Ghana - Poverty Reduction Support Credit and Grant Project

Documentof The WorldBank ReportNo. 25995-GH INTERNATIONAL DEVELOPMENTASSOCIATION PROGRAMDOCUMENT FORA PROPOSEDCREDIT INTHEAMOUNT OFSDR 63.9 MILLION (US$SS MILLIONEQUIVALENT) AND PROPOSEDGRANT INTHE AMOUNT OF SDR26.9 MILLION (US$37 MILLIONEQUIVALENT) TO THE REPUBLIC OF GHANA FORA POVERTYREDUCTIONSUPPORT CREDITAND GRANT May 29,2003 PovertyReductionandEconomicManagement4 Africa Region  CURRENCYEQUIVALENTS Currency Unit - - Cedis Cedis - - US$O.O001194 U S $ l - Cedis 8375 FISCAL YEAR January 1- December 31 ACRONYMS AND ABBREVIATIONS AAP Accountability Assessment Plan BOG Bank o f Ghana BPEMS Budget andPublic Expenditure Management System CAGD Controller and Accountant General Department CAS Country Assistance Strategy CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CG Consultative Group CHPS Community BasedHealthSystem CPAR Country Assessment Procurement Report CWIQ Core Welfare Indicators Questionnaire DRL Debt Recovery Levy ECG ElectricityCompany o f Ghana EPA Environmental Protection Agency EPC Environmental Protection Council ERSO Economic Reform Support Credit FSAP Financial Sector Assessment Program GER Gross Enrollment Rate GLSS Ghana Living Standards Survey GoG Government of Ghana GPRS Ghana Poverty Reduction Strategy HAART Highly Active Anti-Retroviral Treatment IDA Intemational Development Association IMF Intemational Monetary Fund JSA Joint Staff Assessment MDBS Multi-Donor Budgetary Support MDG MillenniumDevelopment Goals MOH MinistryofHealth MTEF Medium-termExpenditure Framework PETS Public Expenditure Tracking Surveys PLWHA People Living With HIV/AIDS PPB Public Procurement Board PRGF Poverty Reduction and Growth Facility PUFMARP Public FinanceManagement ReformProgram PURC Public Utilities Regulatory Commission SDR Special Drawing Rights SEA Strategy Environmental Assessment TA Technical Assistance TOR Tema Oil Refinery VAT Value-Added Tax VRA Volta River Authority Vice President: Callisto E. Madavo Country Director: Mats Karlsson Sector Director: Paula Donovan Sector Manager: Emmanuel Akpa Task Team Leader: Marcel0 Andrade  FOROFFICIALUSEONLY TABLE OFCONTENTS 1 INTRODUCTION 1 2 .. ..................................................................................................... RECENTECONOMIC DEVELOPMENTS AND PROGRESS INPOVERTY REDUCTION .................................................................................................................... 2 A .. MACROECONOMIC AND STRUCTURALREFORMS B MEDIUM-TERMPROSPECTS c. POVERTYTRENDS AND PROGRESSINSOCIAL AND HUMAN .........................................................................................5 ................................................. 2 DEVELOPMENT 7 3 THE GHANAPOVERTYREDUCTIONSTRATEGY ..................................... 10 4 BANKRESPONSE AND STRATEGY ................................................................ 11 5... THE POVERTYREDUCTIONPROGRAMFORPRSC SUPPORT .............16 A PROMOTINGGROWTH, INCOME AND EMPLOYMENT ......................................... 17 B ............................ 21 c ... IMPROVINGSERVICEDELIVERYFORHUMANDEVELOPMENT IMPROVINGGOVERNANCE PUBLIC SECTORMANAGEMENT AND ...................... 29 6. PROPOSED CREDIT AND GRANT .......................................................... 34 A ................................................................................ .................................................. 34 B c. ALIGNMENTWITH . .THEPRSC-1 CREDITANDGRANT ADMINISTRATION ALIGNMENTWITHTHEIMF 38 39 D ANALYTICUNDERPINNINGSOFTHEPRSC 40 E ENVIRONMENTAL 42 F POVERTYANDSOCIALIMPACTANALYSIS 43 G BENEFITS ~ S K S .... OTHERDONORS' SUPPORT ................................................... ASPECTS ................................................................................. ......................................................... AND ............................................................................................ .......................................................... 46 L i s t of Tables Table 1: KeyMacroeconomic Indicators. 2002-2005 ....................................................... 5 Table 2: External Financing Requirements.2003-05 ........................................................ 6 Table 3: Medium-TermPublic Finance Outlook. 2002-05 ............................................... 7 Table 5: Education .GPRS Outcomesfor 2005.............................................................. Table 4: Decomposition o f ChangeinPoverty. 1991/92 and 1998/99.............................. 9 23 Table 6: Health-GPRS Outcomes for 2005 ..................................................................... 26 Table 7: Analytic Underpinnings..................................................................................... 42 List of Figures Figure 1: Summary ofPoverty Rates. 1991/92and 1998/99.......................................................... 8 This document hasa restricted distribution andmay be used by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed without World Bank authorization . .  Listof Schedules Schedule 1: Letter o f Development Policy Schedule 2: Policy Matrix: Government's Reform Strategies and Progress Indicators Schedule 3: Quantitative Monitoring Indicators Schedule 4: PRSC and Millennium Development Goals Listof Annexes Annex 1: Progress on ERSO I11Triggers Annex 2: Status Report on Triggers for the HIPC Floating Completion Point Annex 3: Framework Memorandum-Multi-Donor Budgetary Support (MDBS) Annex 4: Bilateral Development Partners and European Commission-MDBS Annex 5: ExpenditureAccountability Assessment and Action Plan (AAP) Annex 6: Ghana Public Financial Management Annex 7: Ghana CPAR 2003: Summary o f Key Findingsand Recommendations Annex 8: PSIA - Issues and Background Impact Analysis Annex 9: PSIA - Summary List o f Prioritized Studies for PRSC-2 Annex 10: Country at a Glance Annex 11: Key Economic Indicators Annex 12: Key Social Indicators Annex 13: Key Exposure Indicators Annex 14: Ghana- Status o f Bank Group Operations Annex 15: IMFPublic Information Notice Annex 16: Timetable o f Key Processing Events  GHANA POVERTYREDUCTION SUPPORT CREDIT AND GRANT FinancingandProgramSummary Borrower: Government o f Ghana Amount: US$ 125 million (US$SS million IDA Credit and US$ 37 million IDA Grant) Terms: Standard IDA terms: 40-year maturity with a 10-year grace period Description: The proposed operation o f US$125 million i s a Poverty Reduction Support Credit and Grant (PRSC) that would build on recent reforms carried out by the Government o f Ghana and support the implementation o f the Ghana Poverty Reduction Strategy (GPRS). The proposed PRSC-1 will support the policies and reforms aimed at improving the living conditions o f the population by promoting growth, incomes and employment, accelerating human resource development, and strengthening governance and public sector management as spelled out in the country's GPRS. The first PRSC would lay the ground for helping the country to attack poverty in a comprehensive manner. It i s envisaged that there will be further single-tranche PRSCs inFY04 and FY05, respectively Benefits: The proposedPRSC-1is expectedto provide a series o fbenefits. The main and ultimate benefit i s the human progress towards the MDGs expected from the growth and service delivery outcomes o f the implementation o f the program supported by this operation. In addition, there are two intermediate benefits. The first i s helping maintain macroeconomic stability by contributing to the closing o f the external financing gap. The second i s enabling Government to generate the funds required to execute GPRS policies andprograms. Risks: The risks faced by the program are: (i) sustainability failure owing to politicalhocial pressures; (ii) threat to its macro-financial framework as a result o f terms o f trade shocks or increased regional instability; (iii)residual fiduciary risks to funds; and (iii)implementation capacity being outpaced by the program. The risk that the program may not be sustained relates to possible weakening o f the Government's commitment as the 2004 elections approach andor social opposition to the program emerges. This risk i s mitigated by the use o f communication and dialogue to gain social acceptance o f the reforms. This has already been used successfully in late 2002 and early 2003, when good communication enabled the acceptance o f the hefty but overdue petroleum price and utility tariff adjustments. In addition, the sound and early poverty measures (e.g.  - - 11 fee-free access by poor mothers to maternity services) reduce the risk o f social opposition. The risk o f disruption o f the macro-financial context o f the program arises from the possibility o f adverse terms o f trade widening the financing gap or increased regional instability creating unforeseen needs for security expenditures. The strong relation with the MDBS development partners helps mitigate the risk o f such events causing the program to fail. The partners have pledged their support to the program in the form o f predictable and sufficient multi-year financing, as long as it i s implemented with commitment. They stand ready to adjust the timing o f their disbursements to provide adequate financing as long as progress on the programremains sound. There are residual fiduciary risks due to weaknesses in public financial management. Although Ghana has made strides in the area o f probity in public resource management (in the broader sphere o f corruption, Ghana placed 4'h inboth the 2001and 2002 Transparency International ranking o f sub-Saharan African countries, behind Mauritius, Botswana, and Namibia), there are residual risks o f the misapplication o f public fimds. The risks diminish further with continued improvements in budget management. These risks are also mitigated by the elevation to national attention o f fiscal transparency communications, budget account disclosures, and Parliamentary oversight o f resource use and development results - all as part and parcel o f the GPRS process. The capacity risk entails the possibility that program implementation capacity might be overburdened by multiple activities and result in a slower-than-expected progress on the program. The Bank i s helping mitigate this risk by leading the development partner effort o f harmonizing program content and monitoring. The adoption o f a common framework for assessing progress on the implementation o f the GPRS and the expected adoption o f a common policy matrix in 2004 augur well for successfbl mitigation o f the risks in this area. Donor support under the MDBS would also make critical technical assistance available to deal with residual unforeseen difficulties. Disbursements: SDR 90.8 million (US$125 million equivalent) will be disbursed upon PRSC-1effectiveness. Implementing Agency: The Ministryo f Finance and Economic Planning ProjectIDNumber: PE-PO76808 The World Bank core team for this operation was led by Marcelo Andrade and consisted of: Benoit Millot, Laura L. Rose, Eunice Dapaah, Evelyn Awittor, Eileen Murray (AFTH2); Guenter Heidenhof, Yongmei Zhou, Smile Kwawukume (AFTPR); Jan Walliser, B.Boubacar-Sid, Daniel Boakye (AFTP4); Mangesh Hoskote(AFTEG); Sarah Keener (SDV); MbubaMbungu (AFTPC); Michael Wong, Kofi-BoatengAgyen (AFTPS); Solomon Bekure, Patience Mensah, Edward Dwumfour (AFTW); Margo Thomas (IFC); Gert Van Der Linde, Iradj Talai (AFTFM); Irene Xenakis (AFTOS); David Webber, Ayman Abu-Haija (LOAG1); Karen Hudes (LEGAF). Paula Lamptey, Salli Cudjoe (AFClO), Marta Berhane and Judite Femandes (AFTP4) helped to prepare the document. Jeffrey Lewis (PRMTR) provided guidance and advice as peer reviewer. Quality Assurance was also providedby Emmanuel Akpa (Sector Manager AFTP41.  INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAMDOCUMENT FOR A PROPOSED POVERTY REDUCTION SUPPORT CREDIT AND GRANT TO GHANA 1. INTRODUCTION 1. This Program Document proposes a single-tranche Poverty Reduction Support Credit and Grant (PRSC-1) to the Republic o f Ghana for SDR 90.8 million, an amount equivalent to US$125 million, on standard IDA terms. The proposed operation is an integral part o f the Bank's strategy to support the implementation o f Ghana's Poverty Reduction Strategy (GPRS). This one-tranche operation would be the first in a series o f three such operations to provide financial support to allow the Government to carry out its poverty reduction expenditure program. The proposed operation would also facilitate the implementation o f reforms aimed at improving the living conditions o f the population by promoting growth, incomes and employment, accelerating human resource development, and strengthening governance and public sector management. The PRSC-1 would provide financial assistance to help Ghana close financing gaps, which are o f balance o f payments and fiscal origins. It i s envisaged that over the period 2003-05 there would be two subsequent single-tranche PRSCs to continue to support the implementation o f the poverty reduction program. The program to be associated with successive credits in these series o f PRSCs may be broadened to include selected policy measures drawn from the GPRS agenda, as considered needed to ensure the achievement o f the credit's main objectives. 