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AFRICAN DEVELOPMENT FUND
GHANA
THE PUBLIC FINANCIAL MANAGEMENT AND PRIVATE SECTOR
COMPETITIVENESS SUPPORT PROGRAMME PHASE I
(PFMPSCSP)
OSGE DEPARTMENT
November 2015
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TABLE OF CONTENTS
CURRENCY EQUIVALENTS .......................................................................................................................... i
FISCAL YEAR ................................................................................................................................................... i
WEIGHTS AND MEASURES........................................................................................................................... i
PROGRAMME INFORMATION ....................................................................................................................iii
LOAN INFORMATION ..................................................................................................................................iii
PROGRAMME EXECUTIVE SUMMARY .................................................................................................... iv
I INTRODUCTION: THE PROPOSAL ................................................................................................... 1
II COUNTRY CONTEXT ........................................................................................................................... 1
2.1 Political Developments and Governance Context ............................................................................................. 1
2.2 Recent Economic Developments, Macroeconomic and Fiscal Analysis .......................................................... 2
2.3 Competitiveness of the Economy ..................................................................................................................... 4
2.4 Inclusive Growth, Poverty and Social Context ................................................................................................. 4
III GOVERNMENT DEVELOPMENT PROGRAM............................................................................. 5
3.1 Government Overall Development Strategy and Medium-term Reform Priorities .......................................... 5
3.2 Challenges to National Development Program ................................................................................................. 6
3.3 Consultation and Participation Processes.......................................................................................................... 6
IV BANK SUPPORT TO GOVERNMENT STRATEGY ..................................................................... 7
4.1 Link with Bank Strategy ................................................................................................................................... 7
4.2 Meeting the Eligibility Criteria ......................................................................................................................... 7
4.3 Collaboration and Coordination with other Partners......................................................................................... 8
4.4 Relationship with Other Bank Operations ........................................................................................................ 8
4.5 Analytical Works Underpinning ....................................................................................................................... 9
V THE PROPOSED PROGRAMME ...................................................................................................... 10
5.1 Programme Goal and Purpose ......................................................................................................................... 10
5.2 Programme Components ................................................................................................................................. 10
5.3 Policy Dialogue ............................................................................................................................................... 15
5.4 Loan Conditions……………………………………………………………………………………………...15
5.5 Application of Good Practice Principles on Conditionality ............................................................................ 16
5.6 External Financing Requirements and Sources ............................................................................................... 16
5.7 Application of Bank Group Policy on Non-concessional Debt Accumulation…………………………… 16
VI OPERATION IMPLEMENTATION ............................................................................................... 16
6.1 Beneficiaries of the Programme ...................................................................................................................... 16
6.2 Impact on Gender, Poor and Vulnerable Groups ............................................................................................ 17
6.3 Impact on Environment and Climate Change ................................................................................................. 17
6.4 Implementation, Monitoring and Evaluation .................................................................................................. 17
6.5 Financial Management and Disbursement ...................................................................................................... 18
VII LEGAL DOCUMENTATION AND AUTHORITY ....................................................................... 19
7.1 Legal Documentation ...................................................................................................................................... 19
7.2 Conditions Associated with the Bank’s Intervention ...................................................................................... 19
7.3 Compliance with Bank Group Policies ........................................................................................................... 19
VIII RISKS MANAGEMENT ................................................................................................................ 20
IX RECOMMENDATION ...................................................................................................................... 20
LIST OF TABLES
Table 1 : Key Macroeconomic Indicators, 2012-2017 .............................................................. 2
Table 2 : Link between the GSGDA II, MTR-CSP and the PFMPSCSP .................................. 7
Table 3 : Lessons Learned from Previous Bank Operations in Ghana ...................................... 9
Table 4 : PFMPSCSP Prior Actions and Indicative Triggers .................................................. 15
Table 5 : External Financing Requirements and Sources, 2015-2017 .................................... 16
Table 6: Potential Risks and Mitigation Measures ………….………………………….........20
LIST OF ANNEXES
Annex I: Letter of Development Policy
Annex II A: Operations Policy Matrix
Annex II B: Development Partners’ Reform Area Focus
Annex III: The IMF-sponsored Extended Credit Facility Program Press Release
Annex IV: The Assessment of the PBO Eligibility Criteria for Ghana
Annex V: Achievements under Previous Budget Support Operations
i
CURRENCY EQUIVALENTS
As of October 2015
1 UA = 55.07 GHc
1 UA = 1.40 US$
1 UA = 1.25 Euro
FISCAL YEAR
January 1 to December 31
WEIGHTS AND MEASURES
1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (“)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
ii
ACRONYMS AND ABBREVIATION
AAF Automatic Adjustment Formula MDA Ministries, Departments and Agencies
ADF African Development Fund MDBS Multi-Donor Budget Support
AG Auditor General MDGs Millennium Development Goals
AGI Africa Governance Institute MDRI Multilateral Debt Relief Initiative
BEE Business Enabling Environment MoF Ministry of Finance
BOG Bank of Ghana MOTI Ministry of Trade and Industry
CAGD Comptroller and Accountant General Office MTDMS Medium Term Debt Management Strategy
CAR Commitment at Risk MTFF Medium Term Expenditure Framework
CIDA Canadian International Development Agency MTFF Medium Term Fiscal Framework
CF Consolidated Fund MTO Medium Tax Office
CFRA Country Fiduciary Risk Assessment MTR Medium Term Review
CSO Civil Society Organization NDC National Democratic Congress
CSP Country Strategy Paper NDPC National Development Planning Commission
CPIA Country Policy and Institutional Assessment NGO Non-Governmental Organization
DFID Department for International Development NPP New Patriotic Party
DO Development Objective
OECD
Organization for Economic Cooperation and
Development
DP
DPC
Development Partners
Development Policy Credit P2P Procure to Pay
DSA Debt Sustainability Analysis PAF Performance Assessment Framework
ECF Extended Credit Facility PAR Project at Risk
EITI Extractive Industries Transparency Initiative PBO Program-Based Operation
FDI Foreign Direct Investment PCR Project Completion Report
FM Framework Memorandum PEFA Public Expenditure and Financial Accountability
GAP Governance Action Plan PFM Public Financial Management
GAX Ghana Alternative Stock Exchange PFMPSCSP
Public Financial Management and Public Sector
Competitiveness Support Project
GBS General Budget Support PFMRS Public Financial Management Reform Strategy
GCI Global Competitiveness Index PPA Public Procurement Authority
GDP Gross Domestic Product PPD Public-Private Dialogue
GHFO Ghana Field Office PPP Potentially Problematic Project
GIFMIS
Government Integrated Financial Management
System PRBESL
Poverty reduction and Business Environment Support
Loan
GISP Ghana Institutional Support Project PRSL Poverty reduction support loan
GLSS Ghana Living Standards Survey PSDS Private Sector Development Strategy
GOG Government of Ghana PURC Public Utility Regulatory Commission
GSGDA Ghana Shared Growth and Development Agenda SF Statutory Fund
GSE Ghana Stock Exchange SME Small and Medium Enterprise
HDI Human Development Index SOE State-Owned Enterprise
HIPC Heavily Indebted Poor Countries (HIPC) TRIPS Total Revenue Integrated Processing System
ICF Investment Climate Facility TYS Ten Year Strategy
IFMIS Integrated Financial Management System WAEMU West African Economic and Monetary Union
IGF Internally Generated Fund WAMZI West African Monetary Zone
ISP Institutional Support Program WBGI World Bank Governance Indicators
IP Implementation Progress WDI World Development Indicators
LEAP Livelihood Empowerment Against Poverty WEF World Economic Forum
iii
PROGRAMME INFORMATION
INSTRUMENT GENERAL BUDGET SUPPORT
PBO DESIGN TYPE PROGRAMMATIC OPERATION
LOAN INFORMATION Client’s information
BORROWER: REPUBLIC OF GHANA
EXECUTING AGENCY: MINISTRY OF FINANCE (MOF)
Financing plan for 2015, 2016, and 2017
Source Amount (2015) Amount (2016) Amount (2017)
ADF Loan UA 40.0 million UA 35.0 million N/A
WORLD BANK UA 106.6 million UA 106.6 million UA 106.6 million
CANADA UA 12.0 million N/A N/A
DENMARK UA 6.2 million N/A N/A
EU UA 145.0 million N/A N/A
DFID UA 22.2 million N/A N/A
GERMANY UA 22.7 million N/A N/A
SWITZERLAND UA 5.7 million UA 3.6 million UA 2.2 million
TOTAL COST UA 360.5 million UA 145.2 million UA 108.8 million
ADF key financing information
Loan currency Unit of Account (UA)
Interest Rate 1% per annum
Service charge 75 bps
Commitment fee 50 bps
Tenor 360 months
Grace period 60 months
*if applicable
Timeframe - Main stepping stones (expected)
Concept Note approval
March 2014
Programme approval November 2015
Effectiveness November 2015
Completion October 2016
iv
PROGRAMME EXECUTIVE SUMMARY Programme
Overview
Program name: Ghana – Public Financial Management and Private Sector Competiveness Support Programme
(PFMPSCSP).
Expected outputs: The key outputs of the Programme are (i) expanded tax base and rationalized expenditure
system; (ii) improved budget credibility and transparency; and (iii) Enhanced viability and efficiency of the power
sector, as well as increased SME access to finance.
Overall timeframe: 2015-2016, two year programmatic operation
Programme
Outcomes
The Expected outcomes of the program are: (a) Strengthened fiscal consolidation; (b) Deepened and improved
PFM system; and (c) Improved efficiency and competitiveness of the private sector.
Alignment with
Bank priorities
The operation is closely aligned to two of the operational priorities of the Bank’s Ten-Year Strategy, 2013-2022,
namely governance and accountability and private sector development, and reinforced by two of the new Bank
Group High-5 institutional priorities1, namely “Industrialize Africa and Power Africa”. The program is also linked
to the three pillars of the Bank Group Governance Strategic Framework and Action Plan, 2014-2018 (GAP II),
[public sector and economic management, sector governance (energy) and investment and business climate]; as
well as the Bank’s Private Sector Development Strategy, 2013-2017 (investment and business climate).
Furthermore, the program is closely linked to one of the pillars of the Bank’s Country Strategy Paper for Ghana,
namely improved governance and accountability.
Needs
Assessment and
Justification
Ghana’s economy has been moving towards a serious risk of fiscal and debt distress since 2012, exacerbated by
current fall in commodity prices on the world market, especially the recent drastic fall in the price of crude oil. The
justification for Budget Support Operation (BSO) is premised on the need to create fiscal space for the government
to implement fiscal consolidation. The proceeds of the budget support operation will also act as a buffer
contributing to financial flows during the reform period in the face of the recent decline in revenue occasioned by
falling commodity prices. The proceeds of the BSO could also assist the GOG in interest repayments, thereby
reducing fiscal deficit and bringing credibility to the budget process. Furthermore, it could help GOG to continue
payment of accumulated debt to power sector SOEs. Donor support for the government reform agenda is therefore
imperative to ensure its success.
Harmonisation The Multi- Donor Budget Support (MDBS) platform in Ghana has not properly functioned over the past two years
owing to failure to reach a joint PAF, weak DPs/GOG dialogue and the deterioration of the underlying principles
on macroeconomic stability. In the absence of an active coordinated Policy Dialogue Framework, the PFMPSCSP
is being closely coordinated with the IMF-Extended Credit Facility (ECF) and the World Bank Budget support
operation. Consultations were also held with the other DPs to coordinate with their respective related operations,
and get their views on the progress and issues relating to GOG policy reform program implementation. Such
consultations will continue during PFMPSCSP implementation. Meanwhile, the monitoring of the Bank’s operation
will rely on the results of the regular review of the IMF-ECF and possible joint monitoring and evaluation with the
World Bank. However, DPs still place enormous importance on Ghana’s commitment to the Partnership Principles,
and assessment of GOG performance against these is still required for other forms of financial aid provided to the
country. DPs, including the Bank, therefore, agreed that policy dialogue on Macroeconomic Stability and PFM
should continue firmly within the respective Sector Working Groups (SWGs), and that these groups will meet
regularly. As Ghana’s Trusted Partner, the Bank is called upon to play a leadership role in coordinating engagement
between DPs and GOG to foster the establishment of a new policy dialogue framework.
Bank’s Added
Value
The proposed operation is the fifth general budget support program and the seventh Governance related operation
the Bank is conducting in Ghana. This long term engagement with the country has allowed the Bank to acquire
substantial knowledge and experience on various development issues (e.g., PFM, PSD, Energy, etc.). The Bank’s
awareness about the development challenges Ghana is facing and its field presence are important assets. The
proposed budget support builds on previous operations and programs financed by the Bank as well as other DPs,
and lessons learned. The Bank can leverage its unique position as a reliable and trusted partner of choice, to engage
in policy dialogue and help implement difficult reforms based on a consistent track record.
Contributions to
Gender Equality
and women’s
empowerment
Fiscal consolidation and PFM reforms are likely to benefit women and vulnerable groups as improved fiscal space
can accommodate increased pro-poor expenditures for better social services delivery. The focus on increasing
electricity supply which has been a challenge due to the ongoing 3 year power rationing will also benefit women
and youth involved in SMEs. The high cost of alternative sources of energy such as generators and the exorbitant
price of fuel contribute to the high cost of doing business and discourage women from engaging in lucrative
income-earning activities that depend on electricity, thus limiting opportunities for economic independence.
Electrification is expected to reduce the time spent on fuel wood collection by household members, promote good
health arising from less use of charcoal and increase the time spent on studying by boys and girls.
Policy dialogue
and linked
technical
assistance
The proposed operation will focus on supporting fiscal consolidation policy actions, PFM reforms, and electricity
sector reforms. Through this operation and the on-going Institutional Support Project, the Bank’s support will bring
to Ghana solid expertise, knowledge transfer and best practices to inform the government’s reform agenda. The
program will create a strong platform for policy dialogue and advisory services, with GHFO playing a leading role
on the ground.
