projects by Amount a r c

Percent of Projects at Risk by Number Percent of Projects at Risk by Amount ai

Disbursement Ratio (%) e Portfolio Management CPPR during the year (yesho) Supervision Resources (total US$'OOO) Average Supervision (US$'OOO/project)

23 3.8 8.7 5.0 8.7 5.0

26.1

no 1423

57

22 4.1 0.0 0.0 4.5 0.4

24.2

Yes 1642

66

18 4.3

16.7 10.3 16.7 10.3 18.1

no 1465

61

17 4.4

17.6 33.8 17.6 33.8

9.2

no 1771

68

Memorandum Item Since FY 80 Last Five FYs Proj Eva1 by OED by Number 83 17 Proj Eva1 by OED by Amt (US$ millions) 3,150.3 558.9 % of OED Projects Rated U or HU by Number 32.5 35.3

27.8 30.4 % of OED Projects Rated U or HU by Amt

a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

CAS Annex 8 3 - IBRDllDA Program Summary Ghana

Proposed IBRDllDA Base-Case Lending Program a

Strategic Rewards b lmplementat ion b (H/M/L) Risks (H/M/L) F isca l y e a r Proj ID US$(M)

2004 Educat ion Sector DevelODment 80.0 M M

2005

2006

2007

PRSC I I Communi ty Based Rural Development Urban. Environmental Sa nitation I I Resul t Urban Water Restructuring Micro, Smal l and Medium Enterprise Support Communi ty Water and Sanitation I I Wes t African Gas Pipeline (Regional) Wes t Africa Power Pool (Regional) PRSC I l l Resul t Public Sector Reform and Capaci ty Bldg. Energy Map II PRSC IV Resul t Infrastructure Agriculture PRSC V Decentralization for Community Empowerment Resul t

Overal l Resul t

125.0 50.0 60.0 315.0 100.0 25.0 25.0 25.0 15.0 125.0 315.0 20.0 40.0 20.0 125.0 520.0 40.0 20.0 125.0 35.0 220.0 1,055.0

H M M

M M M M M H

H H M H

H M H H

M M M

M M M M M H

H H M H

H M H H

CAS Annex B3 (IFC & MIGA) for Ghana Ghana - IFC and MIGA Program, FY 2001-2004

2001 2002 2003 2004

IFC approvals (USSm)

Sector (%I Finance & Insurance Nonmetall ic Mineral Pulp & Paper Total

Investment instrument( %) Loans Equity Quasi-E quiiy Other Total

7.7

0 78 22

100

87 13

100

0.0

0

0

0.0

0

0

MIGA guarantees (USSm) 0.00 0.00 0.00

0.0

0

0

0.00

CAS Annex B4 -Summary o f Nonlending Services - Ghana As of February 9,2004

Compierion Producr FY Cosr (USSOOOj Audience' Objectiveb

Recent completions ISNPRSP Gender Assessment Ghana Poverty Note Client Survey Country Procurement Assessment Rev Adnlinistrative Barriers (FIAS study) Microfmance Background Study

Underway CEM on Growth, Poverty, Budgeting Country Assistance Strategy Energy Policy Note Public Expenditure Review (PER) Trade Study Energy PSlA National Health Insurance Implementation Post Financial Sector Assessnient Prog. Follow-up Promoting Foreign Investment (IFCIMIGA) Country Financial Accountability Assessment Conuilunication and Outreach, inc l . Media PRSP Progress Report A&A ROSC Ghana Corporate Governance Assessment Poverty and Social Impact Analysis Capacity Building for Sustained Subnational Regional Development Compet. HIPC AAP Development Dialogue Series HlPC Conipletion Point Monitoring and Evaluation Readiness Assess.