2. The reform program associated with this operation builds on the Government's full PRSP and is aligned with the Bank's FYOO Country Assistance Strategy (CAS), and fits with the FY04 CAS currently under preparation'. PRSC-1 builds on analytical work carried out over the past few years, including an International Competitiveness Report (Report No. 22421-GH), a Country Financial Accountability Assessment (CFAA-May 2001), a Financial Sector Assessment Program (FSAP-May 2001), and the 2002 Public Expenditure Tracking Survey in education and health; the soon-to-be concluded core diagnostic work in the form o f a Country Procurement Assessment Report (CPAR), a Poverty Note, a new C E M on Growth, Poverty and Public Sector Management and a CFAA. The program also builds on analytical work carried out by the Government and other development partners. In addition, the recommendations o f a joint Bank-Fund Boardpaper on the tracking of public spending in H P C countries have played a major role inthe design o f the reformprogram. '"Ghana Poverty Reduction Strategy and Joint World Bank-IMF Staff Assessment o f the GPRS" (March 4,2003), and "Ghana: Country Assistance Strategy"- Report IDNW20815-GH, March 2000.  - 2 - 3. Bilateral and multilateral donor assistance would play an important role in supporting the implementation o f the GPRS given that the country's own resources fall short of the levels required to achieve the objectives spelled out in the strategy. The GPRS has created the momentum for a significant group of donors to align their budgetary support under a common framework, the Multi-Donor Budgetary Support (MDBS) (see paras. 115-119). The MDBS will provide a framework for policy dialogue anddecisions linked to progress inthe implementationo fthe GPRS. 4. The PRSC-1 has been developed ahead o f the finalization o f the FY04 CAS (which would have provided the strategic context for the PRSC) and o f the conclusion o f FY03 CFAA (which would have updated knowledge required for the definition of prior actions and triggers inthe area o f fiduciary safeguards). The choice to go ahead with the PRSC rather than another instrument was made for a number o f reasons. 5. First, where the country strategyis concerned, as explained inparas. 31-49, both the FYOO CAS and the upstream work on the FY04 CAS offer enough elements to allow the clarification o f the strategic context o f the PRSC-1. As to the analytical work, the FYOl CFAA andthe missionreport o fthe FY03 CFAA-update provided sufficient inputs for the design o f the prior actions and triggers o f PRSC-1. The final report o f the FY03 CFAA would help to strengthen the area in subsequent PRSCs. Second, the choice responds to the earnest but reasonable request o f the Ghanaian authorities to have the Bank's support to the GPRS indicated early and aligned with the time frame for its implementation so as to sustain the national enthusiasm that has been built around it. Third, the choice is influenced by the need to maintain the Bank's key role among the Development Partners (DPs) active in Accra, who have decided to support the GPRS with multi-year budgetary assistance, and to use common procedures in order to reduce the transactions burden on the country. With the PRSC, the Bank would remain with the other DPs and continue to play its prominent role inthe MDBS. 6. The Bank's strategy (being developed in the FY04 CAS) is to progressively increase the share o f the assistance program delivered inprogrammatic form. The PRSC begins this process. But there are risks o f providing such support in light o f the need to keep improving the fiduciary framework. The residual risks are worth bearing, to the extent that the Bank's PRSC support would help sustain national interest in the GPRS, with the popular vigilance about its impact becoming an additional tool for promoting probityinthe use o fpublicresources. 2. RECENTECONOMICDEVELOPMENTSAND PROGRESS INPOVERTYREDUCTION A. MACROECONOMIC AND STRUCTURAL REFORMS 7. Since embarking on economic reforms in the mid-l980s, Ghana has made considerable progress on laying the foundations for sustainable growth and poverty  - 3 - reduction2. This has resulted in sustained output growth and increased private sector activity and investment over the last two decades. In parallel with reforms, important political reforms were also adopted, moving the country to a firmly democratic form o f Government. However, progress has been periodically intempted by episodes o f weak macroeconomic management associated with the electoral cycle, occurring in 1992, 1996 and 2000. 8. Bank support was particularly important in correcting the slippage that occurred during the 1996 elections. Measures were adopted and the Government curtailed domestic budgetary expenditures and succeeded in halving the inflation rate over the subsequent two years. On this basis, and to support Ghana's progress in completing previously delayed reforms-in particular, increased tariffs aimed at restoring financial viability to the public utilities, and the passage o f the VAT law-IDA approved a one- tranche adjustment credit, the Economic Reform Support Operation (ERSO) in 1998. 9. By mid-1999, Ghana had made significant progress inrestoring macroeconomic stability. Inflation had fallen to below 10 percent, and real interest rates were declining from a very high level. The VAT had been successfully re-introduced, a number o f insolvent banks were closed, and the Government had reached a consensus with stakeholders on the strategy for further liberalizing the cocoa sector. Following a new Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF inMay 1999, IDA approved a second ERSO credit, in July 1999, which focused on a program o f continued reforms inthe cocoa, energy and banking sectors. 10. Beginning inthe latter half o f 1999, Ghana suffered a major terms-of-trade shock, with falling prices for Ghana's two main exports, gold and cocoa, and rising prices for petroleum imports. This shock, together with a delay in adjusting fiscal and monetary policy accordingly, ledto a sharp deterioration inmacroeconomic performance, including a build-up in external arrears. The exchange rate depreciated rapidly in the latter part o f 1999 and inflation increased significantly. These problems were compounded by delays in the adjustment of domestic petroleum prices and electricity rates, resulting in an accumulation o f large bank debts at the state-owned monopoly importer, Tema Oil Refinery (TOR), and threatening the financial viability o f the utilities. Fiscal and monetary discipline faltered once again in the runup to the December 2000 elections. As the terms o f trade worsened further, the exchange rate depreciation and rising inflation continued through 2000. 11. The erstwhile opposition party won the 2000 elections and the newly-elected Government, having inherited a very difficult economic situation, moved quickly to restore stability. In February 2001, retail petroleum prices were increased by 60 percent inorder to staunch operating losses at the state-owned refinery, and similar increases in electricity and water tariffs took effect in May to curtail losses at those utilities. An interim budget passed in March 2001 raised taxes and curtailed expenditure appropriations, and a further package o f fiscal measures was devised for implementation 'See Box 1,HIPCDecisionPoint Document, SEC -/M-2002  - 4 - beginning mid-2001. On the strength o f the Government's macroeconomic and structural reform program for 2001, the third review under the PRGF arrangement was completed and IDA presented the Third Economic Reform Support Operation (ERSO 111) operation to the Board(IDA/R2001-0121) inJuly 2001. 12. Sustained implementation o f tight financial policies during 2001 resulted in significant progress on macroeconomic stabilization. The inflation rate was brought down from a peak o f 42 percent in early 2001 to half that rate by end-year, the nominal exchange rate remained basically constant during the year, and the foreign exchange reserve position was rebuilt. At the same time, progress was made inthe restructuring of public enterprise debt, and work advanced on setting a fee schedule for public utilities that would allow them to move progressively toward full cost recovery. Measures intendedto strengthen public expenditure control at the commitment stage were delayed, however, resulting inthe build-upo f new domestic arrears. Progress was also slower than expected inthe area o f divestiture, although this inpart reflected the authorities' efforts to ensure a transparent process. 13. During2002, program implementationwas mixed. Preliminary estimates indicate that real GDP growth accelerated to about 4.5 percent, as a result o f improved terms of trade and an increase in credit to the private sector. Higher petroleum products import prices seem to have been more than offset by higher cocoa and gold export prices. Further progress was achieved inreducing inflation to about 15 percent, at end-2002, and building up foreign reserves to about 2 months. In terms o f structural reforms, good progress was made in the areas o f tax administration, financial sector reform, move towards full cost recovery for utilities, and in governance. However, performance was undermined by serious fiscal and quasi-fiscal slippages associated with weaknesses in public expenditure management, specially in the management o f the wage bill, payment o f late 2001 unbudgeted expenditures, non-implementation of revenue enhancing measures, and delays in the divestiture program. Moreover, failure to adjust petroleum prices contributed to the Government havingto assume debt o f the refinery representing almost 3 percent o f GDP and, contrary to programmed, domestic debt build up continued representing about 29 percent at end 2002. As a result, the fifth and final review under the 1999-2002 PRGF arrangement could not be completed. 14. Later in 2002 and early 2003, the Government redoubled its reform efforts (see Annexes 1 and 2). A comprehensive and participatory poverty reduction strategy was finalized and its 2003 tranche incorporated into the budget. In mid-January 2003, the authorities raised petroleum prices by 90 percent on average, bringing retail prices to import parity levels. In addition, a Debt Recovery Levy (DRL) on petroleum products, estimated to generate 1.6 percent of GDP in 2003, was enacted to help retire the TOR bonds issued due to the lack o f adjustment o f petroleum prices over the past years3. In March 2003, another adjustment of electricity and water tariffs o f about 12 percent was made effective to bringthem inline with full cost recovery. DRLwas establishedat 640 cedis per liter,  - 5 - 15. The Government has also decided that henceforth, the authority to change the utility tariffs and retail petroleumprices will be exercised by the appropriate bodies. To this end, the Public Utility Regulatory Unit and the National Petroleum Tender Board, have already been given independent powers and automatic adjustment formulas have been adopted. Early in 2003, the Government also rolled out the initial phase of the budget and public expenditure management system (BPEMS), and submitted for Parliament approval the legal and regulatory framework to reform the public procurement, and to strengthen financial management, reporting and audit functions o f public sector institutions and to decentralize functions to district levels. B. MEDIUM-TERM PROSPECTS Macroeconomic Outlook and External Financing Requirements 16. As stated inthe GPRS, the Government's macroeconomic objectives for 2003-05 include an average real GDP growth rate of about 5 percent, allowing for real per capita income increases averaging 2.3 percent. The renewed growth, which is expected to strengthenwith time, would be based on the steady recovery o f the tradable sector. As such, the associated export performance would be just a shade below the GDP growth rate, averaging about 4 percent in real terms over the period. In contrast, real import growth i s expected to be stronger, averaging about 8 percent annually, on account o f the infrastructure projects planned early in the GPRS period. In the fiscal area, the impacts o f public finance reforms are expected to show up early in the period and be sustained throughout in terms o f stronger revenue Performance and greater expenditure discipline. As a result, the macroeconomic framework inthe PRGF-supported program indicates that the fiscal gaps are expected to narrow, with the overall deficit/GDP ratio (including grants) falling to an average o f about 2 percent, compared with an average of approximately 8 percent inthe preceding three years. 