1 The new High-5 institutional priorities announced by the new President of the Bank Group are: Feed Africa, Power Africa, Industrialize Africa, Integrate Africa,
and Improve the welfare of Africans.
v
RESULTS BASED LOGICAL FRAMEWORK
Country and project name: Ghana: Public Financial Management and Private Sector Competitiveness Support Programme (PFMPSCSP) Purpose of the project : To restore macroeconomic stability through fiscal consolidation as a solid foundation for an inclusive and resilient economic growth
RESULTS CHAIN PERFORMANCE INDICATORS
MOV RISKS/MITIGATION
MEASURES Indicator (including CSI*) Baseline Target
IMP
AC
T
Inclusive and resilient economic growth
Real GDP growth / excluding oil sector
4% /4% (2014) 6.4%/4.7%
(2016)
IMF, MoF,
Risks #1: Fiscal and
external imbalances,
complicated by heavy dependence reliance on
foreign financing and a
slowing economy due
mainly to persisting energy
crisis and declining
commodity prices.
Approaching the elections
due in late 2016 may increase spending pressures
Employment to active population ratio
Female: 65% Male: 67%
(2013)
Female: 68% Male: 69%
(2016)
Outcome 1 Fiscal consolidation enhanced
Revenue/GDP ratio 18.4% (2014) 19.6% (2016), 20.0% (2017) IMF/MoF
Expenditure/GDP ratio 27.8% (2014) 25.4% (2016), 23.7% (2017)
Overall fiscal balance/GDP 9.4% (2014) 5.8% (2016), 3.7% (2017)
Wage bill 60% of total non-
interest recurrent
expenditures
55% (2016) and 50% (2017)
MoF
OU
TC
OM
ES
Outcome 2
Public financial management strengthened
Aggregate expenditure outturn
compared to original approved
budget
35.1%
(PEFA 2013) < 30% (2016) and 25% (2017)
MoF
Multi-year perspective in fiscal
planning, expenditure policy and
budgeting
Elements of
MTFF and MTEF
in place but not enforced (2013)
Pilot integration (and extended to
key MDA) of MTFF and MTEF
with Hyperion Budget Preparation System launched (2016, 2017)
MoF
Outcome 3
Competitiveness of the private sector
enhanced
Global Competitiveness Index –
rank
119th
out of 144
(2015) 115
th (2016) and 110
th (2017)
WEF (World
Economic
Forum)
Quality of electricity supply 127th
out of 144
(2015)
110th
(105th
) out 148 or gain at
least 10 places (2016, 2017))
WEF
Inflation, annual % change 136th
out of 144
(2015)
93rd
(90th
) out of 148 or gain at
least 10 places (2016, 2017)
WEF
OU
PU
TS
1. Strengthening Fiscal Consolidation
1.1 Tax base expanded and efficiency in
revenue collection improved
Deployment of the Total Revenue
Integrated Processing System
(TRIPS)
Four (4) offices
are currently
covered by
TRIPS
12 offices covered by TRIPS
(2016), 16 (2017)
MoF
Implementation of self-
assessment system for all
Medium Tax Offices (MTOs) to enhance compliance in tax
payments
15 MTOs are
currently
practising self-assessment
system
20 MTOs practise self-assessment
system (2016), 26 (all, in 2017)
MoF
vi
1.2 Commitment controls and monitoring
of expenditure arrears strengthened
Extending GIFMIS coverage to
the management of Internally Generated Fund (IGF) and
Statutory Fund (SF) on pilot
basis.
All Consolidated
fund (CF) payments (66%
of the National
Budget) go
through ex-ante
control – from
requisition to
payment – on GIFMIS
GIFMIS coverage is extended to
the management of all CF, Internally Generated Fund (IGF)
and Statutory Fund (SF) (2017)
MoF and the likelihood of policy
inconsistency/reversal in fiscal consolidation efforts.
High social expectations on
job creation due to expected
increased oil production and
revenue.
Mitigations: Prudent fiscal
and monetary policies to be
implemented under the IMF
and the World Bank
sponsored programs as well
as the proposed operation
are expected to prevent
policy reversal and mitigate risks to growth as domestic
interest rate abates,
exchange rate becomes
stable, energy shortage is
addressed, and investors’
confidence is restored. This
will improve GOG’s policy
credibility, commitment to fiscal reforms and access to
external financing.
Improved diversification of
sources of growth and
export resulting from
improved competitiveness
will stimulate job creation and poverty alleviation.
Risks #2: Despite better
global governance
indicators, perceived
corruption said to be high;
and with the expected
increase in the oil sector contribution to GDP, there
is a concern that this may
create further rent-seeking ;
weak implementation
capacity for reforms.
Mitigations: Commitment to anti-corruption initiatives
is high on the agenda by the
government; Donors’
interest and commitment to
support Ghana in
strengthening institutional
capacity, including the
establishment of the
1.3 Debt management improved
Approving at the Ministerial level
the Medium-Term Debt Management Strategy 2014-17
Three-year
Rolling Debt Strategy
developed.
Medium-Term Debt Management
Strategy being fully implemented (2016)
MoF
1.4 Fiscal risk of the payroll on budget
reduced
Auditing the HR and Payroll
systems
Lack of adequate
and reliable Human
Resources (HR)
and payroll data
resulting in
potential ghost
workers.
A reliable HR and Payroll data is
available (2016), cleaning up implemented (2017)
MoF
Integrating Payroll to GIFMIS
financials; GIFMIS HRMIS and
GIFMIS Hyperion, to permit
exercising budgetary control on payroll.
Separate payroll
and GIFMIS
systems in place.
Payroll, GIFMIS financials;
GIFMIS HRMIS and GIFMIS
Hyperion are integrated (2016)
MoF
Viable public agencies removed
from government payroll
12 public
agencies identified
6 public agencies removed from
government payroll (2016), 12 in (2017)
MoF
Component II: Deepening the PFM Reforms
2.1 Strategic anchor for PFM reforms
strengthened
Approval of the PFMRS by
Cabinet.
Comprehensive
PFM reforms
constrained by
lack of Public Financial
Management
Reform Strategy
(PFMRS).
PFMRS being implemented (2016) MoF
2.2 Budget Credibility enhanced Strengthening the Medium Term
Fiscal Framework and Revenue
Forecasting models
Elements of
MTFF and
Revenue
Forecasting are in
place
MTFF and Revenue Forecasting
models are progressively applied
(2016, 2017)
MoF
Introducing control at
commitment level by
implementing the Procure-to-Pay
module of the GIFMIS
Procure-to-Pay
module of the
GIFMIS being
tested
All procurement uses Procure-to-
Pay module of the GIFMIS as a
control mechanism at commitment
level (2016)
MoF
2.3 Value for Money through improved
procurement system
Approval of the draft
Procurement Regulation by
Cabinet and submission to
Parliament
Lack of clear
laydown
procedures for
contract
The draft Procurement Regulation
by Cabinet and submission to
Parliament (2016)
MoF
vii
Producing and disseminating a
contract management manual
management A contract management manual is
produced, disseminated (2016) and enforced (2017)
National Anti-Corruption
Action Plan, and continued dialogue is high.
Risks #3: Implementation
capacity of reforms may be
low, particularly given the
upcoming increased oil
production. Increased fiduciary risk as revenue
collection from oil
increases; while expenditure
control remains weak and a
further accumulation of
arrears may result.
Mitigations: Support to capacity building activities
and PFM related
institutions through the
Bank’s GISP is being
deployed; For the fiduciary
risk, credible budget
reforms and arrears
clearance are being implemented. The GISP
also strengthens the
capacity of the audit which
will itself mitigate the
fiduciary risk within a
medium term timeframe.
Moreover, GISP provides support to the strength
Parliament oversight of the
budget through the
establishment of a budget
office
2.3 Budget Transparency and
Accountability improved
Publishing annual financial
statements generated from GIFMIS within the statutory
deadline
Annual financial
statements generated from
GIFMIS available
but not published
Annual financial statements
generated from GIFMIS published within the statutory deadline
(2016)
MoF
III. Enhancing Efficiency and Competitiveness of Private Sector
3.1 Efficiency and viability of the power
sector enhanced
Clearing the outstanding cross-
debt between the Power SOEs and the GOG
Outstanding
cross-debt between the
Power SOEs and
the GOG being
audited
Outstanding cross-debt between
the Power SOEs and the GOG payment plan implemented (2016),
cross-debt cleared (2017)
Bank of
Ghana (BoG) and MoP
Implementing a prioritized Cash
Water Fall arrangement for
electricity revenue sharing among
power sector SOEs
Current
electricity
revenue sharing
formula among
power sector
SOEs is
inadequate
A prioritized Cash Water Fall
arrangement for electricity revenue
sharing among power sector SOEs
is implemented (2016)
Ministry of
Power (MoP)
MoP
3.2 SME access to long-term finance,
including women-owned SMEs improved
Listing at least 5 SME on the
Alternative Stock Exchange
(GAX)
Alternative Stock
Exchange for
SMEs established and 3 SME listed
through the Bank
ISP.
A total of 10 SME on the
Alternative Stock Exchange are
listed on the GAX (2016), 15 in 2017
ISP
supervision
reports
Funding : ADF Loan = UA 75 million or 98.4 million USD (UA 40 million in 2015and UA 35 million in 2016); Other donors about 500 million USD
1
REPORT AND RECOMMENDATION OF THE MANAGEMENT TO THE BOARD OF DIRECTORS ON
A PROPOSED LOAN TO THE REPUBLIC OF GHANA FOR THE PUBLIC FINANCIAL
MANAGEMENT AND PRIVATE SECTOR COMPETITIVENESS SUPPORT PROGRAMME PHASE I
(PFMPSCSP)
I INTRODUCTION: THE PROPOSAL
1.1 Management submits the following Report and Recommendation for an ADF loan of UA 40 million
(equivalent to about US$ 56.2 million) to the Republic of Ghana to finance the Public Financial
Management and Private Sector Competiveness Support Programme Phase I(PFMPSCSP). This is the first
of two consecutive operations in a programmatic series of General Budget Support (GBS) over the period 2015-
2016 for a total indicative financing package of UA 75 million. The operation responds to the request from the
Government of Ghana (GOG) submitted to the Bank in July 2014. The objectives of the operation are two-fold:
to contribute to (i) strengthening fiscal consolidation and PFM reforms, and (ii) enhancing private sector-led
competitiveness through improved access to electricity and SMEs’ access to finance. In view of Ghana’s
deteriorating fiscal situation since 2012, a GBS is justified since it will create the fiscal space needed by the
Government to implement fiscal consolidation in order to restore macroeconomic stability. A GBS will also
provide a buffer of financial flows during the reforms period, in the face of recent revenue decline occasioned
by falling commodity and oil prices. This will contribute to facilitating smooth implementation of the
government budget. The operation will support GOG’s medium-term reform program as set out in the Letter of
Development Policy (Annex I). Program implementation will be supported by an ongoing Bank Institutional
Support Project which focusses on building institutional capacity for enhanced Public Financial Management
(PFM) and private sector competitiveness.
1.2 The operation responds to the need for Ghana to build a strong foundation for inclusive and self-reliant
economic growth. It is aligned with the country’s Medium Term National Development Policy Framework, the
“Ghana Shared Growth and Development Agenda” (GSGDA) II, 2014 - 2017. The operation is built around
three inter-related components: (i) Strengthening fiscal consolidation; (ii) Deepening PFM reforms; and (iii)
Enhancing efficiency and competitiveness of the private sector. PFM reforms will strengthen fiscal
consolidation in the medium to long term, while all three components will support enhancing the enabling
environment for efficiency and competitiveness of the private sector. The proposed operation will build on the
achievements of previous Bank Budget Support operations in Ghana in the areas of PFM and business enabling
environment. It will complement the IMF Extended Credit Facility (ECF) for Ghana of SDR664.20 million (or
about US$916 million) approved in April 2015 and the World Bank’s programmatic Development Policy Credit
(DPC) of US$450 million for 2015-2017, approved in June 2015.
II COUNTRY CONTEXT
2.1 Political Developments and Governance Context
2.1.1 Ghana’s evolving dispensation of free political expression, civil liberties and press freedom present the
country as an excellent example of relatively successful good political governance in West Africa. The
December 2012 Presidential election was won by the National Democratic Congress (NDC) – led by President
John Dramani Mahama by a very narrow margin. The peaceful adjudication, by the Supreme Court, of the
challenge to the election results by the opposition – the New Patriotic Party (NPP) - and the eventual acceptance
by both political parties of the Court ruling, has further consolidated Ghana’s democracy. The next
parliamentary and presidential elections are due in late 2016, and past trends augur well for another successful
poll that would further consolidate Ghana’s democratic credentials.
2.1.2 Ghana is highly rated in governance indicators. The CPIA score improved from 4.03 in 2010 to 4.19 in
2012, but declined to 3.99 in 2014 on account of the deteriorating macroeconomic situation. The 2014 Mo
Ibrahim Governance Index ranked Ghana 7th
out of 52 countries, with an overall score of 67.3 out of 100, a
2
slight improvement of 0.3 points over the past five years. Government is implementing measures to improve
transparency and public/stakeholder participation in decision making. The Ghana Integrated Financial
Management Information System (GIFMIS) is facilitating publishing financial accounting reports in a timely
manner, thus enhancing transparency in the budget execution process. As a resource-rich country, Ghana was
declared compliant with the Extractive Industries Transparency Initiative (EITI) in 2010 and has regularly been
publishing the required reports, overseen by a multi-stakeholder group made up of representatives of civil
society, private firms and government. Ghana has exceeded the minimum EITI requirements by providing
information to citizen groups on transfer of mineral royalty revenues to mining districts and their utilization,
thus further enhancing transparency.
2.1.3 However, these achievements notwithstanding, a number of governance challenges still remain to be
urgently addressed, including a growing perception of corruption. Although corruption is relatively low in
Ghana compared to many other African countries, there is a growing perception that corruption in the public
sector is on the rise, especially in locally funded contracts. There have been some high profile cases being
adjudicated, including the suspension in October 2015 of high court judges on allegations of bribery. Other
cases are either under review by a commission of enquiry, or are in the process of being investigated. It should
be noted, however, that actual indices of corruption contradict this perception. For example, Ghana’s score on
the Transparency International Corruption Perception Index has been improving over the past three years from
45 to 46 and 48 out of 100 in 2012, 2013 and 2014 respectively. Ghana’s ranking also improved, albeit very
slightly, from 63 in 2013 out of 177 countries to 61 in 2014 out of 175 countries. Government has started taking
actions to combat contract-related corruption practices, including the amendment of the Public Procurement Act
2003 (Act 663), the ongoing revision of the 2007 Procurement Regulations, and the preparation of a Contract
Management Manual to address weaknesses in the public procurement process. In terms of fragility lens
analysis, fiscal risk has become a major concern and government has set in motion, a fiscal consolidation plan
aimed at lowering the budget deficit and restoring macroeconomic stability. The declining international
commodity and oil prices further complicates the fiscal risk. Ahead of the 2016 elections, the expectation of
another close election may raise tensions, but a strong democratic track record and respect for rule of law are
expected to prevail.