Planned WB-Parliamentary quanerly dialogue sessions Inveshiient Climate Assessment Country Environmental Assessment (CEA) Country Portfolio Perfoniiance Review (CPPR) Telecommunications CAS Progress Report PER Benchmarking Study (MIGA) Connnunications Review Public-Private Partnerships Urban Strategy Note Natural Resources Management Conununity Empowerment Disability in Ghana PER CFAA Employnent and Youth Study Poverty Assessment Country Economic Memorandum (CEM) PER CPPR

FY03 FY03 FY03 FY03 FY03 FY03 FY03

FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04 FY04

FY04 FY04 FY04 FY04 FY05

FYO5-07 FY05 FY05 FY05 FY05 FY05 FY05 FY05 FY05 FY06 FY06 FY06 FY06 FY06 FY06 FY06 FY07 FY07 FY07 FY07 FY07

80 16 20 100 147

FIAS funded FSE funded

195 150 120 100 125 75 100 105 100 100 82 25 50 60 25

20 25 30 40

Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Bank Government, Bank, Donors Government, Bank, Pri. Sec Govemnient, Bank, Donors

Government, Bank, Donors Government, Bank Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Govemment, Bank, Donors Govemiient, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Government, Bank Government, Bank

Government, Bank

Policy orientation Policy orientation Policy orientation Problem-solving Problem-solving Policy orientation, Problem-solving Policy orientation, Problem-solving

Policy orientation, Problem-solving Policy orientation Policy orientation, Problem-solving Policy orientation Policy orientation, Problem-solving Policy orientation, Problem-solving Policy orientation Policy orientation, Problem-solving Policy Orientation, Problem-solving Policy orientation, Problem-solving Knowledge Generation, Public Debate Knowledge Generation, Public Debate Policy orientation, Problem-solving Policy orientation Policy orientation Policy orientation, Problem-solving

Policy orientation Governnient, Bank, Donors, Public Public debate Government, Bank Problem-solving Government, Bank, Donors Policy orientation, Problem-solving

Govemnient, Bank, Public Public debate Govemment, Bank, Donors Government, Bank, Public Government, Bank, Donors Govemnient, Bank Policy orientation Government, Bank, Donors

Policy orientation, Problem-solving

Policy orientation, Problem-solving

Policy orientation, Problem-solving

Government, Bank, Donors Govemment, Bank, Donors Govemment, Bank, Public Government, Bank, Donors Government, Bank, Public Government, Bank, Donors Govemment, Bank, Donors Government, Bank, Donors Government, Bank, Donors Govemnient, Bank Government, Bank, Donors Government, Bank, Donors Government, Bank, Donors Govemment, Bank, Donors

Policy orientation, Problem-solving Public debate, Public policy Policy orientation, Public Debate Policy orientation, Problem-solving

Policy orientation, Problem-solving Policy orientation, Problem-solving Policy orientation Policy orientation, Problem-solving Policy orientation, Problem-solving Policy orientation, Problem-solving Policy orientation, Problem-solving Policy orientation Policy orientation, Problem-solving

a. Govemiient, donor, Bank, public dissenunation. b. Knowledge generation, public debate, problem-solving. c. Econonuc Monitoring takes place each year.

Ghana - Key Economic Indicators

Gross domestic producta Agriculture Industry Services

Total Consumption Gross domestic fixed investment

Government investment Private investment

EXPOITS (GNFS)~ Imports (GNFS)

Gross domestic savings Gross national savingsc

Memorandum ifems Gross domestic product (US$ million at current prices) GNI per capita (US$, Atlas method)

100 37 25 38

94 20.5

9.8 11

32 50

6 12

7710

390

100 36 25 39

92 24.0

9.2 14.8

49 68

8 15.6

4978

330

Real annual growth rates (%, calculated from 1975 prices) Gross domestic product at market prices 4.4 3.7 Gross Domestic Income 2.3 2.8

Real annual per capita growth rates (%, calculated from 1975 prices) Gross domestic product at market prices Total consumption Private consumption

Balance o f Payments (US$ millions) E X ~ O ~ ~ S (GNFS)~

Merchandise FOB Imports (GNFS)~

Merchandise FOB Resource balance Ket current transfers Current account balance

Net private foreign direct investment Long-term loans (net) Official Private

Other capital (net, incl. eirors & ommissions)

Change in reservesd

Memorandum items Resource balance (% o f GDP) Real annual growth rates ( Y R 7 5 prices)