17. Ghana does not yet have a formal quantitative framework for projecting the income poverty outcomes o f given levels o f growth performance. However, on the basis of less formal computations, the authorities estimate that the income-poverty elasticities would enable them to achieve the headcount target o f 32 percent by 2005. Table 1: Key Macroeconomic Indicators, 2002-2005 2002 2003 2004 2005 Act. Proj. Proj. Proj. Real GDP growth % 4.5 4.7 5.0 5.0 CPI inflation% 14.8 26.9 8.3 6.0 Gross Investment/GDP % 19.7 23.0 24.2 24.6 Gross National Savings % 20.3 21.2 22.6 23.4 Current Account DeficiVGDP 0.6 -1.8 -1.6 -1.6 (incl. Grants) % OverallBudget DeficitIGDP -6.8 -3.9 -1.3 -0.4 (incl. Grants)% Source: IMF and Bank Staffprojections, with inputs from the Ghanaianauthorities.  - 6 - 18. The projected growth outlook for 2003-05 is expected to be supported by a gross investment ratio o fjust under 24 percent and a national savings ratio averaging about 22 percent. The resulting external current account gap i s projected at 1.6 percent annually. The overall external financing requirements are projected at US$3,019 million. Grants, already committed, project loans, and debt relief (including HIPC) would amount to US$2,388 million, leaving a gap o f US$631 million. The corresponding residual financing needs in 2003 would amount to US$212 million. Of this, drawings from the IMF would cover US$72 million. IDA'S support through the PRSC-1 would cover another US$125 million. Quick disbursing assistance from other partners supporting the GPRS would cover the remainder (see Table 2). Table 2: ExternalFinancingRequirements,2003-05 (InUS$million) GrossFinancingRequirements -983 -1,046 -990 -3,019 Current account deficit -490 -495 -502 -1,487 Capital account deficit -277 -330 -280 -887 Change inreserves (-means increase) -181 -186 -173 -540 Other -35 -35 -35 -105 Financing 983 1,046 990 3,019 Program Grants 131 99 95 325 - Bilaterals 90 - Multilaterals 41 Project Grants 155 164 165 484 Project Loans 196 225 225 646 Debt Relief, incl. HIPC 289 332 312 933 IMFdrawings 72 72 72 216 Other support, including IDA PRSC 140 154 121 415 - IDAPRSC 125 - Financinggap 15 Source: IMFand Bank Staff projections, with inputs from the Ghanaian authorities. Medium-TermPublicFinanceOutlook 19. The attainment o f the goals o f the GPRS requires two sorts o f adjustment in the public finances, as reflected in the outlook in Table 3 below. First, the public finances must become more viable, to support the return to overall macroeconomic stability. This would come from reductions in the fiscal deficit as the combined outcome o f enhanced revenue mobilization, on one hand, and greater rigor in public expenditure policies, on the other. This trend appears inthe outlook, as the overall deficit (including grants) falls from -6.8 percent o f GDP in 2002 to -0.4 percent in2005. An important element in the projected trend is the reduction in domestic debt and the related interest burden (which falls from 4.5 percent o f GDP in2002 to 2.4 percent in2005). 20. Second, the public finances need to create room to allow a higher level o f resources to flow to growth-inducing and poverty-reducing activities. This is shown in  - 7 - the outlook as stable funding o f goods and services at 3.1 percent of GDP, along with rising domestic fundingof the development budget, which rises from 2.7 percent o f GDP in2002 to 6.6 percent of GDP in2005. The combination of the projected allocation to goods and services and the higher provision for development expenditures will be the way to channel a higher volume o f domestic resources to the GPRS priorities. Table3: Medium-TermPublic FinanceOutlook,2002-05 (InpercentofGDP) 2002 2003 2004 2005 Revenue & grants 21.1 26.2 26.7 26.4 Revenue 18.0 21.6 22.3 22.2 Total Expenditure 26.1 29.3 27.8 26.5 Current Expenditures 20.0 20.0 17.5 16.2 Wages & Salaries 8.5 8.4 8.4 8.4 Goods & Services - - 3.1 3.1 3.1 - 3.1 Intereston Debt 6.1 6.8 4.3 3.2 O/w Interest on Dom.Debt 4.5 5.5 2.8 2.4 Transfers - - - 2.3 1.7 1.7 1.5 Current Surplus 1.1 6.2 9.2 - 10.2 Devpb`Capital Expenditure 6.1 9.4 10.3 10.4 Overall Def. (incl. grant^)^ -6.8 -3.9 -1.3 -0.4 Source: IMF and Bank Staff projections, with inputs from the Ghanaian authorities c. POVERTYTRENDS AND PROGRESSIN SOCIAL AND HUMAN DEVELOPMENT 21. Poverty Trends. Information from the 1998-99 Ghana Living Standards Survey (GLSS) shows poverty trends were favorable in the 1990s, with the percentage of the adult population defined as poor falling from 52 percent in 1991-92 to just under 40 percent in 1998-99.5 Poverty refers to an absolute poverty line o f 900,000 cedis per adult per year in 1998/99 (US$363 in 1999 prices). Individuals with expenditures above that level are considered able to purchase enough food to meet their nutritional requirements and to meet their non-food basic needs. Although at the national level the incidence o f poverty declined, it increased in two o f the northern regions and the central region. The largest declines were recorded inthe Greater Accra Region-which includes the bulk o f industrial and service activities-and the Western, Volta, Ashanti and Brong Ahafo regions, where exports such as cocoa, gold and timber are produced (Figure 1). Most groups experienced a decline in poverty during the 1990s, but to differing degrees. Export farmers and private sector employees benefited the most and food crop farmers the least, many o f whom are women. These improvements were made possible by sustained GDP growth at an average rate o f 4.3 percent per year during 1992-99 andthey were accompanied by a broad improvement in social indicators. Broadly, the development could be considered to have been especially beneficial for the poor because After arrears clearance Ghana Statistical Service, "Poverty Trends inGhana inthe 1990s"; October 2000.  - 8 - it was accompanied by agricultural growth, which liftedout o fpoverty a large number o f farmers, thereby reducing the percentage o f the poor in rural areas from 63.6 percent in 1991/92 to 49.5 percent in 1998/1999. 22. The combination o f domestic policy slippage and the terms-of-trade shocks of 1999-2000 probably caused a deterioration in living standards for a good number o f Ghanaians. The GPRS could also have acknowledged the uncertainties regarding the medium-term poverty reduction targets, including the possibility that the base level o f poverty in 2000 may have been underestimated, in light o f the adverse economic developments in 1999 and 2000. In the meantime, a Poverty Note (planned for June 2003) will present the results o f a preliminary examination of the likely impact o f those events on poverty. A full update of the understanding of the extent and evolution of poverty will be possible with the completion o f a new household survey, the GLSS5, expected in2004. Figure 1: Summary of Poverty Rates, 1991/92 and 1998199 Upper West 88 Upper East 88 Northern 69 BrongAhafo Ashanti Volta U1991l92 ~ Eastern Gt.Accra Central Western 0 20 40 60 80 1O( Incidence(percent) Source: Ghanaianauthorities 23. Growth and inequality. The effectiveness o f growth in reducing poverty i s enhanced when growth i s accompanied by falling inequality. Table 4 breaks down the change in poverty into (i) change in the mean value o f consumption assuming that the inequality hadremained unchanged (growth effect); (ii) observed change ininequality the assuming that mean consumption had remained unchanged (distribution effect); and (iii) a residual effect (which measures the interactive term between growth and redistribution effects). In Ghana's case, broad economic growth accounted for nearly all the poverty  - 9 - reduction at the national level between 1991/92 and 1998/99. Changes ininequality were not strong enough to overturn the effect o f growth. 24. Characteristics of the poor. There i s a strong link between poverty and low access to basic infrastructure, health services and education. In participatory studies o f poverty, Ghana's poor expressed a strong demand for improved social services, but there were substantial regional differences. Communities in the north o f the country saw a priority need for irrigation, potable water, health facilities and off-farm employment generation. Those inthe south placed more emphasis on skill training, general education, transparency, good governance and provision o f economic and social infrastructure. In both regions, lack o f access to credit was mentioned as a factor exacerbating poverty, especially for farmers and the informal sector. Table 4: Decomposition of Change in Poverty, 1991/92 and 1998/99 Share of percentage change due to: Total Change Growth effect Redistribu- Residual tion effect Accra -19.6 -12.6 -10.3 3.3 UrbanCoastal -3.0 -11.8 8.0 0.8 UrbanForest -8.7 -11.2 0.0 2.4 UrbanSavannah 5.5 6.5 -1.7 0.6 RuralCoastal -7.0 -9.8 1.8 1.o RuralForest -25.2 -23.3 1.6 -0.3 RuralSavannah -2.0 -5.0 1.6 1.5 All Ghana -12.1 -13.8 0.1 1.5 ~~ ~ Source: Poverty trends inthe 199Os, "Ghana Statistical Service", October 2000. 25. Gender differences. There are significant gender disparities in access to key productive assets: land, labor, financial services, and inputs. Farmers in Ghana, whether men or women have low levels o f use o f credit and other inputs. Even at these low levels, there are important gender disparities, which reveal that cash (male-dominated) crops benefit more from inputs and financial services thando food (female-dominated) crops. As in most other African countries, Ghana's primary school enrollment rates are lower for girls (76 percent) than for boys (84 percent). Interms o f health, infant mortality and life expectancy are both more favorable for women in Ghana, as is typical. Utilization rates o f health services are higher for women than for men. This is not unusualbecause o f the additional health services requirements o f women associated with obstetrics and gynecology. Inview o f the country's relatively high fertility rate at 4.6 (GLSS - 1999), and a highmaternal mortality ratio (200/100,000) it appears that there is a problem with the delivery o fhealth services for women. 26. Access to social services. During the 1990s, in the education sector, primary enrollment rates rose marginally mostly due to increased enrollment in private schools, especially in urban areas. Over the same period, improvements were seen in the health outcomes, Inthis regard, the under five mortality rate was lowered from 119 per 1,000 to  - 10- 110 per 1,000 live births. The GPRS notes that indicators such as lower school enrollment rates and higher under five mortality, reflecting differences in access to basic social services, generally mirror regional and socioeconomic differences o f poverty rates. As a result, education andhealth outcomes inthe Northem, Upper East and Upper West regions are considerably worse than the national averages. Inthe poorest regions, gross primary enrollment i s about 25 percent lower than the national rate o f 80 percent. Similarly, the under five mortality is also muchworse inthe poorest regions. Inthis case, the rate is almost fifty percent higher than the national average o f 110 per 1,000 live births. Strategically, while the country is well positioned to reach most of the MDGs this will not happen unless these regional disparities are forcefully addressed. 3. THE GHANAPOVERTYREDUCTIONSTRATEGY 27. The GPRS establishes the framework for implementing the Government's anti- poverty agenda. It was recently considered by the Boards o f the Fund and the Bank together with the Joint Staff Assessment (JSA). 28. On the basis o f the analysis, the Government set its poverty reduction goals in alignment with the MDGs. The authorities then defined the strategy for pursuing those goals under five pillars dealing with income poverty, human development, govemance and empowerment, and exclusion (see Box 1). 29. The poverty diagnosis in the GPRS drew on comprehensive data from both quantitative and qualitative sources. The latest sets o f poverty data for Ghana come from the 1998-99 Ghana Living Standards Survey (GLSS); a 1997 survey on the basis of the Core Welfare Indicators Questionnaire (CWIQ); the 1998 Ghana Demographic and Health Survey; the 2000 Population and Household Census, and the 2000 Participatory Poverty Assessment. 30. The Govemment next tumed its attention to elaborating the policy measures in some areas to operationalize and prioritize the policy strategy outlined in the GPRS. Duringpreparation o fthe PRSC, progress was achieved on establishing the roadmap for reforms to be implemented in areas critical for stepping up growth, improving service delivery and enhancing govemance. However, much remains to be done. The Govemment program supported by the PRSC will cover selected elements o f the GPRS and focus on (i) selected cross-cutting issues that hamper progress invarious sectors; and (ii)setofprioritieswithinandbetweensectors, whichareconsideredcriticalforthe a achievement o fthe country's objectives andprogress towards the MDGs.  - 11- Box 1: Ghana PovertyReduction Strategy (GPRS) The Ghana Poverty ReductionStrategy (GPRS) aims at addressingthe most pressing challenges faced by the country with a view to acceleratingsustainedgrowth andpovertyreduction.Ghana's povertyreductionstrategy was developed after extensive consultations between the Govemment, the private sector, civil society and development partners. Concurrently, a Participatory Poverty Assessment (PPA) was conducted in thirty-six communities through local workshops, to better understandthe perspectives o fpoor people. The Governmentintends to continue the consultation and participation process during the implementation phase through participatory monitoring and an effective communicationstrategy. The goal of the GPRS is to achieve sustainable, equitable growth, acceleratedpovertyreduction, and the protectionof the vulnerableand excluded within a decentralized democratic environment.To achieve this goal, key objectives have been set in the mediumterm (2003-2005) with the view to progressing towards the Millennium Development Goals (MDGs) by the year 2015. The main objectivesof the GPRS are: (i)accelerateannual real GDP growth to 5 percentby 2005; (ii)reducepoverty from 39 percent to 32 percent over the same period; (iii) improve basic infrastructure such as roads, water and sanitation, andmarket access; (iv) increasethe level ofprimary enrollmentand completionrate; (v) reduceinfant,child and matemal mortality and the incidence of infectious diseases; and (vi) improve govemance and efficiency of the public sector. The GPRS has five pillars - macroeconomic stabiliy, increase production and employment, human resource development, special programs for the vulnerable and excluded, and good governance- on which the Govemment will focus to achieveits povertyreductiontargets. The strategy buildson creatingfavorable conditionsfor private-sector-led growth, improving the delivery of basic social services, andraising the efficiency of the public sector. Specifically, the strategyaims at: (i)achievingmacroeconomicstabilitybystrengtheningfiscalpolicymanagement,adoptingaprudentmonetarypolicy stance, and improvingthe country's intemationalcompetitiveness; (ii) increasing productionand employment by eliminating structural impediments to faster private sector-led growth. The greatest challenge in this respect i s the fostering of growth of ago-basedindustrial productionand the promotion oftourism; (iii)promotinghumanresourcedevelopmentbyimprovingthepoor'saccessibilitytoqualitybasiceducationandhealth care, fighting the spreadof HIVIAIDS and expandingprovisionof other basic services such as water and sanitation; (iv) implementingspecial programs for the vulnerableand excluded mainly by mainstreamingpolicies targeted to the poorestgroupsanddeprivedareas, andenforcingrightson protection,particularlyof childrenandwomen; and (v) ensuring good govemance by improving the transparency and accountability in government operations, strengthening the capacity of the public sector, and decentralizingmanagement of public policy to empower people to participateinand influencethe developmentprocess. 4. BANKRESPONSEAND STRATEGY 31. Strategic Context of the PRSC. Ghana's key development partners (DPs) consider that the country's stable, democratic governance, improving investment climate and progress in achieving the MDGs constitute a good set o f fundamentals on which to build their support to the GPRS. Inthe months leading to the finalization of the GPRS, discussions among the DPs aimed to take advantage o f government leadership to explore how to reduce transaction costs and increase the likelihood o f outcomes at scale, and concluded with a decision to base their response to the GPRS on a coordinated dialogue and a more programmatic approach to their assistance. The MDBS would be the central framework to provide such support.  - 12- 32. The PRSC will be the Bank's major contribution to this partnership. Itwill be the centerpiece inpolicy dialogue, supporting selected key issues ingrowth, service delivery, and governance whose elevation to the center o f government with a high visibility instrument would increase the chances of progress on decisions, with maximum buy-in from important segments of the society. Further, its resources will enable the finance of GPRS priorities. It will be complemented by an appropriate combination o f investment projects in infrastructure, urban, rural and private sector development; it will reinforce programmatic support inhealth and education; and it will be complementedby concerted support to capacity-building. 33. Preparations towards a new CAS. The current FYOO CAS, covering the period FYO1-03, was presented to the Board on March 30, 2000. After the presentation o f the final GPRS to the Bank, which took place in February 2003, work has begun on a new CAS as framework for assistance during FY04-06, with Board discussion foreseen for November 2003. This work was launched at a workshop during March 2-5, 2003 inthe town o f Akosombo. The participants included the Minister o f Finance and Economic Planning and senior members o f the government. Consultations with civil society and development partners have started. The workshop took as its point o f departure the question o f how support to the GPRS should be focused and implemented inorder more effectively to achieve the desired outcomes. The discussions concluded that the FY04 CAS should focus support to the GPRS on the three inter-locking strategic axes: (i) sustainable growth andjobs creation (supporting pillars 1and 2 o f the GPRS); (ii) human development and service delivery (supporting pillars 3 and 4 o f the GPRS); and (iii) governance and empowerment (supporting pillar 5 o f the GPRS). 34. The current FYOO CAS i s based on Ghana's poverty reduction strategy that was set forth inthe Vision 2020 document. The CAS supports three strategic axes of Vision 2020: (i) increasing economic growth, to raise incomes; (ii) redefining the role o f the state, to focus it on efficient service delivery; and (iii) increasing the effectiveness o f the implementation o f the national development strategy, by improving governance and making efficient use ofpublic resources. The GPRS builds on the country's Vision 2020. Given the strong strategic link, the FYOO CAS i s an adequate framework for continuing Bankassistanceto Ghanawhile the FY04 CAS is prepared. 35. Current portfolio. As o f March 2003, there were 21 active projects totaling US$1163.3 million, o f which US$594.3 million remains undisbursed. The portfolio comprises support in six areas: economic management and reform (20 percent of commitments), infrastructure (46 percent), agriculture and rural development (11 percent), human development (13 percent), public sector management (3 percent) and private sector development (7 percent). Two operations are currently rated unsatisfactory. The June 2002 CPPR found lagging disbursements and frequent extensions of closing projects, and to address these issues the CPPR made concrete recommendations to strengthen implementation, through an action plan focused on effectiveness delays, slow implementation pace, weak monitoring and evaluation, mainstreaming of parallel structures created to implement projects, and sustainability issues.  - 13 - 36. Emergingthrust of assistance under the FY04 CAS. Respondingto Ghanaian leadership and to development partners' desire to work in more programmatic and harmonized ways, a key objective for the Bank's next CAS will be to center support on the PRSC, complement it with existing and new lendingoperations, and underpin it with a new set o f knowledge products. Existing operations would be geared to support this new framework; new operations would be clearly complementary; and the overall number o f operations would come down. From a high o f over 30, the number is today 21, and is set to fall further as many projects are set to close inFY03 and FY04, and as the new CAS impacts the current portfolio. 37. Initial work on the FY04 CAS has identified ways to combine the existing portfolio with selected new lending and analysis to support the GPRS in the three areas listed above. 38. In the area of stimulating higher economic growth, the national strategy places importance on maintaining macroeconomic stability; reducing the weight o f the public sector on the economy, including its claim on financial resources and the consequent pressure on real interest rates; improving the investment climate; enhancing international competitiveness; and expanding and upgrading infrastructure. Agricultural production and agro-business will remain the major source o f growth, and has considerable potential to perform better as both the macro-economic situation and service delivery further improve. Effective management o f natural resources and targeting o f constraints to rural development and increased agricultural productivity are therefore key to an enhanced growth agenda. Ghana has further potential in other industries and services, including tourism andICT-related services. 39. To support this strategy, as laid out in the GPRS, the authorities look for assistance with new knowledge to underpin the design o f reforms. To respond to that expectation, analytical work and economic dialogue will occupy pride o f place in the Bank's assistance program. To start with, the core diagnostic piece (International Competitiveness - Challenges and Opportunities facing Non-Traditional Exports, FYO1) will be used to propel the dialogue with the authorities on the public sector, macroeconomic stability, international competitiveness and growth. This will be reinforced with further AAA support based on a C E M on Growth, Poverty and Public Sector Management, FY03. A Poverty Note, FY03, examining the growth and distribution dimension will provide additional input. Work on the C E M and the Poverty Note fed into the preparation o fthe PRSC. BeginninginFY04, annual PERs will be used to advance the dialogue on budget formulation and implementation issues linked to growth performance. An Energy Policy Note and a Rural Development ESW, both FY04, and a series o f PSIA studies will further inform future policy choice and support programs. 40. The areas o f emphasis in the PRSC (reducing domestic debt, improving the investment climate and the performance of the rural sector) will be complemented by investment lending for infrastructure and other project support that is not o f a programmatic nature. The Bank's current project portfolio has a strong emphasis on infrastructure, rural development and private sector development. The major Road  - 14- Sector Development Program from FY02 will continue to support the expansion and maintenance o f roads. The energy policy note will help define future engagement in the energy sector, as sector reforms embedded in the PRSC are implemented. Positive experience in urban infrastructure, environment and sanitation will allow rapid continuation and application o f successful approaches to other municipalities. To support agriculture and rural development, the recently restructured Agricultural Sector Investment Program, the Rural Financial Services operation, and the coming Land Administration Project will be complemented by a Community-Based Rural Development Project, foreseen for FY04. The recent study on micro-finance and the new review o f rural development in FY04 will further chart options for the sector, guiding both the PRSC and the cluster of sector operations. The Natural Resource Management APL is centralto the Bank's contribution to environmental sustainability and is foreseen to continue in a second phase. The Trade and Investment Gateway i s helpingto address key bottlenecks to private sector development, and could after further PSD review be complementedby support for small and medium sized enterprises. These operations are all complementary to the approach inthe PRSC. 41. In the area of enhancing sewice delivery for human development, the GPRS strategy aims to close gaps in access to and utilization of basic services by the poor. An effective strategy to reach the MDGs needs to build both on public and non-public service providers, and to develop the linkage between service delivery and increased growthprospects. 42. Inhealth, the strategy is to focus ondeliveringpro-poor services, inparticularto the disadvantaged regions, providing care for the vulnerable, the elderly andthe disabled, and ensuring financial risk protection especially for emergencies. Public/private partnerships are seen as having a key role. In education, the strategy is to improve the accessibility and quality o f education in deprived areas by increasing the availability of facilities, equipment, textbooks and teachers, and promoting gender equity in enrollment and retention. The Government's program includes the decentralizationand improvement o f humanresource and financial management. 