2.2 Recent Economic Developments, Macroeconomic and Fiscal Analysis
2.2.1 Ghana experienced robust growth
with an average annual real GDP growth
rate of about 6.0% over a period of five
years up to 2010. Growth accelerated to
14.0% in 2011 on account of initial impact
of oil production at commercial level and
strong consumption. Growth declined to
8% in 2012 and further to 7.3% in 2013
due to lower oil production level2. In 2014
growth was 4.0% and in 2015 estimated at
3.5% (see Table 1), owing to challenges
facing the productive sector pertaining to
power shortages and depreciation of the currency, slowdown in performance of the mining, construction and
transport sectors, and the declining prices of primary commodities (oil, gold and cocoa) on the world markets.
In 2015, the economic downturn is estimated to represent a loss of about 25% of per capita income for
Ghanaians from the 2013 level.
2 In 2013 and 2014 oil production was lower than projected due to the delays in the finalization of the Gas processing facility which affected the
integrity of the oil well.
2012 2013 2014 2015 2016 2017
Estimations
Real GDP growth rate 8.0 7.3 4.0 3.5 5.7 9.4
Real GDP growth rate (non-oil) 7.3 6.7 4.0 2.3 4.7 5.5
Consumer price index (end of period) 8.1 13.5 17.0 12.0 8.0 7.6
Termes of trade 2.9 -6.9 -6.3 9.7 -0.7 -4.1
Banks' lending rate 25.7 25.6 29.0 … … …
Gvnt gross capital formation 6.1 4.9 5.7 4.7 5.3 4.9
Current account balance -11.7 -11.9 -9.6 -8.3 -7.2 -5.5
Taxes 15.4 14.2 15.8 16.4 17.3 17.6
Wage bill 12.0 11.0 9.7 9.5 8.7 8.0
Debt interest 3.2 4.7 6.2 7.2 5.9 5.2
Public debt 49.1 56.2 69.0 72.8 70.5 66.3
Fiscal balance (including grants) -11.6 -10.5 -10.2 -7.3 -5.8 -3.7
GDP per capita (amount in U.S. dollars) 1,683.0 1,870.0 1,473.0 1,401.0 1,534.0 1,659.0
Source: IMF –Extended Credit Facility, April 2015. NB* The Wage Bill includes all compensations of employees:
Wages and salaries, deferred wage payments, and social contributions.
Table 1 - Ghana: Key Macroeconomic Indicators, 2012-2017
Projections
(Annual percentage change)
(Percent of GDP, unless otherwise indicated)
3
2.2.2 Ghana is faced with twin-double-digit fiscal and current account deficits, double-digit inflation, rising
debt level, and low foreign reserves buffer compounded by falling commodity and oil prices. This has
resulted in macroeconomic instability. Fiscal deficit was over 10% in 2012 and 2013, owing largely to
increased wage bill and interest payment, and rose slightly to 10.2% in 2014, in spite of measures to control
expenditure and raise revenue. The current account deficit stood at 11.7% of GDP in 2012 and 2013, and
remained high at an estimated at 9.2 % in 2014, reflecting continued shortfalls in export earnings. As a
consequence, gross international reserves hovered around 3 months of import cover over the past three years.
With public debt (external and internal) stock reaching over 69% of GDP (end-2014) Ghana is facing a high
risk of debt distress. With debt-service consuming 40% of tax revenues debt burden has become the second
most important fiscal risk after the wage bill. The October 2015 issuance of a Eurobond, supported by a World
Bank’s Policy-Based Guarantee (PBG) of up to US$400 million, generated proceeds of US$1.0 billion3. While
raising the external debt level, the recent issuances of Eurobonds helped to temporarily protect the local
currency from further depreciation. Furthermore, high government domestic borrowing is raising the cost of
credit and crowding out finance to the private sector, especially small and medium enterprises (SMEs).
Concurrently, double-digit inflation persists, rising to 13.5% and 17.0% in 2013 and 2014 respectively, up from
8.1% in 2012. The rise in inflation reflected the sharp depreciation of the Cedi as well as the pass through
effects of fuel and utility price adjustments that occurred in 2013 and 2014. The Cedi depreciated by 33%
between January and December 2014, and has been extremely volatile during 2015. Financial inflows from
development partners, including the IMF and the World Bank combined with favorable IMF reviews, have
supported significant rebounds in the currency. However, the cedi has fallen again by 18% by end September
2015, from its level in January 2015.
2.2.3 The Mid-Year Review of the 2015 Budget, approved by Parliament in July 2015, revised the
macroeconomic objectives underpinning the 2015-2017 medium term framework as follows: (i) an average
real GDP (including oil) growth rate of about 6.4%, with growth increasing from a projected 3.5% in 2015 to
9.2% in 2017; (ii) an average non-oil real GDP growth rate of about 4.2%, with an acceleration from 2.3% in
2015 to 5.5% in 2017; (iii) an end-year inflation of 13.7%; (iv) fiscal deficit narrowing from 7.3% of GDP in
2015 to 3.5% (on cash basis) by 2017; (iv) current account deficit shrinking from 7.3% of GDP in 2015 to 4.9%
in 2017 and (v) gross international reserves of at least 3 months of import cover in 2015 and 4 months by 2017.
The bold and frontloaded fiscal adjustment, expected to halve the fiscal deficit by 2017, is on track, with the
latest data at July 2015 showing a budget deficit of 3.1% of GDP, against a target of 4%. This would further
free fiscal space, and contribute to macroeconomic stability and inclusive growth. Targeted social safety nets
such as the cash transfer program and Livelihood Empowerment Against Poverty (LEAP), benefiting the
poorest households, are expected to double in coverage to 150,000 households during 2015.
2.2.4 In the medium-term, key drivers of growth will continue to be commodity exports, construction and
service-oriented activities. The expected gas production in 2015 and increase in oil production to around
200,000 barrels per day from 2016 would substantially raise GDP and stimulate growth of other sectors if the
oil price recovers. However, sustainability of medium term growth prospects could be compromised by
unpredictable exogenous factors such as deterioration in terms of trade, steady decline in commodity prices,
rising public external debt, and the Ebola epidemic in some parts of the West Africa. Dependence on primary
exports (gold, cocoa, oil, and gas), will make the Ghanaian economy increasingly vulnerable to changes in
commodity prices. The dynamics of debt could also have adverse impact on future growth. The August 2015
Debt Sustainability Analysis (DSA)4 undertaken in the context of the First Review of the IMF-ECF showed that
Ghana continues to face a high risk of debt distress with debt service-to-revenue ratio5 (currently standing at
3 This was a 15-year Eurobond ofUS$1 billion at a coupon rate of 10.75%.
4 IMF-First Review under the Extended Credit Facility Arrangement- August 2015.
5 The external debt burden threshold for Ghana with to debt service-to-revenue is 22 percent.
4
40%) breaching the policy dependent threshold under the baseline. The DSA also revealed that GOG
increasingly relied on short-term domestic T-bills to finance its fiscal deficit in the first half of 2015. But
additional financing needs would be more difficult to meet since investors’ appetite for domestic and external
loan has been waning. Part of Government’s debt strategy is to issue Eurobonds for a total amount of USD1.5
billion, the debt limit agreed with the IMF, in order to reduce pressures on domestic debt market and lengthen
the average maturity of public debt by buying back short-term and high yield domestic debt. Ebola epidemic is
not expected to impact Ghana’s medium term prospects as the risk of the outbreak has subsided in the region
although it has had some impact on intra-regional trade and budget spending on Ebola preparedness. However,
prudent fiscal and monetary policies being implemented under the IMF-sponsored and the World Bank
programs as well as the proposed operation are expected to mitigate risks to growth as domestic interest rate
abates, exchange rate becomes stable and investors’ confidence is restored.
2.3 Competitiveness of the Economy
2.3.1 Ghana is among the five-top ranked African countries in terms of Ease of Doing Business (DB). The
2015 World Bank DB report ranked Ghana 70 out of 189 countries coming behind Mauritius (28), South Africa
(43), Rwanda (46), and Tunisia (60). Ghana also ranked among the top 50 countries in the area of getting credit
(36) and registering property (43), but is lagging behind on indicators relating to resolving insolvency (161),
trading across borders (120), dealing with construction permits (106), paying taxes (101), starting business (96),
and getting electricity (71). Even in the area of getting credit in which Ghana is highly ranked, the exorbitant
cost of credit undermines the country’s competitive position. High bank lending interest rate of about 29%, one
of the highest in Africa, makes credit unaffordable to SMEs and is also a major source of the rising government
domestic debt service. Limited information on potential borrowers is also associated with the prevailing high
lending interest rate since coverage of the three existing private reference bureaux is as low as 10.4% of the
adult population.
2.3.2 Ghana’s ranking has deteriorated from 111th
in 2014 to 119th
in 2015 on the Global Competitiveness
Index (GCI) out of 144 countries. The country’s ranking is weaker in 2015 by 16 positions down from 103rd
in
2012, owing largely to deterioration in macroeconomic environment (136th
). Ghana’s strength is in the areas of
judicial independence (49th
place), wastefulness of government spending (49th
place), efficiency of legal
framework in settling disputes (43rd
place), legal rights (24th
place), women in labor force (10th
place), quality
of management of schools (48th
place), and company spending on R&D (44th
place). These gains
notwithstanding, education levels and technological readiness continue to lag behind international standards and
the labour market is characterized by inefficiencies related to adequate determination of cost of work and wage.
The Association of Ghanaian Industries (AGI) in its monthly reports, often cite access to affordable credit and
to reliable electricity supply among the key challenges adversely affecting competitiveness of the Ghanaian
economy. The economy remains undiversified, relying heavily on primary commodities, namely cocoa, gold
and oil which accounted for 75% of export receipts in 2014.
2.4 Inclusive Growth, Poverty and Social Context
2.4.1 Ghana has made great strides towards reducing poverty over the past two decades. The overall poverty
rate declined from 31.9% in 2005/06 to 24.2% in 2012/13, while the extreme poverty rate declined from 16.5%
to 8.4%. However, there are geographical disparities with the three northern regions having the highest
incidence of poverty and 80% of the poor. The 2014 Human Development Index (HDI) for Ghana has also
shown a gradual rise from 0.427 in 1990 to 0.573 in 2013, bolstered by increased per capita income.
Nonetheless, income inequality has widened, with Gini Coefficient rising from 0.353 in 1992 to an average of
0.438 during 2000-2010, thus undermining the impact of economic growth on poverty reduction. In terms of the
MDGs, current assessment shows that performance remains mixed. By 2013, extreme and overall poverty have
both been reduced to more than half of their 1992 levels. The target for the HIV/AIDS component of
HIV/AIDS, malaria and other diseases goal had also been attained by 2013. Current trends indicate that by end-
5
2015, Ghana would have attained the goals for Universal Primary education, under-5 mortality, and the safe
water supply component of the environmental sustainability goal. However, Ghana may not be able to attain the
goal for maternal mortality, the target for sanitation under the environmental sustainability goal, the goal for
global partnerships, and the targets for other education levels by 2015. To promote inclusive growth, the
government has instituted social protection programs to improve the health and capacity of the vulnerable
segments in society. Some of the key social protection programs are the National health Insurance Scheme, the
Livelihood Empowerment Against Poverty (LEAP) which provides cash grants to individuals in poorest
households, National Youth Employment program, School Feeding Program, capitation grants, free exercise
books and school uniforms, the abolition of mandatory school fees for basic education, and reduced electricity
tariffs for initial consumption amounts. As indicated in the 2015 Budget document, GOG is rationalizing and
improving target mechanisms of these programs to enhance their effectiveness.
2.4.2 Ghana has an appropriate institutional arrangement through the Ministry of Gender, Children and
Social Protection, to promote gender equality through mainstreaming gender considerations (see Technical
Annex III). The Ministry has finalized the Affirmative Action Bill and validation is on-going. The Ministry
also co-sponsored the Interstate Succession and Property Rights of Spouses Bills with the Ministry of Justice
and the Attorney-General. In addition, the Ministry will engage in Women’s Rights and Empowerment
operations by conducting advocacy and sensitization programs on the need for including women at all levels of
decision making using the Affirmative Action Legislation. GOG is committed to promoting women
empowerment especially through access to land, labor, credit, markets, business services and education, as well
as institutionalizing gender statistics production. Progress is noted in a number of indicators: gender parity in
education stands at 0.90 and 0.86 in primary and secondary schools respectively; women account for 52% of
the labor force; and are more engaged in service and agriculture related activities at 47% and 41% respectively.
During 2015, the Ministry will support about 80 women groups engaged in processing of handcraft and
agricultural products with technical and microcredit facility to enhance their empowerment and extend medical
and financial support to women and girls suffering from obstetric fistula. In the area of broad national
participation, gender parity in politics is rather low, as representation in Parliament stands at only 8.7%.
III GOVERNMENT DEVELOPMENT PROGRAM
3.1 Government Overall Development Strategy and Medium-term Reform Priorities
3.1.1 GOG has recently formulated a medium-term development framework, the Ghana Shared Growth and
Development Agenda (GSGDA) - II, 2014 – 2017, whose medium-term vision is “A stable, united, inclusive
and prosperous country with opportunities for all”. Through implementation of the development agenda,
Ghana hopes to transform into a full-fledged Middle Income Country with per capita income of around
US$2,500 by 2017, and at least US$3,000 by 2020. The success of Ghana’s structural transformation rests on
three strategic interventions namely: (i) strengthening and deepening the essential elements and institutions of
good governance, (ii) promoting export-led growth through products that build on Ghana’s comparative
strength in agricultural raw materials; and (iii) anchoring industrial development on prudent use of natural
resources based on local value addition. Thus, the strategic direction of GSGDA-II is to leverage Ghana’s
natural resource endowments and enhance agricultural potential and human resources for accelerated economic
growth and job creation.
3.1.2 The GSGDA-II, priority policies are anchored on four pillars namely: (1) building a strong and resilient
economy; (2) investing in people; (3) expanding infrastructure; and (4) maintaining transparent and accountable
governance. In conjunction with these strategic pillars, interventions are structured around seven thematic areas
namely, (i) Human Development, Productivity and Employment; (ii) Ensuring and Sustaining Macroeconomic
Stability; (iii) Enhancing Competitiveness of Ghana’s Private Sector; (iv) Accelerated Agricultural
Modernization and Sustainable Natural Resource Management; (v) Infrastructure and Human Settlements
Development; (vi) Oil and Gas Development; and (vii) Transparent and Accountable Governance. It is within
6
these contexts that Ghana aims to enhance employment and income opportunities for rapid and sustained
economic growth and poverty reduction.