Merchandise exports (FOB) Primary Manufactures

Merchandise imports (CIF)

2.1 2.4 4.6

2488 2005 3841 3252

-1353 620

-896

63

180

204

-17.6

3.5 4.7

12.8

1.3 -0.4 -3.8

2440 1936 3362 2759 -922 650

-419

65

180

96

-18.5

9.2 5.1

-0.7

100 36 25 39

91 26.6 12.8 13.8

45 65

9 21.3

5309

300

4.2 4.9

2.1 2.2 2.8

2399 1867 3437 2831

-1038 866

-283

88

269

-29 1

-19.6

7.8 -6.7

3.1

100 36 24 40

94 19.7 6. I

13.6

42 5 5

6 20.2

6152

270

4.5 5.9

2.6 4.0 7.1

2613 2057 3355 2714 -742 90 1

30

50

160

-157

-12.1

8.5 10.7

5.2

100 36 25 39

94 22.5

9.1 13.4

38 52

6 22.0

7545

320

4.7 1.8

3.0 2.7 2.0

2856 2262 3910 3190

-1054 1177

-35

75

328

-378

-14.0

-1.3 33.1

-7.6

100 35 22 43

90 23.1

9.5 13.6

35 48

10 22.0

8595

370

5.0 8.8

3.6 0.9

11.2

2969 2368 4100 3360

-1131 1226

-90

101

140

-157

-13.2

100 35 22 43

91 23.9

9.7 14.2

34 47

9 22.3

9390

430

5.0 5.2

3.8 4.1 4.6

3161 2548 4391 3639

-1230 1285 -150

57

170

-160

-13.1

I00 34 22 44

90 24.3

9.5 14.8

32 45

I O 23.0

10167

460

5.0 4.9

3.2 3.4 3.3

3260 2633 4593 3834

-1333 1400 -137

61

161

-178

-13.1

100 32 22 46

89 24.5

9.5 15.0

31 43

11 23.2

I1035

500

5.0 5.1

3.2 3.4 3.4

3390 2739 4775 4010

-1385 1451 -140

66

184

-201

-12.6

Ghana - Key Economic Indicators (Continued)

Actual Estimate Projected Indicator 1999 2000 2001 2002 2003 2004 2005 2006 2007

Public finance (as % of GDP at market prices)' Current revenues 17.8 Current expenditures 16.4 Current account surplus (+) or deficit (-) 1.4 Capital expenditure 9.8 Foreign financing

Monetary indicators M2lGDP 19.3 Growth o fM2 (%) 19.8 Private sector credit growth l 32.9 total credit growth (%)

Price indices( YR75 =loo) Merchandise export price index 104.3 Merchandise import price index 142.3 Merchandise terms o f trade index 73.3 Real exchange rate (USSILCU)'

Real interest rates Consumer price index (% change) 12.4 GDP deflator (?h change) 14.0

19.5 18.5 0.9 9.2

19.5 33.4 29.7

90.3 120.9 74.7

25.2 27.2

23.7 19.9 3.8

12.8

20.7 48.4 14.2

105.1 149.2 70.4

32.9 34.6

22.0 20.0

2.0 6.1

24.2 49.6 18.2

109.1 153.8 70.9

14.8 22.8

22.4 20.6

1.8 8.7

22.6 25.1 17.9

124.3 181.6 68.5

26.9 27.6

20.9 18.4 2.5 8.9

18.9 19.1

8.6 13.3

19.8 16.2 3.6 9.1

12.5 13.3

6.0 7.1

18.3 15.3 3.0 9.0

11.5 12.1

5.0 6.2

17.8 14.9 2.9 9.1

11.0 7.3

5.0 6.4

a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use o f IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in USULCU denotes appreciation.