43. The Health Sector Program Support Project, FY03, continues the Bank's participation in the multi-donor health SWAP. The PRSC strongly complements the policy dialogue in health financing and human resources, two o f the critical issues with economy-wide implications. An Education Sector Project, FY04, i s being prepared to support a new Ghanaian sector strategy. The programmatic approach being adopted first in health, and later in education, will allow development partners to enhance their support, allow rapid take-up o f new resources and align with the economy-wide MDBS/PRSC programs. The Ghana AIDS Response Project, FYO1, is disbursing rapidly, and additional funding will be needed at some point. The Community Based Poverty Support Project i s gaining momentum and will be complemented by budgetary support to selected districts for programs for the vulnerable and excluded. 44. Rural service delivery, water and other infrastructure i s further supported by two projects, Community Water, FYOO, and Village Infrastructure, FY97, in addition to those mentioned in the previous section. A decentralized approach would be mainstreamed in  - 15 - the urban and m a l projects now under preparation, in particular the Community-Based Rural Development Project. 45. To improve governance and efficiency in the management of thepublic sector and public resources, the GPRS proposes a strategy including decentralization of government; strengthening o f accountability o f public officials to the population; and improved public expenditure management. The GPRS further foresees better use of measuring results, monitoring and evaluation, and o f public information, communication and dialogue. 46. To complement the major PRSC thrust inthis area, capacity buildingprojects will be reorganized by substituting one new project with an integrated approach (Accountability, Capacity Buildingand Decentralization Project, FY04) for the originally planned follow-ups to the two existing individualprojects (Public Finance Management Technical Assistance Project, FY97; and Public Sector Management Project, FY99, both closing in2003), and a previously foreseen stand-alone Decentralization Project. Further support will be provided through AAA delivered within the context o f the multi-donor support to capacity building, including through a common technical assistancepool. 47. LendingEnvelope. Ghana's IDA allocation for FY03-05 was SDR 432 million (US$570 million), and is SDR 444 million (US$586 million) for FY04-06. This would cover future PRSCs, plus other lending. FY03 lending totalled US$220 million. 48. A base case for the future CAS would allow continuation of commitments at current levels. However, with strong performance and sustained reform, building on continued vibrant dialogue on appropriate policy choice, and creating enhanced capacity to absorb resource transfers, particularly as decentralization progresses, a high case can be envisioned with an increase in IDA commitments. The PRSC, complemented with other more rapidly implemented operations under the existing portfolio and with new lending, will be the Bank's contribution to a major effort by development partners to move toward programmatic and harmonized support to Ghana's poverty reduction strategy. 49. The Development Partnership. Donor coordination continues to be a strong point inthe assistance to Ghana. The latest C G was held inApril 2002. Quarterly "mini- CGs" allow for regular structured dialogue. The GPRS, and the extensive consultation that preceded it, created a stronger partnership. The preparation o f the MDBS has deepened the commitment to highstandards o fpartnership: a common dialogue, common review processes and convergence towards a common Progress Assessment Framework, as embodied inthe agreement o f the principles ina Framework Memorandum(see Annex 3). The successful experience in the health sector has been important, where support to one program, pooling o f resources and common disbursement arrangements reduced transaction costs to government and improved the likelihood o f better outcomes. The PRSC will deepen this development partnership.  - 16- 5. THE POVERTYREDUCTIONPROGRAM FOR PRSCSUPPORT 50. Lessonsfrom recentadjustmentcredits andtheir use. Recent Bank support to adjustment in Ghana has been under a series o f Economic Reform Support Operations: ERSO I,11, and 111. The implementation o f the programs supported by these credits has been broadly satisfactory. ERSO 111, which was approved at the beginning o f FY02, stipulated triggers for movingto fbrther adjustment support. Progress incompliance with triggers for hture adjustment lending established in ERSO I11is reported in Annex 1. While slower than expected, since July 2001,considerable progress has been achieved in addressing structural constraints to the country's growth andpoverty reductionprospects. However, in areas such as divestiture o f state-owned assets, and reform of energy and public sector, progress has been slow, especially when international market conditions made the sale o f enterprises impossible or the domestic coalition in support of reforms weakened. The recent experience points to five main lessons. 51. First, flexibility i s crucial to be able to respond to evolving situations, to allow fine tuning the program and to address issues not fully identified at the outset. Second, Government commitment to reforms is critical if policy actions are to be sustained. Recent reforms demonstrate that significant progress can be achieved, in a relatively short period, when the authorities take the lead and adopt an appropriate communication strategy in implementing the policy agenda. Third, selectivity and realism are essential when the reform agenda i s vast. Inthese situations, there i s a need to define a hierarchy and sequence of country-owned reforms. Fourth, donor coordination is vital to avoid over-stretching the government. Fifth, quick-disbursing operations should be framed ina context where they add value to other instruments and to sector-specific projects. These lessons informed the design of the programdescribed below. 52. The Program. The dialogue betweenthe Ghanaian authorities and Bank staff on a program that could be supported by the Bank with a possible PRSC sought to buildon the Government's GPRS and its policy matrix and the findings inthe JSA. The result i s the program submitted by the Ghanaian authorities for PRSC support, which has been articulated under three components (see Letter o f Development Policy, Schedule 1): (i) promoting growth, incomes and employment; (ii) improving service delivery for human development; and (iii) improving governance and public sector management. These are the areas inwhich PRSC support would reinforce existing programs andprojects with the elements o f opportunity and empowerment needed to reach the poverty reduction goals of the GPRS. Clear objectives are strong, broad-based growth to reduce income poverty; improved delivery o f human development services in the deprived areas to enhance chances o f reaching the MDGs; and stronger governance (as the means to empowerment) and raising the efficiency and quality o f resource utilization (eliminating waste and leakage) for steadier progress on poverty reduction. 53. Inthe area of growth, income and employment, the program foresees action on two fronts: The first front is: (i) eliminating factors that inhibit growth generally (high public domestic debt, crowding out credit to the private sector and keeping interest rates  - 17- high, and limiting scope in the budget for financing services that are supportive of development); and (ii) reducing the cost o f doing business (including unreliable and "high-price" supply o f critical inputs, especially energy, andhightransaction costs). The second front i s removing constraints on rural development. This sector has been chosen because: (i)it has the bulk o fthe natural resources; (ii) is home to the largest number o f it the people; and (iii)it has the largest proportiono fthe poor. 54. Inthe areao fservice deliveryfor human development,the program focuses on: (i) expanding access to education and health services, with particular attention to the needs o f underserved areas and populations; and (ii) improving the efficiency and equity o f financing. By focusing on these under the PRSC, the authorities count on using to advantage the spotlight on poverty in the GPRS to deal with the issues o f unequal regional and gender outcomes in health and education, and sustainable and equitable financing o f these critical services. They also count on sharpening the national focus on reaching the MDGs. This lets the PRSC add value in areas where support is being providedby sector projects. 55. Inthe areaofgovernance andpublic sector management,the programfocuses on: (i)strengthening the institutions o f participatory democracy and accountable rule; and (ii) improving the efficiency o f the public services and the quality o f public expenditure management. Here too, the areas identified for PRSC support have been selected with a view to providing value-added to sectoral support by elevating the issues to the center of Government, where collective interest generated by the GPRS would facilitate debate, consensus building, and decision-making. A. PROMOTINGGROWTH, INCOMEAND EMPLOYMENT Recent Growth Performance 56. Ghana's recent growth performance (over the period 1990-2001) has been modest -- averaging some 4 percent. The growth rate o f the very important rural sector (which has more than 60 percent o f the population who are also predominantly poor) has been 3.2 percent -- just a shade above that o f the population. This is mainly because the farmers still depend predominantly on traditional techniques, including using low amounts o f modem inputs. Insufficient access to credit continues to be a particular handicap, especially among food crop farmers. Secondary sector growth (at 2.8 percent) has been equally lackluster, owing to low investment in equipment over time, leading to low levels o f productivity. The tertiary sector grew much faster than the rest (at 5.8 percent), but fiom a low base (outside o f government administration), and reflecting largely a surge in services supported to a significant extent by resource inflows fiom abroad. 57. Various studies (by Bank staff in collaboration with the Government, foreign research organizations, and local think-tanks), and surveys o f the business enterprises have converged on the diagnosis. Investigations o f the sluggish growth, including empirical analytical work using the Sachs-Wemer model, have concluded that the slow growth (compared with other faster growing Africa countries and the High Performing  - 18- Asian Economies) i s due mainly to a combination of weak macroeconomic policies and adverse human resource conditions. Where macroeconomic policies are concerned, the analyses show that highandpersistent deficits from lax fiscal policy have resultedinhigh real interest rates and a reduction o f private sector access to bankingsystem credit. The policies have also resulted in growth-inhibiting distortion o f other factor markets. As to the quality o f human resources, the conclusions are that the high dependency ratio and the disease burden on the population contribute to keeping the country's growth below the long-term potential. 58. The Issues. The structure o f the Ghanaian economy has changed little since independence, and reforms undertaken since the 1980s have generated only short-lived successes in stabilization. As a result, agriculture has remained dominated by subsistence farming, and industrial activity has consolidated largely around a handful o f activities that survived the industrial-cum-trade policy reforms of the 1980s. The exception is the services sector, particularly inrecent years, where growth has been aided by expansion o f the public sector and extemal donor flows. In this context, the following issues have been identified inthe GPRS: 0 high public domestic debt (29 percent o f GDP at end-2002), which limits credit to the private sector; keeps inflation and nominal interest rates high (13 percent and 25 percent, respectively at end-2002); and absorbs some 29 percent of annual government revenues in interest charges (average 2001-02), thus limiting scope for fimding basic infrastructure and development services; 0 high-cost business environment and obstacles to competitiveness, due inpart to high input costs (transport, energy, labor) and in part to burdensome regulations and administrative processes which lead to low investment and, hence, lagging productivity. Trade related support infrastructure, while relatively developed, is costly and inefficient by regional and intemational standards. In addition, insufficient access to utilities such as electricity, water and telecommunications are considered among the major obstacles to growth o f business in Ghana. Permissive public sector pay and employment practices have led to average labor costs that are highrelative to productivity at the low end, and labor regulations and practices do not favor new processes (e.g. performance- based remuneration) likely to enhance productivity. Trade has been hlly liberalized, and average extemal tariffs are among the lowest in the West Africa sub-region. But there i s constant risk of real exchange rate overvaluation as a result of the persistent higher inflation rates relative to those o f trading partners. Moreover, business registration, unpredictability o f laws and policies, customs clearance, and taxation are also identified as major problemsby private sector. At end 2001, Ghana ranked inthe lower quarter of countries when entry regulations are compared across countries6. I t takes 126days to start a business inGhana according to The World Bank"Doing Business Data Base"  - 19- a stagnation of rural development owing to anti-rural biases in the policy environment. The opportunities for growth lie inirrigation development to expand the supply base for exportable horticultural crops and developing agro-processing to add value to and create internal demand for staple commodities. Major constraints to the realization o f the country's potential are high interest rates and unavailability o f rural financing, inadequate registration, titling and land administration procedures, high transport and marketing costs, limited access to technology and lack o f active farmer-based organizations. 