3.1.3 Overall, the strategic thrust of the GSGDA is relevant and credible, and is capable of transforming
Ghana into a middle-income country if well implemented. The development agenda addresses the causes of
poverty by emphasizing inclusive growth underpinned by Ghana’s natural resource endowments and local value
addition. The focus on fiscal consolidation in the short to medium term will promote macroeconomic stability
as a solid foundation for long term inclusive economic growth.
3.2 Challenges to National Development Program
3.2.1 Structural problems of the economy have been compounded by recent macroeconomic challenges.
Ghana’s economy relies mainly on primary commodities notably cocoa, oil and gold that contributed 75% of
export receipts in 2014. The country has recently been characterized by rising debt levels that have pushed the
economy into high risk of debt distress. Internal and external imbalances characterized by twin and double digit
budget and current account deficits, combined with rising debt levels, pose significant challenges to
macroeconomic management and erode market confidence for securing financing for public and private sector
investments.
3.2.2 The continued power rationing and supply inefficiencies could further reverse achievements already
attained in economic growth and foreign direct investment inflows. Ghana continues to face energy crisis
which has intensified over the last 3 years, with frequent power rationing that has negatively affected business
and led to increased cost of production, loss of employment and the closure of some SME operations. Although
Ghana has a national electrification rate of more than 70%, ranking second after South Africa; increase (over
10% per annum) in industrial demand for power and challenges to power generation (as 47% of power
generation is through thermal plants) calls for accelerated investment in the energy sector, as well as access to
affordable supply inputs, such as natural gas. Another challenge is transport infrastructure (including ports)
which is poor in many parts of the country, especially in the northern region, the main grain basket areas.
Disparities in social development across regions also pose challenges for attainment of inclusive growth. The
northern regions lag behind in most of the social indicators, especially in health and education.
3.2.3 Private sector development is hampered amongst other factors,6 by the high cost of credit which affects
its competitiveness. Ghana has one of the highest interest rate spreads in Africa of over 20%, with bank lending
interest rate reaching as much as 29% in 2014. This situation prevails despite Ghana’s financial sector being
regarded as well-developed and competitive with 27 commercial banks (14 being foreign affiliates) that enjoy
robust financial profitability and capitalization. The high cost of credit is partially attributed to government’s
excessive borrowing from commercial banks leading to crowding out of private sector investment. The focus on
fiscal consolidation will help to curtail government short-term domestic borrowing. In addition, the government
will put concerted effort to addressing critical challenges including: changing the structure of the economy,
increasing power generation capacity, creating the capacity and traction to implement structural reforms and
judicious implementation of the Medium-Term Debt Management Strategy.
3.3 Consultation and Participation Processes
3.3.1 The GSGDA-II was prepared through a participatory process, involving public and private sector
agencies, civil society groups, and Local Government agencies, using the mechanism of Cross Sectoral
Planning Groups (CSPGs). Section 15 of the National Development Planning Commission Act 1994, Act 479,
enjoins the Commission to establish CSPGs for the preparation of development policies, strategies and plans. In
compliance with the Act, the National Development Planning Commission (NDPC) established CSPGs,
6 These include interrelated factors such as inappropriate policies, institutional capacity and infrastructure deficits with respect to access to power,
transport, and ICT.
7
consisting of public sector, private sector, civil society, academia, the media, identifiable stakeholders, and
individual experts for the thematic areas of the policy framework.
IV BANK SUPPORT TO GOVERNMENT STRATEGY
4.1 Link with Bank Strategy
4.1.1 The PFMPSCSP is linked to the two strategic pillars of the CSP. The emphasis of the programme on
improved access to electricity is aligned to the infrastructure pillar, while the focus on PFM is aligned to the
governance and accountability pillar. The program is also linked to pillars (ii), (iii) and (iv) of the
government medium-term development agenda, the GSGDA II, relating to macroeconomic stability,
transparent and accountable governance, and competitiveness of the private sector.
4.1.2 In addition, the operation is closely aligned to the operational priorities of the Bank’s Ten-Year
Strategy (TYS), 2013-
2022; two of the new
Bank’s High-5
institutional priorities
(Industrialize Africa
and Power Africa);
and the three pillars
of the Governance
Strategic Framework
and Action Plan,
2014-2018 (GAP II). For the TYS, the alignment of the operation is with two priority areas namely governance and accountability
(the fiscal consolidation and the PFM components of the operation), and private sector development (the
component on enhancing the efficiency and competitiveness of the private sector through access to electricity
and credit). For GAP II, the operation is linked to the strategic pillars on public sector and economic
management, sector governance (energy) and Investment and business climate. Finally, PFMPSCSP is also
consistent with the Bank’s Private Sector Development Strategy, 2013-2017 (pillar on investment and business
climate). Table 2 (above) presents the strategic objectives and priorities of the GSGDA, CSP7 and PFMPSCSP.
4.2 Meeting the Eligibility Criteria
4.2.1 The PFMPSCSP meets the Bank Group’s Programme Based Operations (PBO) eligibility criteria namely,
government commitment to poverty reduction and, inclusive growth, transition to green growth, macroeconomic
stability, satisfactory fiduciary risk assessment, political stability and harmonization. The GSGDA II and the
Ghana’s Private Sector Development Strategy (PSDS II) provide the foundations for Ghana’s medium term growth,
poverty reduction and development agenda. Both are well designed in consultation with DPs and other stakeholders
with clearly laid out implementation mechanisms. GOG’s medium-term macroeconomic and financial framework is
viable but high budget deficits pose a fiscal risk as indicated in paragraph 2.2.2. However, the government’s fiscal
consolidation effort and the stable political environment would help to mitigate this risk. With the preparation of the
PFM Reform Strategy, a strong foundation is also being laid for comprehensive PFM reforms. The Bank’s operation
has been closely coordinated with that of the World Bank and consultations were held with the IMF and bilateral
development partners during the appraisal mission. A detailed description of how Ghana meets the eligibility criteria
is provided in Annex IV.
7 To better reflect the operational priorities of the Bank Group TYS the initial two pillars of the 2012 CSP (i) improving productivity in Ghanaian enterprises and, (ii)
supporting economic and structural reforms aimed at improving the business environment have been re-phrased to read (i) Support for Infrastructure Development and
(ii) Support for Improved Governance and Accountability.
GSGDA II: 2014-2017 CSP: 2012-2016 PFMPSCSP: 2015 and 2016
Goal: To build a strong foundation for inclusive
and self-reliant economic growth.
Operational Policy Objective: To support the
Government’s development and poverty
reduction agenda.
GSGDA II Strategic Pillars:(i) Putting people
first; (ii) A strong and resilient economy; (iii)
Expanding infrastructure; and (iv) Transparent
and accountable governance.
The CSP Strategic Pillars: (i) support for
infrastructure development; and (ii) support for
improved governance and accountability.
The PFMPSCSP Components: (i)
Strengthening fiscal consolidation; (ii) Deepening
PFM reforms; and (iii) Enhancing efficiency and
competitiveness of the private sector (emphasis
on energy and access to credit by SMEs).
Table 2: Link between the GSGDA II, MTR-CSP and the PFMPSCSP
Strategic Objective: Leveraging Ghana’s
natural resource, agricultural and the human
endowments for accelerated economic growth
and job creation.
Strategic Objective: To promote inclusive
growth that generates economic opportunities
8
4.3 Collaboration and Coordination with other Partners
4.3.1 General budget support operations in Ghana were supported up until 2012 by ten multi-donor budget
support (MDBS) partners8. The MDBS was a strong policy dialogue forum, based on a common Performance
Assessment Framework (PAF) as the harmonization mechanism. The PAF often included benchmarks and
indicators monitored annually and assessed collectively. The MDBS platform was a robust forum comprising
various stakeholders: Government, Development Partners, NGOs and CSOs, and had over 15 Sector Working
Groups (SWGs). The Ghana Field Office (GHFO) led the Heads of Cooperation (HoC) group in 2013, Co-
Chaired the MDBS in 2014, and has also chaired a number of SWGs.
4.3.2 However, this robust MDBS platform has not properly functioned over the past two years owing
to failure to agree on a joint PAF and the deterioration of the underlying principles on macroeconomic
stability. As a result, the envisaged 2014 PAF, expected to underpin 2014 disbursements and 2015 pledges, was
not finalized. This development, combined with the deteriorating macroeconomic situation and protracted
negotiations with the IMF, resulted in all budget support DPs rolling over their programmed disbursements for
2014 to 2015.In effect, the traditional mechanism of harmonized disbursements by DPs against a common PAF
jointly assessed by the MDBS group broke down, and disbursements became subject to individual DP’s
decision. At the same time, however, all MDBS partners continue to put enormous emphasis on the importance
of Ghana’s commitment to the Partnership Principle. Assessments against these Principles is still required for
non-budget support financial assistance to the country. DPs, therefore, agreed that, in the absence of MDBS,
policy dialogue around Macroeconomic Stability and PFM in Sector Working Groups (SWGs) should provide
the broad platform for policy dialogue between GOG and DPs on the implementation of Ghana’s reform and
development agenda.
4.3.3 In addition to the Bank’s ongoing Ghana Institutional Support Project (GISP), the implementation of the
proposed PFMPSCSP will be supported by other ongoing Technical Assistance operations and ISPs on fiscal
consolidation and PFM reforms funded by IMF, World Bank, EU, Switzerland, and Germany; on Energy by
World Bank, EU, Germany, and France; and on access to credit by Germany, France, Switzerland, EU, and
World Bank (see Annex II-B).
4.4 Relationship with Other Bank Operations
4.4.1 The Bank Group portfolio in Ghana as at end October 2015 is composed of 19 operations (13 public
sector operations for UA 482.1 million and 6 private sector operations for UA 54.0 million), representing an
overall commitment of UA 536.1 million. Transport sector accounted for the largest share of the portfolio
(30%), followed by agriculture and rural development (19%), energy (17%), social services (13%), private
sector finance (10%), water and sanitation (9%) and multi-sector (2%). In accordance with the Bank Group’s
strategic orientation, the portfolio is skewed towards infrastructure (i.e. roads, energy and water sectors) at 56%
of total commitments. The performance of the portfolio is rated as satisfactory, with an overall rating of 2.3 (on
a scale from 0 to 3). The portfolio has one Problem Project (PP) - Rural Enterprises Project. The overall
disbursement ratio as at end October 2015 stood at 50.4%.
8 The African Development Bank, EU, DFID, DANIDA, CIDA, JICA, France, Germany, Switzerland, and the World Bank,
9
4.4.2 The PFMPSCSP has strong links with ongoing Bank operations in Ghana. It will build on the
achievements of the 2012 Poverty Reduction and Business Environment Support Loan (PRBESL) by further
contributing to the strengthening of PFM and the business environment. The on-going GISP9 will lend an
appropriate framework for the implementation of the proposed operation. Fiscal consolidation policy measures
will be complemented by ongoing ISP related activities on domestic resource mobilization and integrity of
public resource
management. Similarly,
ISP activities aimed at
building capacity for the
private sector and
competitiveness will
create synergies with
competitiveness reforms
to be implemented in the
proposed operation. The
PFMPSCSP will also
facilitate availability of
fiscal space in the
budget for road
maintenance that would
benefit Bank Group
transport projects. The on-going multinational infrastructure projects will complement the proposed program as
they will also contribute to improving competitiveness. Completion reports of past GBS (PRSL I-III, and
PRBESP) have rated the overall performance of these operations as satisfactory (Annex V). The key lessons
learnt from past operations and how they are incorporated into the design of this operation are presented in
Table 3 (above).
4.5 Analytical Works Underpinning
4.5.1 The design of the PFMPSCSP benefitted from a number of analytical works and country reports
prepared by the Bank, other partners and the Government, including the Studies on Oil and Gas Downstream
Activities in Ghana focussing on value addition; and the study on Improving Linkages between Vocational and
Technical Institutes and Community Development produced by the Bank. Other documents consulted include
Bank’s Project Completion and Supervision Reports, 2013 PEFA, IMF reports, MDBS reports and minutes, as
well as GOG’s budget documents and reports. Major findings and conclusions emanating from these analytical
works and reports include the followings: (i) Ghana has achieved a strong growth momentum and has made
great strides in reducing poverty but has also been confronted with significant macroeconomic risks related to a
weak fiscal position and the dependence on exports of three commodities (cocoa, gold and oil); (ii) there is need
to pursue further reforms to strengthen PFM Systems and achieve fiscal consolidation; (iii) more effort is
needed to enhance economic competitiveness and promote diversification through improvements in the business
environment (in particular for SMEs); and (iv) downstream investments in the Oil and Gas Sector are necessary
in order to enhance value addition, employment generation, and inclusive growth.
9 The GISP was approved in September 2012 and effective in July 2013. Delays in effectiveness and in recruitment of the Project Manager and
Procurement, M&E, and Accountant Officers have resulted in slow disbursement. As of Mid-October 2015, the disbursement rate is 11.5%. But
since July 2015 the Project Team is implementing a fast track Procurement Plan that will bring cumulative commitment and disbursement to 60%
and 50%, respectively by December, 2015. The GISP closing date is April 2017.
Lessons Learned Actions taken to integrate lessons into the PAR
The need to ensure predictability of donor funds to smoothen resource
flow for government development planning.
The proposed budget support loan of UA 75 million designed as a two-
series programmatic operation of UA 40 million in 2015 and UA 35
million in 2016 will contribute to predictability of funds during the period
2015-2016.
Importance of credible and realistic prior actions/triggers to facilitate
smooth program implementation.
The selection of prior actions and triggers has been done in close
collaboration with GOG; and consultations have been undertaken with
DPs.
Need for effective forum for policy dialogue and program coordination Although the MDBS platform in Ghana is not functioning as expected, this
operation has been coordinated with the World Bank and discussed with
development partners’ resident in Ghana. The GHFO is intensifying
efforts, in consultation with other development partners, to re-establish a
new and effective policy dialogue platform.
Government commitment and capacity to reforms are critical for effective
delivery of reform policy actions.