CAS Annex 87 - Key Exposure Indicators - Ghana

Act~a l Estimate Proiected ludicator 1999 2000 2001 2002 2003 2004 1005 2006 2007

Total debt outstanding and 6,979 6,625 6,734 7,338 disbursed (TDO) (US$ni)a

Net disbursements (US$m)a

Total debt service (TDS) 420 397 226 192 (USSni)a

Debt and debt service indicators Ph)

TDOIXGSb 277.1 268.0 276.6 276.9 TDOiGDP 90.5 133.1 126.8 119.3 TDSIXGS 16.7 16.1 9.3 1 . 3 ConcessionaliTDO 68.5 71.2 68.8 70.5

IBRD exposure indicators (%) IBRD DSipublic DS 2.1 2.3 1.6 0.9 Preferred creditor DSipublic 38.2 35.4 60.7 52.2 DS (%)c IBRD DSiXGS 0.4 0.4 0.2 0.1 IBRD TDO (USGm)d 18 9 6 5

Of which present value o f guarantees (USSm)

Share of IBRD portfolio (%) 0 0 0 0 IDA TDO (US$m)d 3,099 3,130 3,172 3,471

IFC (USSni) Loans Equity and quasi-equity IC

MIGA MIGA guarantees (US$m)

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-

b. "XGS" denotes exports o f goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the

Bank for Intematioual Settlements. d. Includes present value o f guarantees. e. Includes equity and quasi-equity types o f both loan and equity instruments.

temi capital.

CAS Annex BS (IFC) for Ghana

Ghana Statement o f IFC's

H e l d and Disbursed Portfol io As o f 11/30/2003

(In U S Dollars Mi l l ions)

' FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1993 AEF Afariwaa 0.16 0 0 0 0.16 0 0 0 1995 2000 2001 1998 1997 1999 1994 1996 1989191193 200 1 2000

1991 2001

AEF Antelope Co. AEF Computer Sch AEF GPPI AEF NCS AEF PTS AEF PharmaCare AEF Shangri-la AEF Tacks Farms Cont Acceptances Diamond Cement ELAC GAGL GHANAL MFI SSLC

0.30 0 0 0 0.30 0 0 0 0.12 0 0 0 0.12 0 0 0 1.49 0 0 0 1.49 0 0 0

0 0 0.53 0 0 0 0.53 0 0 0 0.31 0 0 0 0.31 0

0.15 0 0 0 0.15 0 0 0 0.93 0 0 0 0.93 0 0 0 0.43 0 0 0 0.43 0 0 0

0 0.88 0 0 0 0.88 0 0 5.00 1.00 0 0 0 0 0 0

0 0.10 0 0 0 0.10 0 0 1.22 2.55 1.56 0 1.22 2.55 1.56 0

0 0.44 0 0 0 0.44 0 0 0 0.49 0 0 0 0.49 0 0

Total Portfolio: 9.80 5.46 8.41 0 4.80 4.46 8.41 0

r m w 0 0 (0

l o t (0 r - w m o ... w v )

h M

d

h vi a

E

e R

0 I

5

h r c .

t; I

L E

L

a, 5

-0 5

I D

x U I,

V E

CAS Annex BIO -Ghana As of 1/11/2004

Country Major issue County Bank performancea priorityc priority"

Network area

Poverty Reduction & Economic Management Poverty reduction Economic policy Public sector Gender

Human Development Department Education Health, nutrition 8 population Social protection

Environmentally & Socially Sustainable Development Rural development Environment Social development

Finance, Private Sector & infrastructure Financial sector Private Sector Energy R mining Infrastructure

G Rural poverty G Fiscal policy G Governance and accounbbility F

G Female secondary Education G Pccess to water G Bettertargeting of poor

G Diversification F Forest resources G Decentraiization

P Public debt F Increased credit F Unsustainable farmingimining practices F Increase private sector participation

H H H H H H H H

H H H H H H

H H H H M M

M M M M

H H

a. Use "excellent," "good," "fair," or "poor." b. Indicate principal country-specific problems (e.g., for poverty reduction, "rural poverty;" for education, "female secondary completion;" for environment, "urban air pollution") c. To indicate priority use "low," "moderate," or "high." d. Give explanation, if priorities do not agree; for example, another MDB may have the lead on the issue, or there may be ongoing dialogue. I

MAP

OF

GHANA