59. The prospects for strong, broad-based growth are weak without the significant reforms that the Government has planned. 60. Planned Reforms. A first set o f reforms aims at overcoming two cross-cutting inhibitors of growth: (i) limited scope for financing development by both the private the and public sectors; and (ii) the high cost o f doing business. Re-creating the scopefor financing development requires primarily reducing public domestic debt to a sustainable level. The build-up o f public domestic debt to its current level o f 29 percent o f GDP brought in its wake high inflation and nominal interest rates. The goal i s to reduce the stock o f debt from 29 percent o f GDP in2002 to about 15 percent by 2005, paying down the stock with a mixture o f savings from debt relief from the HIPC initiative7, budgetary surpluses, proceeds from privatization o f parastatals, and external assistance. This would be supported with increased budgetarydiscipline, including the elimination of subsidies to parastatals which have been allowed to operate with soft budget constraints. The objective i s to reduce pressure on interest rates and create scope for increased use o f credit by the private sector, and free budgetary resources for non-wage recurrent poverty- related spending. 61. A second set o f reforms aims at addressing the high costs o f doing business and improving the business environment by: (i) creating a more stable supply o f energy (electricity and petroleum products) as inputs into production and household consumption, ensuring the viability o f the sectors by enabling them to charge economic prices (albeit with a life-line tariff for the poor), reducing the need for budgetary subsidies, and implementing a recently approved power reform program that is expected to result in efficiency gains; and (ii) enhancing international competitiveness through trade facilitation and reducing the transaction costs of doing business by improving regulatory and administrative processes. An area targeted for improvements is custom clearance procedures, where automation (GCMYGCNET) can result intime savings and reduction o f official discretion. This has been done successfully at the airport (under PRSC-1) where clearances are concluded within 24 hours at most. For PRSC-2, automation (GCMSGCNET) of customs procedures will be completed at Takoradi and Tema ports, where 60 percent of the country's imports pass. Further actions are planned for improvements in customs services. On the basis o f recent analytical work and economic sector work planned on firm level competitiveness, during PRSC-2 a 7 The HIPC DecisionPointDocument (IDNR2002-2005) refers to the use for domestic debtreductionof 20 percentofreliefprovidedunderthe enhancedHIPC Initiative.  - 20 - comprehensive program to improve trade facilitation will be agreed upon for implementation. In addition, a FIAS report on regulatory and administrative barriers to business, currently being finalized, will form the basis o f a time-bound action plan o f priority measures to remove identified constraints. 62. A final set o f reforms is in the economic environment of the rural sector. This sector has been selected because o f the economy's comparative advantage and its role as a source o f inputs to industry and income for the largest segment of the population. The planned reforms are: (i) increase farmer income in the cocoa sector by implementing to the medium-term strategy which involves adjusting the producer price upwards from some 68 percent in2002 to about 70 percent by 2005, and eliminating as from 2003, the economic rent previously accruing to local processors o f cocoa beans who received a discount on their purchase o f cocoa beans compared to the f.0.b. price; (ii)to operationalize an action plan to bring progress in selected areas (e.g. market access, extension services, technology) critical for the development o f the rural farm and non farm sub-sectors; and (iii) harmonize terms and conditions for and, thereby, increase to the supply o f micro-finance to small farmers (principally for food crop producers who dominate the ranks of the rural poor). By supporting these growth-oriented reforms, the PRSC brings value added to actions already supported by Bank-financed credits in the area o f rural development, trade and infrastructure. 63. Expected Outcomes. It is expected that, as a result o f the reforms and barring unfavorable exogenous events, the real GDP growth rate would rise from 4.5 percent in 2002 to about 5 percent in 2005, with prospects for better performance in the years to follow. This would result largely from improvements inthe general policy environment, assisted by greater efficiency in management o f the public sector. The related improvement in the public finances would enhance the capacity to fund basic infrastructure (especially planned farm-to-market roads) and extension services (in the larger sense o f support to productive sectors). 64. This outcome is expected from several intermediate results: (i) reduced interest rates to create room for private sector access to credit, as well as increased budget allocation to development and other poverty reducing expenditure; (ii)improved financial results at Electricity Company o f Ghana (ECG), Volta River Authority (VRA), andTema Oil Refinery (TOR), leading to a considerable decline insubsidies requiredby these companies and thereby allowing more development and poverty spending; (iii) more viable energy sector capable of expanding and sustaining supply o f energy while providing life-line protection for the poor; (iv) risinginternational competitiveness, based on trade facilitation and falling transaction costs; and improved credit availability to the rural sector, allowing food crop farmers (who make up the bulk o f the rural poor) to buy modeminputsandfinance inventories to raise their incomes. 65. Given the range o f the reforms and the time they might take, the Government's growth target for 2003-05 i s a fairly modest 5 percent. To achieve this, it is expected that agriculture would grow by an average of 4.8 percent, compared to 4.1 percent in 2002. The increase i s premised on the expected improvements in access to land; the promotion of effective marketing and storage; and the minimization o f post-harvest  - 2 1 - losses. It i s expected that industry would grow at an average o f 5.2 percent, rising from 4.7 percent in 2002. The stronger performance i s expected to result from increases in ago-industrial processing; lower transaction costs associated with production, lower real interest rates resulting from a decline in inflation and inflationary expectations; and the impact o f cost recovery pricinginutilities. It i s expected that services would grow at an average o f 5.1 percent, compared to 4.7 percent in 2002. This improved performance i s assumed to follow from increases in trade and commerce related to the stronger performance by agriculture and industry, as well as tourism. B. IMPROVING SERVICEDELIVERYFOR HUMANDEVELOPMENT B.l Education 66. Between 1995 and 2001, there was slow progress o f coverage at the primary education level. Enrollments increased marginally and gross enrollment rate (GERs), currently hovers around 80 percent. In addition, most of this gain in coverage is attributable to the dynamic response by private institutions to increased demand, which have seentheir share intotal primary enrollments soar to 18.3 percent. 67. The Issues. Among different challenges faced by the sector, the following are the most pressing: 0 Persistent inequalities in access at all levels. Education outcomes in the Northern, Upper East and Upper West regions are considerably worse than the national average. In those three regions, gross primary enrollment is about 25 percent lower than the national rate o f 80 percent. Depending on the district, the situation being worse in the Northern, Upper East and Upper West Regions, the percentage o f primary-aged children not in school ranges from 22 percent to 77 percent. In addition, the GER for girls is still lagging by about 7 percent that for boys. Demand and supply-side factors both contribute to slow progress at the basic education level. In addition to other, financial obstacles hinder attendance andretention, especially for girls, andcontribute to existing disparities inaccess. 0 Access, Quality and Efficiency. Access and quality o f education i s a concern at all levels. Completion rates at the primary level are relatively high (64 percent), and repetition is relatively low, but delayed enrollment is widespread, and dropouts frequent. The quality of education provided inpublic schools i s low. In 2000, only 9.6 percent o f the students achieved mastery level in English, and 4.4 percent in Mathematics (vs. 78 percent and 54 percent respectively in private schools). Uneven distribution and inefficient use o f humanresources contribute to low quality o f education, as well as delays in textbook distribution. Primary teachers lack motivation (working and living conditions) to stay in remote areas. Absenteeism and turnaround rates are both exceptionally high. 0 Weak relevance and unsustainable funding mechanisms threaten education outcomes. Inadequate cooperation with the private sector and the weak relevance o f curricula, all contribute to the absence o f innovation. Low expenditures per  - 22 - student, quasi-absence o f cost-recovery and a loan student scheme that does not favor the poor (inefficient allocation o fresources amongst institutions worsens the sector's overall performance), contribute to make the sub-sector financially unsustainable. 0 Issuesofefficiencyandequitableuseof resourcesinthe educationsectorAs a whole, the education sector has constantly attracted a considerable share o f public resources (currently about 27 percent o f the recurrent discretionary budget). However, in 2002, 94.7 percent o f education recurrent expenditure went to pay salaries and only 5.3 percent remained for non-salary expenditures. Thus, the roots o f low performance lie ininadequate management planningand insufficient non-salary budget going directly to improve learning in the classroom, the latter due inpart to a low execution rate o f the non-salary recurrent budget o f the sector (about 64 percent in 2002). This situation, in addition to weak management o f teacher resources leads to inadequacy in allocation and not enough attention to deprived areas. Management issues, including o f the wage bill, are major stumbling blocks at all educational and administrative levels. 68. PlannedReforms. Given the challenges identified inthe GPRS, late in2002 the Government completed an Education Sector Review and the President's report on "Meeting the Challenges o f Education in the 21Stcentury". Simultaneously, Ghana became eligible to present a planto the Education-for-allEast-Track-Initiative (EFMTI) and started preparing its proposal. Drawing on the described work, an Education Strategic Plan i s being finalized to identify a clear set of costed objectives embracing the MDGgoals and consistent with the GPRS. The planwill identify a set of reforms aimed at increasing access and improving efficiency and equity o f financing education by strengthening management o fthe sector. 