The recent successful negotiation of a three-year ECF with the IMF after
four rounds of negotiation, the approval by the World Bank of a
Development Policy Credit (DPC) combined with a Policy-Based
Guarantee (June 2015), and the satisfactory outcomes of the First Review
of the IMF-ECF (August 2015) attesting that Fiscal Consolidation is on
track signal GOG’s renewed commitment to undertake critical reforms.
Table 3: Lessons Learned from Previous Bank Operations in Ghana
10
V THE PROPOSED PROGRAMME
5.1 Programme Goal and Purpose
5.1.1 The goal of the proposed operation is to support the implementation of the government medium-term
development agenda aimed at building a strong foundation for inclusive and self-reliant economic growth.
The operational objective is to strengthen fiscal consolidation and PFM reforms in order to restore
macroeconomic stability, and enhance private sector-led competitiveness through improved access to electricity
and SMEs’ access to finance.
5.1.2 The proposed operation will build on the achievements of the Bank’s previous Institutional and
Budget Support Operations in Ghana in the areas of PFM and business enabling environment (see Annex
V). In this context, the Bank has supported GOG’s efforts in reinstating and enforcing budget commitment
controls for all the MDAs; establishing the cash management system; consolidating the revenue agencies (VAT,
IRS, and Customs) under a single umbrella organization, the Ghana Revenue Authority (GRA); improving the
audit functions; as well as in developing the financial sector strategic plan II and the Private Sector
Development Strategy (PSDS II).
5.2 Programme Components
Component 1: Strengthening Fiscal Consolidation
5.2.1 Challenges and Constraints: Large fiscal imbalances in recent years fuelled by revenue shortfall, rising
wage bill, and high interest payments due to rapidly rising public debt have placed macroeconomic stability
at great risk. The high level of fiscal deficit (since 2012) will require sustained fiscal consolidation efforts. Revenue shortfall results from weak revenue forecasting partly due to external shocks and challenges in tax
administration. The tax system is basically sound, but it is undermined by reliance on multiple tax treatments in
the form of exemptions, special regimes and tax holidays (amounting to about 6% of GDP) thus constraining
revenue mobilization. Weak expenditure control results in expenditure overrun and growing domestic arrears.
The 2015 Debt Sustainability Analysis (DSA) shows that the country is facing a high risk of debt distress. With
both domestic and external debt steadily increasing over the past decade, rising interest payments have become
a significant burden on the budget. The rising wage bill has also been a significant source of fiscal risk. Weak
management of Human Resources (HR) and unreliable payroll data, together with negotiating pay rise with
labour after the approval of the annual budget, render the control of the wage bill difficult. Thus, employee
compensation accounted for a significant high 60% of the total non-interest recurrent expenditure and about
12% of GDP in 2014. This situation is unsustainable.
5.2.2 Recent Government Actions: Government has started implementing a number of medium-term
measures to deal with these challenges, and put the economy back on the path of sustainable fiscal
consolidation and macroeconomic stability. Recently introduced revenue enhancement measures include:
imposition of Special Petroleum Tax of 17.5% to bring Ghana’s petroleum taxes more in line with international
practice; a VAT increase from 15% to 17.5%; extending special import levy of 1-2% to 2017; implementing
VAT on fee-based financial services; extension of the National Fiscal Stabilization Levy of 5%, a 5% flat VAT
rate on real estates; and increase in the withholding tax on Director’s remuneration from 8% to 15% after the
expiration of the 10-year tax holiday. Tax exemption regime is also being reviewed starting with increase in the
free-zones corporate tax from 10% during tax holiday period to 25% thereafter. The fiscal impact of the new
revenue measures is estimated at 2% of GDP10
. Revenue efficiency measures introduced also include
modernization of the Ghana Revenue Authority (GRA), deployment of the Total Revenue Integrated Processing
10
This represents some GHc 2,681.46 million, the equivalent of USD 753.58 million.
11
System (TRIPS) to 4 pilot offices, and extension of tax self-assessment beyond the Large Tax Offices (LTOs) to
Medium-Term Offices (MTOs) on a pilot basis.
5.2.3 A number of critical expenditure rationalization measures have also been introduced. These include
continuation of the policy of net freeze on public sector employment (excluding education and health) and none
replacement of departing employees in over-staffed agencies; as well as continuation of the price adjustment
mechanisms for utility tariffs and fuel prices. All Consolidated Funds (CF) payments (66% of the National
Budget) currently go through ex-ante control from requisition to payment on GIFMIS (i.e. procure to pay
system), thus permitting tracking of, and reporting on, CF expenditure arrears. In addition, a comprehensive
Medium-Term Debt Management Strategy (MTDMS) has been developed providing among other things, for
the establishment of a Sinking Fund to manage the orderly redemption of Eurobonds and other debt
instruments, on-lending and escrow arrangements for State-Owned Enterprises (SOEs), and operationalization
of the Ghana Infrastructure Investment Fund (GIIF) into which key infrastructure projects on government
balance sheet, which meet criteria of commercial loans, will be transferred. To reduce the fiscal risk of payroll
and improve payroll integrity, various measures are being implemented under the Payroll data cleaning up plan
including HR and Payroll audits, e-payment input forms to provide ready audit trail and serve as deterrent to
submission of fraudulent forms, the use of verified data, and integration of the payroll into GIFMIS financials,
GIFMIS-HRMIS and GIFMIS Hyperion, to facilitate budgetary control. To further limit the fiscal risk of the
wage bill on the budget, twelve public agencies, which currently receive government subventions through the
national budget (otherwise known as subvented agencies), but which have the capacity to be financially
independent based on their Internally Generated Funds (IGFs), will be removed from government payroll over
the next two years. Three of these agencies (the Energy Commission, the Environmental Protection Agency,
and Driver and Vehicle Licensing Authority) are to be pulled out in 2015 while the remaining nine are being
reviewed. Another significant measure being taken by GOG starting from 2015, is concluding salary-related
negotiations with workers unions, covering a 3-year period on a rolling basis, before submitting the annual
budget to Parliament. This will ensure that salary-related adjustments are contained within the budgetary
framework. It is already a significant development that, for 2015, although the negotiations for the salary
increases were concluded after the approval of the budget by Parliament in November 2014, the resultant salary
adjustments were within the Budget Framework.
5.2.4 Programme Activities: The proposed operation will support structural measures aimed at strengthening
revenue enhancement and expenditure control. The revenue enhancement measures including extending self-
assessment beyond Large Tax Offices (LTOs) to all MTOs by May 2015 (prior action); and deploying Total
Revenue Integrated Processing System (TRIPS) to additional 8 pilot offices in additional to the existing 4 by
December 2015 and its roll-out nationwide to all the 66 tax offices by 2017. These measures will expand the
tax base and improve revenue collection efficiency. Expenditure control measures include extending the
GIFMIS coverage to Internally Generated Funds (IGFs) by December 2015, and to Statutory Funds (SFs) and
donor funds by June 2016 to strengthen commitment controls and monitoring of expenditure arrears. To
enhance debt management and sustainability, the proposed operation will support approval at the Presidential
level, of a new MTDMS which has recently been developed (prior action). Payroll control related measures to
be supported include (i) Payroll Audit by June 2015 (prior action), and HR Audit to clean up the payroll
database, improve the integrity of payroll and reduce the fiscal risk of payroll on the budget; and (ii) integrating
payroll with GIFMIS financials, GIFMIS-HRMIS11
, and GIFMIS Hyperion by 2016, to enable exercising
budgetary control on payroll.
11
Human Resource Management Information System.
12
Component 2: Strengthening PFM Reforms
5.2.5 Challenges and Constraints: Lack of a coherent and comprehensive PFM Reform Strategy (PFMRS)
has been a limiting factor in the GOG PFM reform effort. The 2013 PEFA assessment revealed gaps in terms
of credibility, predictability and control of budget execution. Other gaps identified included lack of
comprehensiveness in financial reporting, and weak cash management system, due to delays in the full roll-out
of the Treasury Single Account (TSA), which results in low predictability of resource flows for efficient service
delivery. There remain significant variations between the original approved budget and the actual outturns at the
aggregate level in respect of primary expenditures, largely due to inefficient commitment control. There are also
weaknesses in forecasting the wage bill (particularly as a result of the implementation of the Single Spine
Salary Policy). Thus, expenditure outturns beyond budget ceilings recorded 35% increase in 2013, resulting in
accrual of expenditure arrears. Stock and monitoring of expenditure payment arrears (PEFA PI-4 indicator) was
ranked D in the 2013 PEFA assessment. The variance in expenditure composition, when assessed on the basis
of the CF expenditure, also revealed significant variations at the level of individual Ministries, Departments,
and Agencies (MDAs).
5.2.6 In the area of procurement, the use of single source and restricted procurement systems12
has been
identified as a key issue, affecting competitiveness and value for money. The 2013 PEFA assessment ranked
indicator PI-19 (ii), relating to competitive procurement methods, “D”. Furthermore, the 2003 Public
Procurement Act has been operational for more than ten years without its enabling Legislative Instrument (The
Regulation). This has resulted in difficulty in obtaining a uniform and effective interpretation of all the
provisions of the Act. Although some clarifications of the Act are currently possible under the procurement
manual developed by PPA, there is a need to finalize the 2007 draft Regulation to clarify gray areas and provide
more details for the effective operationalization of the various sections of the Act. Furthermore, the public
procurement system does not currently have a clearly spelt out contract management document that guides the
effective management of contracts. Procurement practitioners and contract managers depend on contract
management procedures and documents from various jurisdictions leading to misunderstanding and contract
frustration in some instances. The lack of clearly well laid down procedures for contract management
undermines value for money in the procurement process and could promote corrupt practices.
5.2.7 Recent Government Actions: The core of GOG’s PFM reform agenda has centered around the Ghana
Integrated Financial Management Information System (GIFMIS), which has served as a platform for
comprehensive coverage of general government. Emphasis so far has been put into implementing so far on
establishing modules that strengthen financial control and reporting. The key components already installed
under the GIFMIS project include Budgeting, Financial Accounting, Payroll Management, HRMIS (Human
Resources Management Information System), and the Procure-to-Pay (P2P) module which is currently limited
to the Consolidated Fund (CF). Steps are being taken to gradually bring other funds such as Internally
Generated Funds (IGFs), Statutory funds and donor funds into the system. The completion of implementation of
phase 1 of GIFMIS (accounting and reporting) will be followed by the design and implementation of a phase 2
which will seek to widen the coverage of the GIFMIS to include commitment controls and the related aspects of
treasury management. The computerization of the system is being complemented by the strengthening of both
the PFM institutional framework and staff capacity to use the GIFMIS, through various trainings and
institutional support projects. As part of efforts to strengthen the general PFM system, the Public Procurement
Authority (PPA) has undertaken a number of reforms to improve the efficiency of the public procurement
process, notably the development of Public Procurement Module of Excellence Tool (PPME Tool). This tool
has been used since 2012 to assess all MDAs and MMDAs performance/compliance. Furthermore, the 2003
12
The law required that all single source and restricted procurement requests have to be referred to the Public Procurement Authority (PPA) for
decision and have to be justified in accordance with legal requirements, but there is no reliable data to document this (PEFA, 2013).
13
Procurement Act has been revised and submitted to Parliament for approval, and the 2007 draft Regulations will
also be reviewed to take into account emerging issues and amendments to the Act so as to provide a sound legal
basis for public procurement. A Contract Management Manual is being developed with assistance from the
Bank’s ongoing ISP to ensure value for money through enhanced contract management. GOG has also prepared
a PFM Reform Strategy (PFMRS) which will guide future reforms in a coherent and comprehensive manner.
5.2.8 Programme Activities: The proposed operation will support these initiatives by contributing to
strengthening the strategic anchor of PFM reforms, enhancing credibility of the budget, strengthening
procurement and contract management, and improving transparency and accountability in the budget
process. In this context, the proposed operation will support the following policy actions: (i) Presidential level
approval, of the PFMRS to provide a coherent and strategic anchor for PFM reforms (prior action); (ii)
Strengthening medium-term Fiscal Framework and revenue forecasting models by 2016 to improve budget
credibility by enhancing aggregate revenue overturn; (iii) introducing budgetary control at commitment level by
implementing the P2P module of the GIFMIS to improve budget credibility; (iv) Cabinet approval of the Draft
Procurement Regulations and submission to Parliament by 2016 to strengthen the legal basis for the
implementation of the Public Procurement Act; (v) Producing and disseminating a contract management manual
by end-2015 to enhance value for money in contract management ; and (vi) publishing annual financial
statements generated through GIFMIS within the statutory deadline in order to improve transparency and
accountability in the budget execution process.
Component 3: Enhancing Efficiency and Competitiveness of the Private Sector
5.2.9 Challenges and Constraints: Despite recent improvements in Ghana’s business environment, some
weaknesses constraining growth and private sector competitiveness still persist. Key among these is acute
shortage of power, which drives up the cost of doing business, hinders investment, reduces competitiveness, and
negatively impacts healthcare and education. Power shortage is due to inadequate electricity generation,
transmission, and distribution mainly owing to low water levels in hydro power stations, inadequate supply of
gas from the West African Gas Plant, and delayed coming on stream of new thermal power plants. While power
generation capacity stands at about 3000 megawatts (MW) and peak power demand is estimated at 2000 MW,
available capacity13
is limited to between 1400-1800 MW, thus resulting in power rationing and frequent
blackouts. The performance of the power sector SOEs is also constrained by technical problems, system losses,
weak governance and severe cash flow problem. The cash flow problem arises from huge GOG indebtedness
(accumulated payment arrears) to Power Sector SOEs, currently estimated at GHc728.97 million14
, and lack of
an equitable revenue distribution system among these SOEs (generation, transmission and distribution
corporations). This is happening against the backdrop of energy subsidy, uncompetitive electricity tariff, energy
wastage, unmet demand, and unattractiveness of the power sector to private investors. The cross-subsidization
arrangement, whereby commercial and industrial consumers subsidize residential and life line-consumers
results in high cost of electricity for commercial and industrial activities, thus negatively impacting their
competitiveness. It also constrains the emergence of a diversified and inclusive economic system that could
result from a steady creation of vibrant small and medium enterprises (SMEs) essential for employment
generation, particularly among women and the youth.
5.2.10 Another key constraint to growth and economic competitiveness is lack of access to long-term finance
by SMEs, which constitute about 85% of Ghana’s private sector, including women-owned businesses. In spite
of having well-articulated Financial Sector and Private Sector Development Strategies formulated with the
Bank’s assistance under previous Policy Based Operations, high interest rates and high level of Government
13
The Ministry of Energy estimates installed power capacity at about 2,820 megawatts (MW) 14 This estimate by GOG is currently being audited to ascertain the correct amount since the Power SOEs dispute this amount which they think is on
the lower side.
14
borrowing from the domestic market, continue to crowd out credit to the private sector, especially SMEs.
Moreover, SMEs do not have access to long-term capital through the Ghana Stock Exchange (GSE) as they
consider listing on the GSE onerous since it entails having to meet virtually the same listing requirements as
large companies. SMEs also find the floatation costs related to listing to be too high. Thus, many SMEs are
undercapitalized, lack collateral securities and hence continue to rely on costly short-term funds and non-bank
sources for expansion and re-tooling. These challenges need to be addressed: given that the informal sector is
Ghana’s largest employer, providing livelihood for 80% of males and 95% of females, addressing the issue of
SMEs’ access to long-term finance will promote job creation, inclusive growth and women empowerment. The
establishment of the Ghana Alternative Stock Exchange (GAX) with the assistance of the Bank’s ongoing ISP is
helping to address this issue. Ghana’s Private Sector Development Strategy recognizes the important role
played by women entrepreneurs who contribute over 45% of the GDP, but the strategy lacks targeted
operational goals to support the growth of women-owned businesses.
5.2.11 Measures implemented by the Government: GOG is implementing a number of measures to address
the power shortage problem. Three emergency power plants (Power Barges) are expected to arrive in the
country by December 2015 to add about 1,000 MW to electricity supply. Two thermal plants, expected to add
another 330 MW, are under construction. The Bank’s ongoing energy project is also assisting GOG address this
problem. Ghana Power Sector Compact, involving US$ 498.2 million grant, signed by GOG in August 2014
with the Millennium Challenge Corporation under President Obama’s Power Africa Initiative, aims to support
the transformation of Ghana’s electricity sector and stimulate private investment. It is expected to catalyse more
than US$4 billion in private energy investment from America and global energy firms. A key component of the
Compact focuses on reforms of laws and regulations and power sector governance issues necessary to transform
the sector. The Compact also seeks to address the issue of GOG’s indebtedness (accumulated payment arrears)
to the Power sector SOEs. An audit to clarify the exact amount of the debt is ongoing, and once completed,
Government plans to make quarterly payments over the next five years to clear the debt. Meanwhile, GOG has
paid GHc26 million for the first quarter of 2015. To prevent accumulation of further debt, Government directed
MDAs to settle their electricity bills directly from their budgetary allocation15
effective January 1, 2014, and to
install pre-paid meters. In addition, GOG has implemented the automatic adjustment mechanism for electricity
tariff and fuel prices. Several electricity tariff adjustments have been effected since October 1, 2013, with the
latest one during the first quarter of 2015. The Government has also set up a committee of stakeholders in the
power sector, to work on an equitable revenue distribution arrangement among power sector SOEs commonly
referred to as a prioritized Cash Water Fall arrangement for electricity revenue sharing16
. The electricity
distribution companies have also effected energy consumption savings by enforcing the use of energy saving
devises. These measures are expected to improve financial viability and governance of power sector SOEs.
5.2.12 Measures are also being implemented to enhance the access of SMEs to long-term finance. In this
regard, the Bank of Ghana (BOG) has initiated a number of policy measures including strengthening credit
reference bureaux (three are currently in operation in the country) and expanding credit guarantee schemes. The
GSE has also established an Alternative Stock Exchange (GAX) for SMEs, with simplified listing rules and
three SMEs have already been listed on the market. The Bank is providing support to GSE to carry out the
necessary due diligence and preparatory work for SMEs’ listing on the GAX under its ongoing Institutional
Support Project. This involves the establishment of a revolving fund, which will support the listing of 10 SMEs
by 2016 and 15 by 2017.
15 Before this directive, the Ministry of Finance was responsible for settling the bills of MDAs, a situation that has led to accumulation of payment
arrears. 16
This is a cash flow arrangement whereby energy revenue normally collected by the major Electricity Distribution Company - Electricity
Corporation of Ghana (ECG) – will be optimally shared among the Generation, Transformation and Distribution Companies using an agreed formula
to minimize cash flow problems
15
5.2.13 Programme Activities: The proposed operation will support both the strengthening of the efficiency
and viability of the energy sector and SMEs’ access to long-term finance, with special focus on women-
owned enterprises. With respect to energy, in addition to resolving the severe energy shortage problem, GOG
has started to address the cash flow problem in the energy sector SOEs. The issue of GOG’s payment arrears to
the power sector SOEs is being addressed in the context of the Power Compact signed with the Millennium
Challenge Corporation (§ 5.2.11). The proposed operation will complement this debt resolution action by
supporting the formulation of a policy on Electricity Revenue Allocation among Public Utilities and
Independent Power Producers, prioritizing Cash Water Fall arrangement for electricity revenue sharing (prior
action) aimed at further easing the cash flow problem. This arrangement was put in place mid-June 2015, when
the Committee working on the issue concluded its work. In terms of improving SMEs’ access to long-term
capital, through listing on the GXA, the proposed operation will support the listing of at least 5 SMEs in 2015
(prior action), increasing to 10 and 15 in 2016 and 2017 respectively, with particular attention to women-
owned enterprises.
5.3 Policy Dialogue
5.3.1 To ensure positive impact of Bank Group interventions on Ghana’s economy, the Bank will sustain
dialogue with GOG on constraints and challenges confronting the country, especially strengthening
macroeconomic stability through fiscal consolidation. Specifically dialogue will focus on deepening PFM
reforms to support fiscal consolidation, in particular enhancing the credibility of the budget, ensuring
transparency and accountability in the use of public resources and minimizing leakages by upholding zero
tolerance against corruption. Dialogue will also focus on opportunities to spur transition to inclusive and green
growth as well as regional integration initiatives. Moreover, dialogue will seek to improve the Bank Group
overall portfolio in the country, based on lessons learned from the country portfolio performance reviews and
Project Completion Reports. Broader policy dialogue in the context of this proposed operation will also involve
development partners in Accra, and will focus on issues and measures contained in the Log-frame and
Operational Policy Matrix (Annex II-A). The tripartite dialogue (the Bank/GOG/and other DPs) platform, will
be led by GHFO in conjunction with OSGE. The GHFO has, in coordination with other DPs, been engaging in
dialogue with GOG on the
establishment of a new Policy Dialogue
Framework.
5.4 Loan Conditions
5.4.1 Prior Actions: GOG has
demonstrated strong commitment to its
reform program by implementing several
of the key policy measures through policy
dialogue after seeking financial support
from the Bank. Thus, the prior actions
(Table 4) have been selected to
underscore the government’s commitment
to implement bold reforms in the face of
macroeconomic challenges, as well as its
determination to sustain the reform
momentum. In selecting these actions,
account was taken of their critical importance for achieving the objectives set forth by the Government. The table
also provides indicative policy actions17 that will serve as triggers for the second phase of this two-year
programmatic operation.
17
These policy actions are only indicative and are subject to modification during the appraisal mission of Phase II in 2016.
Indicative Triggers for Phase II
Extend GIFMIS coverage to the
management of Internally Generated Funds
(IGFs)
Approve the Payroll Audit Report
Integrate payroll with GIFMIS Financials
Conduct a Human Resources Audit
Approve the PFM Reform Strategy
Produce and disseminate Contract
Management Manual.
6. Viability of
Power Sector
Prepare a Policy on Electricity Revenue Allocation
among Public Utilities and Independent Power
Producers prioritizing Cash Water Fall arrangement
Approve the Electricity Revenue
Allocation Report
7. Access to long-
term finance
List 5 SMEs on the Alternative Stock Exchange,
including women-owned businessesList 10 SMEs on the Alternative Stock
Exchange, including women-owned
5. Procurement
Component 3: Enhancing efficiency and competitiveness of the private sector
3. Expenditure
Control-Payroll
Conduct a Payroll Audit
Component 2: Deepening PFM reforms
4. PFM Strategy
2. Expenditure
Control-Debt
Management
Approve the Medium-Term Debt Management
Strategy (MTDS)
Table 4: PFMPSCSP Prior Actions and Indicative Triggers
Policy Focus Prior Actions
Component 1: Strengthening fiscal consolidation
1. Revenue
Mobilization
Extend self-assessment to all Medium Tax Offices
(MTOs)
16
5.5 Application of Good Practice Principles on Conditionality
5.5.1 The PFMPSCSP is in line with good practice principles on conditionality. The operation is designed to
support the implementation of GOG’s development agenda aimed at reinforcing growth and poverty reduction.
The policy reforms to be supported by the operation are strategic priorities fully discussed with GOG to ensure
ownership, and they are consistent with the IMF-ECF program and the World Bank’s DPC. The proposed
operation has also selected only a limited number of prior actions and other reforms critically important for
achieving results as conditions for disbursement. Although the coordinated accountability framework under
MDBS has broken, discussions are underway between GOG and DPs to establish a new policy dialogue
platform. Meanwhile, the Bank has closely coordinated and consulted with the World Bank, the DPs and the
IMF during the preparation of this operation.
5.6 External Financing Requirements and Sources
5.6.1 Ghana’s total financing requirements
for the medium-term (2015-2017) are
estimated at US$7,339 million, while the
estimated total available financing is
US$5,584 million (Table 5). Overall the
program is fully funded as the estimated
financing gap of US$1,755 million is to be
filled by resources from the International
Financial Institutions (WB, AfDB), bilateral
donors, the IMF-ECF, and domestic and
external borrowing.
5.7 Application of Bank Group Policy on Non-concessional Debt Accumulation
5.7.1 Ghana is transiting to a middle income country status but is still eligible for ADF financing in the
transitional period. Under the IMF-ECF program, the authorities have committed to limit their borrowing to loans
with a minimum grant element of 35%, with possible exceptions in line with the new debt limits policy. In this
regard, and in agreement with the IMF, the authorities issued in October 2015 a Eurobond of USD 1billion as part of
its MTDS (§ 2.2.4). GOG is also working to identify high priority development projects which cannot be financed
by relying only on concessional borrowing. Debt limits on non-
concessional borrowing have been increased by USD1.5 billion during the First Review of the IMF-ECF. In
addition, Bank of Ghana gross18 financing of the budget in 2015 will be limited to 5% of previous year’s domestic
revenue, using only marketable financial instruments.
VI OPERATION IMPLEMENTATION
6.1 Beneficiaries of the Programme
6.1.1 The PFMPSCSP will benefit MOF and other sector ministries and services in charge of delivering Power
and long-term Credit. The direct beneficiaries are Ghana’s key public institutions responsible for PFM and agencies
responsible for the delivery of electricity. The people of Ghana will benefit indirectly from fiscal consolidation as the
resultant freed fiscal space will be directed to fund pro-poor expenditures and basic social services delivery. The
private sector too will benefit from reliable and affordable electricity, improved access to finance, especially by
SMEs including women-owned enterprises, as well as from more transparent and efficient PFM system, especially
relating to procurement practices.
18
Net credit to Government is projected to be close to zero for 2015 if GOG will be able to raise financing on the domestic and international markets
as planned (IMF-ECF, First Review, August, 2015).
Table 5: Ghana – External Financing Requirements and Sources, 2015-2017 (Million US Dollars)
2015 2016 2017 2015-2017
1.Total financing requirements -5,739.0 -5,758.0 -5,842.0 -7,339.0
2. Total available financing 4,879.0 5,271.0 5,435.0 5,584.0
3. Financing gap -860.0 -487.0 -407.0 -1,755.0
4. Expected sources of Financing 860.0 487.0 407.0 1,755.0
Other IFIs (WB, AfDB) 200.0 200.0 150.0 550.0
Other program support 660.0 287.0 257.0 1,205.0
of which: Program grants 269.0 35.0 4.0 308.0
Bilateral program loans 32.0 12.0 12.0 57.0
5. Residual gap 0.0 0.0 0.0 0.0
Source: Ghanaian authorities and IMF staff estimates and projections, April 2015
17
6.2 Impact on Gender, Poor and Vulnerable Groups
6.2.1 Impact on gender. The proposed operation will impact positively on gender equality and empowerment.
The policy focus of the PFMPSCSP on increased electricity supply, and its reliable and efficient delivery will
benefit women and youth, especially those involved in SMEs and living in rural areas where poverty is
widespread. The high cost of alternative sources of energy such as generators and the exorbitant price of fuel
contribute to the high cost of doing business and discourage women from engaging in lucrative income-earning
activities. This limits opportunities for self-reliance for women and youth. Thus, as the cost of doing business
reduces with reliable supply of electricity, an improved competitive environment for business will be created,
more viable SMEs would emerge, and jobs would be created for women and youth who dominate this sub-
sector. Electrification is also expected to reduce time allocated to fuel wood collection by women and youth,
and increase the time allocated to education for boys and girls. Ease of access to credit is expected to improve
competitiveness of SMEs led mostly by women and youth. The Bank supported the Government in the
preparation of the National Gender Policy which is currently being finalized. The Policy seeks to support the
mainstreaming of gender into the national development processes and improve the social, legal, civic, political,
economic and socio-cultural conditions of the people, particularly women, children, the vulnerable and people
with special needs. The Bank’s Technical Assistance of US$ 250,000 to the Ministry of Gender, Children and
Social Protection is focusing on government efforts to have a positive impact on Gender issues, the Poor and the
Vulnerable groups in Ghana.
6.2.2. Impact on Poor and Vulnerable Groups. Increased electrification will reduce poverty of the most
vulnerable groups through enhanced productivity. The risk to the vulnerable groups arising from adjustments
of electricity tariff as a result of the inability of the poor segment of society to pay is being mitigated by the
electricity tariff cross-subsidization arrangement, which subsidizes life-line consumers19
. Shifting to renewable
energies will also positively impact women’s and children’s health, providing protection from respiratory
diseases, as they would no longer be exposed to smoke and carbon monoxide from cooking indoors with wood
and charcoal. Renewable energy also mitigates deforestation. Through its support for improved business
environment for SMEs where women are mostly concentrated, and through its link with the ongoing gender and
skills development project, the proposed program will contribute to better gender equality and women’s
empowerment in Ghana.
6.3 Impact on Environment and Climate Change
6.3.1 The PFMPSCSP is classified as Category III, in accordance with the Bank’s procedures for environmental
and social impact assessments. The policy and institutional reforms supported by the operation are not expected
to have any direct adverse impact on the environment. The envisaged improvements in policies and institutions
for managing public resources, and improving governance in the energy sector, do not in themselves have any
direct negative impact on the environment.