69. While sector specific issues will be dealt with in the context o f the forthcoming Bank-financed education project, the PRSC focuses on selected policy issues that require broad consensus within Government to be tackled. First, it emphasizes improved access andquality o fbasic educationindeprivedareas andpromotion o f gender equity. Second, it supports improved allocation, efficiency andequity o f financing education. Addressing these issues is critical both for the successful achievement o fthe sector's GPRS goals and for progress towards the MDGs (see schedule 4). 70. With a view to increase access in basic education, particularly in the most deprived regions, the Government has launched a mapping exercise to better identify underserved communities which would benefit from a higher allocation of resources. The mapping exercise i s expected to cover about 35 o f the country's 110 districts by end- 2004. Moreover, to promote gender equity in enrollment and retention and provide equitable educational opportunities specific actions will be carried out. First, an incentive scheme which will include a scholarship system targeted on girls will be implementedin deprived districts. Second, all government fees for primary schools will be removed in 2004, prioritizing the most deprived communities, especially in the underserved regions (Northern, Upper East and Upper West). Third, capitation grants will also be introduced inprimary schools inthese deprived communities as well as inall basic schools for the  - 23 - disabled to ensure that school activities, formally dependent on the fees and levies, continue. The quality o f basic education will also be improved by a more balanced, equitable and rational deployment of teachers, the provision o f an adequate supply o f textbooks and o f sufficient teaching and learning material, all with special attention to most deprived communities. In this context, a teacher incentive program will be implemented in 2004, to facilitate their relocation to underserved communities while a more comprehensive approach to employment and pay issues are expected to be dealt within ofa broader context (see paragraph 94). 71. To improve the efficiency and equity offinancing education, the Government i s determined to reform the education policy and to adopt measures to improve efficiency and equity inthe use o f resources. Inthis vein, a draft Education Strategic Plan has been completed and a meeting was held inMay, 2003 with Development Partners to mobilize support. Moreover, a new Education Act will be submitted for Parliamentary approval later in 2003. Efforts will also focus on improving human resource and financial management and ensuring an improved balance between salary and non-salary recurrent expenditures. Given anti-poor bias incurrent cost recovery practices, the Government i s determined to reform and make effective in 2004 a new cost-recovery policy starting from the tertiary education level. 72. ExpectedOutcomes. Bythe end o fthe 3-year PRSCprogram, it is expected that the following outcomes will be reached on the way to MDGs: Table 5: Education GPRS Outcomes for 2005 - 1990 2002 2005 2015 National 79 80 90 100 ofwhich: - NorthernRegion n.a. 62 70 100 - Upper EastRegion n.a 70 79 100 - Upper West Region n.a 56 63 100 73. These outcomes are expected from several intermediate results: (i) reduction of drop out rates for girls from 39 percent to 30 percent over the period 2002-2005; (ii) increase o f the teacher: pupil andpupil: textbook ratio inmost deprivedregions (see page 3 of Schedule 2).  - 24 - B. 2 Health 74. Over the past five years, health status and the performance o f the health system have improved inGhana. Measurable improvements were seen inlife expectancy, infant mortality, and under 5 five mortality. Ghana compares favorably with other African countries and i s on track to meet many o fthe MDGs. 75. The Issues: The following are the main issues that constrain the sector's development prospects: 0 Persistenceof inequalitiesin health: Large regional inequalities exist andseem to be increasing in health access, need and use o f services between the poor and the non poor and between rural and urban populations. As a result, health outcomes inthe poorest regions are considerably worse than the national average. Table 6, below, shows that the under five mortality rate in the Northern, Upper East, Upper West and Central regions is significantly higher than the national average o f 110 per 1,000 live births. Despite investments to improve physical access, utilizationhas remained low. 0 Budgetary under-fundingof the sector: Insufficient public financing is offset by a high rate o f private spending in Ghana, including user fees known as the "cash and carry system", which comprise approximately 11percent o f financing o f the health sector. The failure o f the existing exemption policies has left a growing financial barrier that substantially precludes the poor from using health services. Only an estimated 49 percent o f women have supervised deliveries although uptake o fprenatal care, which i s free, is higher than 80 percent. 0 Brain drain and unequal distribution of staff Despite an "additional duty hours allowance" that i s paid to health workers to top off their salaries and provide an incentive to remain in the public sector, Ghana continues to lose doctors and nurses to the UK and neighboring African countries. The distribution o f those staff who remain i s heavily skewed towards Accra and other urbanareas. 0 The untapped potential contribution from private providers: The private sector, which provides more than a third o f all health services in Ghana, i s an untapped potential that could be more integrated into the MOH service delivery plans, particularly concerning access to health care for the poor. However, private practice is less common in the remote areas and innovative ways will be requiredto encourage its development. 0 The potential devastatingimpact of HIV/AIDS: HIV/AIDS already accounts for 12percent o f deaths inGhana, and it will be a major challenge to integrate and finance HIV/AIDS activities into the sector, particularly introducing Highly Active Anti-retroviral Treatment (HAART). (see para. 83) 76. Planned Reforms. In 2002, Ghana has approved a second five year health strategy and corresponding Program o f Work (POW). The POW describes the health sector policy and is aligned with the GPRS. The key components of the Government's policy are: (i) addressing HIV/AIDs threat, using the HIV/AIDS control strategy; (ii)  - 25 - shiftingfrom facility-based services byemphasizing communitybased care; (iii) reducing financial barriers by abolishing the cash and carry system, thereby ensuring that no one lacking funds at the time of needs is denied essential health care; (iv) reforming the financing arrangements for the entire sector by replacing the requirement to pay at the time o f service with prepayment and insurance arrangements; (v) increasing the use o f non-governmental and private health providers; (vi) emphasizing control o f malaria, TB, and the elimination o f Guinea Worm, and strengthening reproductive, maternal and child health, and EPI services; (vii) decentralizing resource management to budget management centers; (viii) improving staff motivation and health worker incentives; and (ix) undertaking inter-sectoral collaboration for health related issues like sanitation and nutrition. 77. Implementation o f the POW i s being supported by the health SWAP(Sector Wide Approach) and the Ghana AIDS Response Project. The PRSC complements that support by elevating to the center o f Government three issues that receivedparticular attention in the GPRS. First, it draws Government's attention to existing inequities by supporting the GPRS's priority to the most deprived regions. Second, it supports measures to encourage health professionals to work in remote areas. Third, it also supports measures aimed at ensuring sustainable financing arrangements, which protect the poor. Another important dimension o f the PRSC i s that it also supports programs expected to have the greatest impact on the MDGs (see schedule 4).* 78. Bridging equity gaps in access to quality health services. The Government has adopted the Community Based Health System - or CHPS - as its strategy to provide cost effective and adequate quality basic primary health services to individuals and households where they live. An important characteristic o f the CHPS approach i s that the community i s involved in the planning and delivery o f services, meaning that the program will address not only the supply-side issue o f health services, but also demand- side issues. A phased approach to implementation, with priority attached to the most deprived regions, has already begunan i s expected to allow for at 55 percent coverage at the community level. In order to accelerate achievement o f the MDGs, the Government has also introduced a program to reduce under 5 and maternal mortality that prioritizes cost effective interventions such as immunization and bed net use for malaria control. Analyses completed by UNICEF suggest that effective coverage could be expected to reduce the under-five mortality rate by 15 percent at a cost-effectiveness o f approximately $500 per child life saved in northern Ghana, where the under-five mortality rate is an average 160/1000 across the 4 regions. This program has started in two of the deprivedregions and will be expandedto include the other two regions during the PRSC period. While employment and pay issues are expected to be dealt with inthe context o f a broader reform (see paragraph 94), to facilitate achievement o f the sector's goals an incentive scheme will be implemented in2004 to encourage relocation of health professionals to underservedregions. * A recent progress report indicates that o f all the indicators, maternal mortality is the target Ghana i s least likely to meet.  - 26 - 79. In addition to removing barriers of geographical access to health service, the Government also intends to ensure sustainable financing arrangements that protect the poor: While the cash andcarry system will be phased out, there i s still a need to maintain some form o f "exemption system" that identifies people who shouldnot have to pay for services. Several studies have been completed in Ghana conceming the problems with the exemption system including lack of funds and poor management.g The Government intends to reform this system and has adopted the decision to exempt all deliveries inthe four deprived regions, as part o f the actions supported by PRSC-1. This exemption policy will be expanded to the whole country during PRSC-2. Improvements in the resource allocation formula will also be made at the same time to ensure that more funds go to these areas to pay for this enlarged exemption program. Government i s also encouraging the development o f mutual health organizations (MHOs) as a strategy to provide financial protection for the poor." More than 250 MHOs already exist inGhana and the Government has drafted a health insurance law that place them under an umbrella-like National Health Insurance Fund. The law also establishes a reinsurance fund, to be financed partly from a National Health Premium of 2% percent on value added which i s planned to be administered on the same base basis as the value-added tax. Evaluation o f the financial and management arrangements of this Fund, which could potentially serve as a broader social insurance scheme in the future, will be prepared duringPRSC-2. 80. Expected Outcomes. By the end o f the 3-year program, it is expected that the following outcomes will be reached on the way to MDGs: Table 6: Health-GPRSOutcomesfor 2005 1990 2000 2005 2015 Under5 mortalityrate (per 1,000 live births) National 119 112 95 41 I - NorthemRegion 1I n.a 171 130 n.a n.a III155 116 n.a 156 III117 III n.a III - Central Maternal mortality ratio (per 100,000 livebirths) See Garshong, E., G. Dakpallah, et al. (2001). `We are still paying' A study on factors affecting the implementation o f the exemptions policy inGhana, HealthResearchUnit,Ministryo fHealth, Accra; loThe GOGis usingHIPC funds to establish MHOs at the District level.  - 27 - 81. These outcomes are expected from several intermediate results: (i) increase in DPT3 coverage from 75 percent in2000 to 90 percent in2005; (ii) insupervised increase deliveries from 49 percent in2000 to 55 percent in2005; (iii) ensure that the share o f the sector's recurrent budget spending on the four underserved regions increases from 32 percent in2000 to 39 percent in2005. B.3 HIVIAIDS 82. The HIV/AIDS epidemic has in recent years been receiving more attention from the Government. A "strategic framework for HIV/AIDS" has been prepared to enable Ghana to implement a balanced, diversified, multi-sector response, engaging all relevant government sectors, non-governmentalorganizations andgrassroots initiatives. 