6.4 Implementation, Monitoring and Evaluation
6.4.1 Implementation institutional framework: The Ministry of Finance (MOF), in collaboration with the
Ministry of Energy and other relevant agencies, will be the implementing agency. The MOF has the capacity
and a long term experience in the implementation of Bank’s and donors’ policy-based operations.
6.4.2 Monitoring and Evaluation Arrangements: In the absence of a coordinated MDBS Framework, the
implementation of PFMPSCSP will be closely coordinated with the IMF-ECF and the World Bank-DPC.
Discussions will also be held regularly with other DPs during supervision missions on the implementation of
both PFMPSCSP and their own respective programs. The Operations Policy Matrix (see Annex II-A) agreed
19
This represents a cost for firms. However, a better targeting mechanism for the poor and vulnerable groups, and increased electricity production will contribute to
reduce the cost borne by firms.
18
between the Ghanaian authorities and the Bank as well as the quantitative and qualitative indicators defined in
the Results Based logical Framework will constitute the framework for monitoring and evaluation of the
PFMPSCSP. The MOF will be responsible for collecting data and coordinating monitoring and evaluation, and
will make information available to the Bank. The Bank will monitor the implementation of the Program through
supervision missions, and close monitoring and oversight by the GHFO that will play an important role,
particularly in policy dialogue and monitoring of the program results and impact. This operation will be
followed up by the second phase in 2016, to complete the programmatic series. Following completion of the
second operation, a Program Completion Report (PCR) will be prepared to evaluate progress against the Results
Based Logical Framework and operational policy matrix, and draw lessons for future operations.
6.5 Financial Management and Disbursement
6.5.1. Country Fiduciary Risk Assessment (CFRA, see Technical Annex I). Bank’s assessment of Ghana’s
fiduciary environment shows that fiduciary risk is substantial, but with a general positive trajectory in
performance. Of significance is the steady and gradual roll out of GIFMIS, which is helping to improve
financial controls, information integrity and timeliness of reports (now covering all line ministries at central
level, all regions, and being piloted in seven districts). Notable developments in capacity and coverage has also
been recorded by the Auditor General (AG)’s office, which now conducts Value for Money (VfM) audits as a
matter of course. The AG is also in the process of developing an Oil and Gas audit capacity, in addition to the
normal audits of the consolidated Fund. Key PFM reforms are being implemented to address remaining
weaknesses relating to payroll, and treasury management20
. Challenges continue to exist regarding weak
commitment controls, with no link between the budget and treasury modules, and weak controls over internally
generated funds. Internal audit also suffers from weak capacity and most internal audit functions still focus on
pre-audit and substantive testing, instead of systems enhancement and development of improved internal
controls. The Government has developed a PFM Reform Strategy (PFMRS) which will point the way towards
addressing these challenges. Legislation to address weaknesses in the existing PFM laws and regulations are
also planned. With regards to budget and treasury management, Government plans to strengthen the Medium-
Term Fiscal Framework and revenue forecasting models to enhance budget credibility, and introduce necessary
controls at commitment level by implementing the Procure-to-Pay (P2P) module of GIFMIS. Expenditure
composition is to be improved by harmonising budget classification and the Chart of Accounts, linking MTEF
and budget preparation through the Hyperion budget preparation module, and introducing strict rules to monitor
accumulation of expenditure arrears. Transparency and accountability to citizens in the budget execution
process are to be enhanced by publishing fiscal reports on schedule and Citizens’ budget extracts in key local
languages.
6.5.2 Financial Management, Audit and Reporting Requirements: As indicated above, the fiduciary risk
assessment revealed that public finance management system in Ghana presents substantial risks, in spite of the
progress achieved in PFM reforms. The proposed program will contribute to addressing fiduciary risks in two
complementary ways: (i) by including a specific component (component 2) to support reforms to improve PFM
systems and reduce fiduciary risks. These reforms will introduce greater budget transparency, strengthen control
systems and improve the procurement framework; and (ii) by providing for specific disbursement and financial
management arrangements for the funds of the proposed operation. In this respect, the program resources will
be deposited in a Special Account opened at the Central Bank specifically for the purpose, prior to transfer into
the Consolidated Fund (CF). The Ghana Audit Service will be required to conduct a flow of funds audit to
confirm the transfer into the CF. The audit will be performed in accordance with the Bank-approved Audit
Terms of Reference and the audit reports will be submitted to the Bank within six months after the end of each
financial year audited. Actual utilization of the budget support funds will not be subject to a separate audit, but
20
Treasury single account is being implemented to improve control over government bank accounts and minimize finance charges arising from
overdrawn accounts when other government accounts have positive balances.
19
the Bank will review the Auditor General’s annual audit of the CF for the years covered by the budget support
program. The Bank has previously accepted the use of the Ghana Audit Service for purposes of budget support
operations.
6.5.3 Disbursement Arrangements: The funds of the proposed operation will be disbursed upon satisfactory
achievement of the prior actions set out in § 5.4.1. The proposed programmatic operation is justified on the
following grounds: (i) a number of critical reforms have already been implemented by GOG, as part of its
dialogue with the Bank (See § 5.2.2, 5.2.8, 5.2.12), thus confirming GOG commitment to the reform program;
(ii) a large number of critical measures of the program will be implemented in 2015; and (iii), the proposed
programmatic operation has been designed taking into account the need for the Bank to make much needed
contribution to meeting Government’s financing requirements in 2015 and 2016 (see Table 5). The funds will
be disbursed by the Bank into a foreign currency account to be opened in the Central Bank of Ghana by the
Ministry of Finance, as a transit into the CF as indicated above.
6.5.4 Procurement: The procurement arrangements for the budget support operation will be undertaken in
accordance with country systems, which have been deemed generally acceptable in the CFRA carried out by the
Bank. Overall risk was assessed as substantial but measures supported by the program as well as the
implementation of the PFM Reform Strategy will contribute to mitigate the risk.
VII LEGAL DOCUMENTATION AND AUTHORITY
7.1 Legal Documentation: The financing instrument that will be used for this operation is an African
Development Fund Loan of Forty Million Units of Accounts (UA 40,000,000) in the form of first operation in a
programmatic budget support series to the Republic of Ghana. The loan will be governed by a Loan Agreement
to be signed between the Fund and the Republic of Ghana.
7.2 Conditions Associated with the Bank’s Intervention
7.2.1 Prior Actions and entry into force: Before the proposed operation is presented to the Board, GOG shall
have provided evidence satisfactory in form and substance to the Bank that the prior actions for the PFMPSCSP
I listed in Table 4 have been fully fulfilled. The entry into force of the Loan Agreement shall be subject to the
fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions Applicable to Loan
Agreements of the Fund.
7.2.2 Conditions precedent to disbursement of the funds of the PFMPSCSP: Disbursement of the loan amount
of UA 40 million shall be conditional on the entry into force of the Loan Agreement, the transmission to the
Bank of the details of a foreign currency account with the Central Bank of Ghana for purposes of receiving the
proceeds of the Loan, and the fulfilment of a duly completed and signed disbursement request in accordance
with the Disbursement Letter.
7.2.3 A Streamlined Appraisal Report (SAR) for the second phase of the operation will be prepared at the end
of phase I of the programmatic series and presented to the Board for approval. The SAR will indicate, inter alia,
any applicable prior actions to be adopted before Board presentation and/or any conditions precedent to
disbursement. A protocol of Agreement shall be prepared for each phase of the PFMPSCSP.
7.3 Compliance with Bank Group Policies
7.3.1 This proposed program complies with all applicable Bank Group policies and guidelines. The key Bank
Group Guidelines and other guidelines applied to this Program are the following: (i) Bank Policy on Program-
Based Operations (2012, 2013, and 2014), (ii) the Bank Group Ten-Year Strategy (2013-2022); (iii) the
Governance Strategic Framework and Action Plan 2014-18, (iii) the Revised Staff Guidance on Quality-at-
Entry Criteria and Standards for Public Sector Operations, and (iv) the Energy Sector Policy of the Bank Group.
20
VIII RISKS MANAGEMENT
The risks and mitigation measures for the program are presented in Table 6 below, and are also summarized in
the logical framework.
IX RECOMMENDATION
Management recommends that the Board of Directors approve an ADF loan not exceeding UA 40
million to the Republic of Ghana for the fiscal year 2015 for the purposes, and subject to, the conditions
stipulated in this report. Management invites the Board to note that this operation is part of a two-year
programmatic series for a total amount of UA75 million, covering the fiscal years 2015 and 2016
Risks Probability Mitigation measures
Governance and Fiduciary risks: With large
scale oil production there may be a risk of rent
seeking. In addition, there are still some
weaknessesin PFM, especially as regards to
accounting at sub national levels.
Medium
GoG is committed to anti-corruption initiatives and improvement of
PFM. DPs have continued to put emphasis on PFM reforms. The
Bank’s own ISP for institutional capacity building has significant
emphasis on Internal and External Audit reforms and capacity
building, all in an effort to further enhance the performance of key
PFM pillars.
Implementation Capacity Risk s due to weak
institutional and human resources.
A number of technical assistance and capacity building initiatives by
DPs as well as ISPs are expected to mitigate these risks.
Medium
Medium
Medium
Medium
Table 6: Potential Risks and Mitigation Measures
Fiscal and external imbalances , complicated by
a slowing economy and declining commodity
prices. Approaching the elections due in late
2016 may increase spending pressures and the
likelihood of policy inconsistency/reversal in fiscal
consolidation efforts.
The macroeconomic and fiscal risks will be mitigated by prudent
fiscal and monetary policies being implemented under the IMF and
the World Bank sponsored programs as well as the proposed
operation. Implementation of these policies is expected to reduce
risks to economic growth as domestic interest rate abates,
exchange rate becomes stable and investors’ confidence is
restored. This will improve GOG’s policy credibility, commitment to
fiscal reforms and access to external financing.
Heavy Reliance on Foreign Financing of the
Fiscal Deficit : Eurobond and foreign participation
in the domestic bond market become risky as cost
rises because of decline in market’s confidence
and increase of interest rates in the US.
GOG is expected to make the required fiscal adjustment, and thus
lower its borrowing needs with the support provided by the IMF-
ECF, the World Bank’s Development Policy Credit, and the
proposed Bank’s operation.
Persistent Energy Crisis and sustained decline
in Commodity Prices : Constant blackouts could
affect manufacturing growth. Further fall in prices
of oil, gold or cocoa could result in sharp
contraction of exports, further weaken of the cedi,
raise inflationary pressures, and slowdown in
economic growth.
The completion of the Tweneboa-Enyenra-Ntomme (TEN) project
by mid-2016 will help bolster growth. Anticipated inflows from the
Cocoa Board loan (about USD1.8 billion), the disbursement of
about USD116.6 million by the IMF under the ECF and USD150
million by the World Bank, the proposed AfDB Budget Support
Loan, and planned issuance of a fourth Eurobond USD1.5 billion
should bolster foreign exchange reserves and help stabilize the
currency in the coming months.
I
.
ANNEX I
II
III
IV
V
VI
VII
VIII
IX
ANNEX II-A
Operations Policy Matrix
Medium term policy
objectives
Baseline (end-2014
unless otherwise
indicated)
Policy measures
(2015-2016)
Policy measures
(2016-2017)
Means of
Verification
CSP goals to which
the program is
contributing
Component I. Strengthening Fiscal Consolidation Revenue
Improving efficiency and
enhancing revenue collection
Introduce a Special
Petroleum Tax of 17.5% to
bring Ghana’s petroleum taxes nor in line with
international practice.
2016 Budget Pillar 2: Support for
Improved Governance and
Accountability
Extend to 2017 the special import levy of 1-2% on
some imported goods
2016 Budget
Increase the VAT from 15%
to 17.5%.
2016 Budget
Two pilot offices are
currently covered in the total revenue integrated
processing system
(TRIPS).
Deploy TRIPS to 8 pilot
offices by June 2015
Roll-out TRIPS
nationwide
Ghana Revenue
Authority (GRA) reports
15 Medium Tax Offices
(MTOs) are currently
practising self-assessment
Implement self-assessment
for all MTOs to enhance
compliance in tax payments
Ghana Revenue
Authority (GRA)
reports
Expenditure
Improving commitment controls and monitoring of
expenditure arrears
All Consolidated funds (CF) payments (66% of
the National Budget) go
through ex-ante control – from requisition to
payment – on GIFMIS
(procurement to pay), thus permitting tracking, and
reporting on, CF
expenditure arrears.
Extend GIFMIS coverage to the management of
Internally Generated Funds
(IGFs).
Extend GIFMIS coverage to the
management of
Statutory Funds (SFs).
General Account and GIFMIS
reports
Pillar 2: Support for Improved Governance and
Accountability
Improving debt management Presidential Executive
Approval of the Medium-
Term Debt Management Strategy 2014-17
Implement on-lending
Policy in line with the
Debt Strategy.
Ministry of
Finance and
Debt Management
Reports
Pillar 2: Support for
Improved Governance and
Accountability
Cleaning up of the payroll database to ensure its
integrity
Lack of adequate and reliable Human Resources
(HR) and payroll data
resulting in potential ghost workers.
Undertake Payroll audit Undertake HR audit and approve the Payroll
audit
General Account and GIFMIS
reports
Pillar 2: Support for Improved Governance and
Accountability
Separate payroll and
GIFMIS systems in place.
Integrate Payroll to GIFMIS
financials by June 2015; and
GIFMIS HRMIS and GIFMIS Hyperion
thereafter, to permit
exercising budgetary control on payroll.
Implement e-payment
input forms to provide
ready audit trail and serve as deterrent to
submission of
fraudulent forms
General Account
and GIFMIS
reports
Use of verified data
piloted in 4 Regions.
Rollout the use of verified
data to update payroll records nationwide
. General Account
and GIFMIS reports
12 public agencies
identified for weaning off government payroll
Wean off 3 public agencies
from government payroll
Wean off additional 9
public agencies from government payroll.
General Account
and GIFMIS reports
Component II: Deepening the PFM Reforms
X
-------------------------------------------------------------------------------------------------------------------------------------------
Strengthening PFM system Comprehensive PFM
reforms constrained by lack of Public Financial
Management Reform
Strategy (PFMRS).
Presidential Executive
Approval of the PFMRS
Ministry of
Finance Reports
Pillar 2: Support for
Improved Governance and Accountability
Improving Budget Credibility Strengthen the medium-term Fiscal Framework and
revenue forecasting models
Develop and adopt a comprehensive
projection to enhance
the predictability of Budget execution.
Ministry of Finance Reports
Pillar 2: Support for Improved Governance and
Accountability
Introduce control at
commitment level by
implementing the Procure-to-Pay module of the
GIFMIS
Implement ex-ante
control system by
extending GIFMIS coverage to all MDAs
Ministry of
Finance Reports
Ensuring Value for Money through Enhancing Contract
Management
Lack of clear laydown procedures for contract
management
Produce and disseminate a contract management
manual
Ministry of Finance Reports
Improving the Legal
Framework for Public Procurement
Draft regulations
supporting the Public Procurement Act (PPA)
prepared
Approve by Cabinet
and submit to Parliament of the Draft
Regulations supporting
the PPA
Parliament
Reports
Enhancing Budget
Transparency and
Accountability
Publish annual financial
statements generated from
GIFMIS within the statutory deadline
Public annual Citizen
Budget in local
languages
Local
Newspapers
Pillar 2: Support for
Improved Governance and
Accountability
Component III. . Enhancing Efficiency and Competitiveness of Private Sector
Enhancing governance,
efficiency and viability of the
power sector
Approve the Governance
reform plan for ECG by
Cabinet
Operationalize the
Governance reform plan
for ECG
MCC reports Pillar 1: Supporting
infrastructure development
Prepare a Policy on Electricity Revenue
Allocation, the cash water flow system for electricity
revenues
Approve the Policy on
Electricity Revenue
Allocation
MCC reports
Clear arrears to the Power
SOEs.
MCC reports
Improving SMEs access to
finance (including women-
owned SMEs) and business development services.
Alternative Stock
Exchange for SMEs
established.
List at least 5 SME on the
Alternative Stock Exchange
SMEs listed on the
Alternative Stock
Exchange increase to 10.
Number of
SMEs listed;
GISP Supervision
Reports
Pillar 1: Supporting
infrastructure development
XI
ANNEX II-B
Development Partners’ Reform Area Focus
AfDB IMF WB France EU UK USA GERMANY SWISS
Fiscal Consolidation/PFM
Revenue X X X X X
Expenditure
Wage Bill X X X
Subsidies and
Arrears X X
IFMIS/Other Fiscal/PFM
issues X X X X X X X
Debt Management X X X
Public Investment
Management X
Governance/Competitiveness
SME/Access to credit/Credit
Bureau/Mobile Finance X X X X X
State Owned Enterprises X
Energy (Power Sector) X X X X X X X
Social Protection X Source: Ghana’s Development Partners, October 2015
Notes: IMF, WB, AfDB’s operations are supported by Technical Assistance (TA) Activities and Institutional Support Projects (ISP). Main bilateral donors’ operations are TA and ISP.
XII
ANNEX III
The IMF-sponsored Extended Credit Facility Program
IMF Approves US$918 million ECF Arrangement Million to Help Ghana Boost Growth, Jobs and Stability
Press Release No. 15/159
April 3, 2015
The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement under
the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 percent of
quota or about US$918 million) in support of the authorities’ medium-term economic reform program.
The program aims to restore debt sustainability and macroeconomic stability to foster a return to high growth and
job creation, while protecting social spending. The Executive Board’s decision will enable an immediate
disbursement of SDR 83.025 million (about US$114.8 million).
At the conclusion of the Executive Board's discussion, Mr. Min Zhu, Deputy Managing Director and Acting
Chair, stated:
“After two decades of strong and broadly inclusive growth, large fiscal and external imbalances in recent years
have led to a growth slowdown and are putting Ghana’s medium-term prospects at risk. Public debt has risen at an
unsustainable pace and the external position has weakened considerably. The government has embarked on a
fiscal consolidation path since 2013, but policy slippages, exogenous shocks, and rising interest costs have
undermined these efforts. Acute electricity shortages are also constraining economic activity.
“The new ECF-supported program, anchored on Ghana’s Shared Growth and Development Agenda, aims at
strengthening reforms to restore macroeconomic stability and sustain higher growth. The main objectives of the
program are to achieve a sizeable and frontloaded fiscal adjustment while protecting priority spending, strengthen
monetary policy by eliminating fiscal dominance, rebuild external buffers, and safeguard financial sector stability.
“Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and
subsidies. The government’s efforts to mobilize additional revenues will also help create more space for social
spending and infrastructure investment, in particular in the energy sector. The government is rightly adjusting
expenditures further to mitigate the shortfall in oil revenue and avoid a larger debt build-up. Moreover, a prudent
borrowing strategy will be needed to ensure that financing needs are met at the lowest possible cost.
“The government’s structural reform agenda appropriately focuses on strengthening public financial management
and enhancing transparency in budget preparation and execution. Strengthening expenditure control will be
critical to avoid new accumulation of domestic arrears. The government should continue to clean up the payroll
and improve control of hiring in the public sector to address one of the main sources of fiscal imbalances in the
recent past. At the same time, enhanced transparency in the public finances will be critical to garner broad support
for reforms.
“The authorities are strengthening monetary operations and gradually eliminating monetary financing of the
budget to improve the effectiveness and independence of monetary policy and bring inflation down to single digit
territory. Safeguarding financial sector stability will be important for supporting private sector activity.
“Forceful and sustained implementation of the program will be essential to address Ghana’s macroeconomic
imbalances and enhance investor confidence in view of downside risks. The frontloaded nature of the fiscal
consolidation and expected financial support from development partners should help to mitigate program risks,
and foster broad-based, inclusive growth in the medium term.”
-----------------------------------------------------------------------------------------------------------------------------
XIII
ANNEX III
Statement at the Conclusion of an IMF Review Mission to Ghana
Press Release No. 15/307
June 30, 2015
A team from the International Monetary Fund (IMF), led by Joël Toujas-Bernaté, visited Accra during June 17−30, 2015 to conduct
discussions on the first review of Ghana’s financial and economic program supported by the IMF’s Extended Credit Facility
(ECF)1. The discussions covered the implementation of the program, the medium-term outlook as well as the policies needed to
restore debt sustainability, macroeconomic stability and a return to high growth and job creation, while preserving social protection
spending.
Mr. Toujas-Bernaté released the following statement at the end of the mission:
“The program is on track, with all performance criteria met except for the ceiling on central bank financing to the government
which was technically missed by a small margin. The mission welcomes the commitment reiterated by the authorities to the
ambitious fiscal consolidation and structural reforms program, in particular in addressing payroll irregularities, enhancing public
finance management and transparency and liberalizing the oil distribution sector. The team notes, however, that more needs to be
done to further enhance tax administration and eliminate tax exemptions to improve the revenue performance over the medium
term.
“Economic growth in 2015 is expected to remain broadly as expected (around 3 ½ percent), with low cocoa and gold production but
increasing hydrocarbon production. We welcome the authorities’ efforts to address the electricity shortages, which have been
weighing on economic activity, by bringing new private financed power plants in the coming months. This will be critical to support
a rebound in growth next year. However, inflation remains higher than expected on the back of a larger than projected depreciation
of the cedi and rising oil prices.
“Fiscal consolidation is on track as of end-April, even excluding the payment of dividend by Bank of Ghana (about 0.4 percent of
GDP) in March. Good revenue performance and containment of the wage bill and other spending as programmed contributed to this
positive outcome. No new arrears were accumulated in the review period and past arrears were repaid as planned. With higher
projected oil revenues, the overall cash deficit is expected to be slightly lower than programmed for the year as a whole. Additional
revenue above the budget projections will help cover additional spending related to the recent flooding and larger arrears clearance,
as additional arrears as of end-2014 were identified in audits of claims from oil importers and reviews of cross debts among utility
companies. The success of the program critically hinges on continued spending moderation, in particular the wage bill with stricter
control of the payroll being put in place, and renewed efforts to improve revenue collection. Making public the strategy for the 2016
budget and wage negotiations consistent with this framework will go a long way in restoring market confidence and lowering
financing costs.
“Bank of Ghana has taken significant steps to improve the effectiveness of its monetary policy framework and in moving the policy
rate towards the interbank market rates. The mission welcomes the resolve of the central bank to take additional measures as needed
to bring inflation down towards its medium term target, which would also contribute to stabilizing the cedi. Budget support from
development partners (which has started to be disbursed), the financing of the next cocoa crop, the new Eurobond and the gradual
switch to gas in the production of electricity should also reduce pressures on the foreign exchange market and allow the central bank
to rebuild its external reserves to a higher level than programmed by year-end.
“The IMF Executive Board is tentatively expected to consider the review in August, following finalization of the required
documentation.
“The mission met with President Mahama; Finance Minister Seth Terkper; Bank of Ghana Governor Kofi Wampah; Dr. Kwesi
Botchwey, Chairman of the National Development Planning Commission; the Finance Committee of the Parliament, other senior
officials, representatives of civil society and the donor community. The mission team wishes to thank the authorities for their
hospitality, the excellent collaboration, and the high-quality discussions.”
XIV
1 The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems. The
arrangement for Ghana in an amount equivalent to SDR 664.20 million (180 percent of quota or about US$918 million) was approved on April 3, 2015 (see Press Release
No.15/159)
ANNEX IV
The Assessment of the PBO Eligibility Criteria for Ghana
Prerequisites Comments on the current situation
Government’s
commitment to
poverty reduction,
reform and
inclusive green
growth
The GSGDA II and PSDS II are the foundations of the Ghana’s medium term growth, poverty
reduction and development agenda. Both are well designed in consultation with DPs and other
stakeholders with clearly laid out implementation mechanisms. The NDPC and the MOF are at
the center of coordination and implementation of the development agenda; while DPs provide
support, particularly budget support to the Government through a policy dialogue framework.
As a result, Ghana has experienced a strong growth momentum: GDP real growth averaged 6
percent in the last ten years. Ghana’s strong democratic institutions and favorable prospects for
oil and gas are attracting significant foreign direct investment (FDI). Economic stability and
government’s commitment to reforms are strong. The robust economic growth of recent years
could be restored in the medium-term with prudent and effective government’s policies, robust
agricultural performance, buoyant remittances, and strong contribution to growth by the oil,
gas, and gold sectors through their continued attraction of new investment – which are all
reflections of economic stability and GOG’s commitment to continued reforms.
Macroeconomic
stability
The GOG’s macroeconomic and financial medium term framework is viable in spite of short
term fiscal challenges. Government is implementing an ambitious and frontloaded fiscal
consolidation program to tackle the fiscal imbalances in order to reduce fiscal deficit to 3.7%
of GDP by 2017. The First Review of the IMF-ECF program has indicated that fiscal
consolidation is on track with the 2015 fiscal deficit (cash basis) narrowing to 3.1% of GDP.
The current path of fiscal consolidation together with expected increase in oil and gas
production from new fields is expected to reduce the current account deficit to 4.9% of GDP by
2017.
Satisfactory
fiduciary risk
assessment
PFM systems are solid enough to warrant the continuation of donor support operations in
Ghana. A strong foundation is being laid towards strengthening PFM. The 2014 CFRA report
indicates some weaknesses but current PFM reforms, especially those related to the newly
introduced IFMIS, will serve to correct them in the short to medium term, and have been
responsible for a clear and visible positive trajectory in performance over the past three years.
The CFRA will be used as the basis of the Bank’s own Country Fiduciary Assessment.
Political stability The peaceful conduct of general elections in December 2012 and resolution of the election
dispute through courts in September 2013 have confirmed Ghana’s mature democracy.
Harmonization
The Multi- Donor Budget Support (MDBS) platform in Ghana has not properly functioned
over the past two years owing to failure to reach a joint PAF and the deterioration of the
underlying principles on macroeconomic stability. In the absence of an active coordinated
Policy Dialogue Framework, the PFMPSCSP is being closely coordinated with the IMF-
Extended Credit Facility (ECF) and the World Bank Budget support operation. Consultations
were also held with the DPs to coordinate with their respective related operations, and this will
continue during the implementation phase. Meanwhile, the monitoring of the Bank’s operation
will rely on the results of the regular review of the IMF-ECF and possible joint monitoring and
evaluation with the World Bank. However, DPs still place enormous importance on Ghana’s
commitment to the Partnership Principles, and assessment against these is still required for
other forms of financial aid provided to the country. DPs, therefore, agreed that policy
dialogue on Macroeconomic Stability and PFM should sit firmly in the respective Sector
Working Groups (SWGs), and that those groups will regularly meet. As Ghana’s Trusted
Partner, the Bank is called upon to play a leadership role in coordinating other DPs and the
GOG in fostering the establishment of a new policy dialogue framework.
XV
ANNEX V
Achievements Under Previous Budget Support Operations
The evaluation of Bank’s Poverty Reduction Support Loans (2003 PRSL I, 2005 PRSL II, and 2010 PRSL III) have rated the
overall performance of these operations as satisfactory. In summary, they have improved operational efficiency in public
finance management and appropriately responded to shocks and crisis. The 2011 Poverty Reduction and Business
Environment Support Program (PRBESP) was also rated satisfactory. It aimed at to accelerating economic growth and
reducing poverty through two components namely: (i) an improved business enabling environment to the private sector, and
(ii) improved PFM. The achievements of the PRBESP are presented in the table below:
Public Financial Management
Efficient and
Reliable Public
Expenditure
Management
Public commitments controls
reinstated and enforced for all
MDAs although the issue of
arrears accumulation persists
The cash management
system has been
established however there
have been some delays in
the full roll out of the TSA
due to the need to realign
some elements of the TSA
program with the ongoing
rollout of the GIFMIS
Budget and monthly
statements of the public
accounts published based on
the harmonized chart of
accounts since 2011
Strengthened and
transparent revenue
collection system
The Benchmark oil revenue
target has been utilized for the
2011, 2012, and 2013, 2014
budget preparation.
The revenue agencies
VAT, IRS and Customs are
operating under a single
umbrella organization
called the Ghana Revenue
Authority
Audit functions
improved
Audit Recommendation
Implementation Committees
(ARICS) of the six selected
ministries fulfilled their legal
obligations; however the follow
up of audit recommendations has
been identified as weak. This has
been noted by the Public
Accountants Committee of
Parliament
Business enabling environment
More diversified
financial sector and
improved access to
financial services
The Financial sector strategic
plan II has been approved by
Parliament and is currently being
implemented
Continued pursuit of a
private sector led
growth agenda
The Private Sector Development
Strategy (PSDSII) has been
launched and is currently
operational