83. The Issues: Ghana has one o f the lowest prevalence rates o f HIV in the region. However, the risk o f a rapid increase i s great and calls for commitment at the highest levels of Government to sustain the National Response over the long term. The Ghana AIDS Commission (GAC) estimates that nationally, sero-prevalence will rise from around 3.6 percent today to somewhere inthe range of 4 to 9 percent by 2014 depending on the efficiency o f control measures. The potential impact on the economy and society makes HIV/AIDS one o f the single most important issues the Government o f Ghana will face inimplementing its poverty reduction strategy. Inthe health sector alone, to treat 25 percent o f AIDS patients in2005 with a fill package o f treatment including ARVs would require a tripling o f the current health budget, squeezing spending in other priority programs. The epidemic i s also leaving numerous children as orphans and on the street. 84. Planned Reforms. The GPRS describes a strategy to reduce the spread o f HIV/AIDS epidemic that focuses on four areas. First, prevent transmission of HIV by improving service delivery, intensifying behavior change and communication activities and introducing special programs for high risk groups. Second, provide treatment or a continuum o f care for People Living with HIV/AIDS (PLWHA) and their families. Third, build capacity for organizations working with PLWHA, within the context of the District Response Initiative. Fourth, reduce stigmatization and discrimination through interventions with the judicial system and human rights organizations. Many o f these activities are being implemented under the IDA-financed Ghana AIDS Response Project and in collaboration with other development partners. In spite of progress achieved recently in the implementation of activities at the community level to prevent AIDS transmission and provide care to PLWHAs and AIDS orphans, it is critical to scale up the local initiatives program. Inorder to raise awareness for the local initiatives program, including for the need to ensure access by the four deprived regions, and to make progress towards the MDGs (see schedule 4), the Government has proposed to include it inthe agenda supported by the PRSC. UnderPRSC-1, the authorities implemented 500 initiatives to prevent HIV transmission and provide care to PLWHA, orphans and families. This program will continue and the Government i s determined to step it up in the four most deprived regions, which have benefited significantly less, to date, from that program.  - 28 - 85. ExpectedOutcomes. By the end of the three-year PRSC period, Ghana expects to maintain the HIV prevalence rate among pregnant women, aged 15-24, below five percent, through increased financing (particularly in the four deprived regions) o f community-based initiatives with an emphasis on AIDS orphans, PLWHAs, stigma and discrimination, andvoluntary counseling and testing. B.4 SpecialProgramsfor the Vulnerable andExcluded 86. The fourth Ghana Living Standard Survey and various poverty assessments have documented the incidence o f vulnerability and exclusion. They found that the groups most affected are: (i) children indifficult circumstances, including victims o f child labor, street children, school drop-outs, and orphans; (ii) people living with HIV/AIDS and their families; (iii)displaced communities that have suffered from floods, droughts, and similar events; (iv) disadvantaged women, including teenage mothers and sex workers; (v) residents o f urban slums; (vi) the elderly with no family care or pension; (vii) physically challenged persons; and (viii) victims o fharmful traditional practices. 87. The Issues. The GPRS identifies the factors creating susceptibility to vulnerability and exclusion as: (i)extremely low returns to farming or fishing, particularly in the northem savannah and coastal belt; (ii) lack o f viable alternative economic activities in rural areas; (iii) limited impact o f economic policies on gainful employment for the poor; and (iv) limited opportunities for improved apprenticeship, vocational and technical training. The strategy also recognizes that there i s a basis for an effort to mainstream concern for vulnerability and exclusion into general national policy making at both the macroeconomic and sectoral levels. While recognizing the laudable work o f NGOs in assisting the vulnerable and excluded, it sees the need to develop special national interventions to deliver targeted assistance to those in particularly difficult circumstances. 88. Planned Reforms. In line with the above, the authorities have developed two types o f specific interventions with which to assist the vulnerable over the GPRS period. The first is a program o f targeted material assistance, which will be carried out at the district level on the basis of approaches related to Community Development and district empowerment. It will consist o fproviding budgetary funding at the local level; and using local governance structures to review, approve and support the implementation of proposals. Criteria for reviewing these activities are being developed, and local governance structures will implement the program. The second is an expansion o f the Program for Street Children, including the incorporation o f a the element o f helping integrate children into mainstream society. A vulnerability mapping exercise will be carried out in 2004 to improve the knowledge base for managing targeting o f interventions for the extreme poor andvulnerable. 89. ExpectedOutcomes. By the end o f the three-year PRSC period, Ghana expects to make the followingprogress on support programs for the vulnerable and excluded:  - 29 - 0 At least 20 districts have actually received budgetarysupport to carry out programs for the vulnerable and excluded; 0 At least 3,000 children havebenefitedform the Street ChildrenProgram. c. IMPROVINGGOVERNANCE PUBLIC SECTOR MANAGEMENT AND 90. As outlined inthe GPRS, the promotion of growth andpoverty reduction will rely on a governance framework that is characterized by a democratic, inclusive, and decentralized state, a capable and motivated public service, an effective policy, budget management and implementationprocess. 91. The Issues. While Ghana has made significant progress in these areas, there is considerable work ahead infour main areas: 0 building a democratic, inclusive, and decentralized state - there has been limited progress in decentralizing human and financial resources to District Assemblies; administrative authority remains concentrated inthe capital Accra. 0 improving performance of the public sector - there is need to: (i) the review experiences o f recent public sector reforms, align these reforms with the goals and objectives o f the GPRS, and to ensure that public sector reforms gain new momentum; (ii) strengthen wage bill control and develop a revised pay and incentive system for the public sector that would enable Government to attract and retain necessary skills to implement the GRPS. Presently, the unrewarding job environment makes the public service uncompetitive for talented managers and professionals, most notably in the area of medicine, tertiary education, economics, and public policy analysis. The Government's ability to improve the conditions o f public service to recruit and retain critical skills i s highly constrained, as the current wage bill already constitutes about 60 percent o f the Government non-interest recurrent expenditures. The reasons for the high wage bill include: (a) the current budget practice which does not provide incentives for managers to make rational staffing decisions; (b) the fact that almost eighty percent o f the public service are outside the civil service and are not subject to adequate monitoring and control; and (c) the weak oversight o f payroll management. strengthening the fiduciary framework and public expenditure management - there are: (i)weaknesses inthe budget formulation, inparticular lack of consistency between the annual budget and the GPRS, insufficient links between resource allocation and policies, and the lack o f functional information in the budget classification structure; (ii) weaknesses in the budget implementation, in particular lack o f compliance with rules and regulations, unpredictable expenditure authorization, the inadequate commitment control, and the weak procurement management and oversight; (iii) weaknesses in the areas o f budget monitoring and reporting, in particular weak internal audit; failure to prepare reliable annual accounts fully within the statutory requirement o f three months after the end o f the fiscal year; and the inadequate performance o f the external  - 30 - audit finction; and (iv) lack o f capacity in several aspects o f public financial management continue to undermine the effectiveness o f reforms. 0 strengthening the capacity to monitor and evaluate the policy agenda: drawbacks include: (i)the lack of a monitoring & evaluation framework to provide oversight over the implementation o f the GPRS; (ii) problems in using M&E findings to adjust Government policies; and (iii) inthe availability of gaps poverty related data, and insufficient use o fparticipatory M&Emechanisms. 92. PlannedReforms. To meet the objectives o fthe GPRS o fimproving governance and public sector management, the Government has chosen a strategic approach that consists o f three elements: (i) a careful evaluation o f previous reform experiences aims at clearly establishing impact, results and successes; (ii) reforms will then be analyzed against the priorities identified inthe GRPS to ensure consistency o f policy and reforms; and (iii)to the extent possible, reforms will be integratedinto a consistent framework that strives for complementarity o freform initiatives to increase effectiveness. 93. Building a democratic, inclusive and decentralized state. The GPRS attaches high priority to further strengthening the regulatory framework for decentralization. A key element inthis context i s the establishment o f a new Local Government Service that aims at ensuring an effective administration for the District Assemblies and the Regional Coordinating Councils. The legal instrument for the creation o f the new service is the Local Government Service Bill which is expected to be enacted in 2003. Based on a decentralization implementation action plan, to be approved during PRSC-2, public servants currently attached to the central government would be transferred to local governments. The PRSC supports this process that is expected to fundamentally change the provision o fpublic services. 94. Improve performance of the public sector. The transformation o f Ghana's large and inefficient public sector into a professional and effective service has been on the political agenda for many years. While the GPRS emphasizes the importance o f public sector reforms it is the Government's view that previous reform programs have not yielded expected results. In collaboration with the World Bank and the UK, the Government has launched an independentreview o f all public sector programs, including the World Bank Public Sector Management Reform Program. The results o f the review will provide the basis for a Cabinet discussion about scope and focus o f future reforms which will aim at addressing priority issues such as size, motivation and capacity of the public sector, the reduction o f the significant number o f subvented agencies, the improvement o f the efficiency o f the Central Management Agencies, the lack o f performance orientation, and the lack o f compliance with formal rules under existing Government policies. The findings and recommendations o f the review will be presented to Cabinet which i s expected to issue a policy statement inlate 2003 with orientations for a comprehensive public sector reform, including public sector pay and employment issues. The PRSC supports this process which, building on the policy statement, will result in the definition o f a time-bound public sector reform program to be launched in 2004.  - 31 - 95. In the meantime, the Government is determined to continue ongoing actions to update the payroll system and to improve control of the wage bill. As a first step, a comprehensive census o f the public sector i s planned to be completed in 2003. Subsequently, the census results will be used to update the existing payroll systems and to establish a credible database of public sector employment to prevent fiaud and negligence inpayroll management. 96. A key instrument to support the Government's reform program will be a new Accountability and Capacity BuildingProject in FY04 that will integrate public finance andbroaderpublic sector reform. The new project will complement budgetary assistance by the World Bank (PRSC) and other development partners in the context o f the Multi- donor Budget Support Initiative. 97. Strengthening thefiduciary framework andpublic expenditure management. The GRPS recognizes the importance o f urgently improving the system o f public finance to ensure success in the fight to reduce poverty. The Government is implementing a comprehensive reform program that aims at addressing key weaknesses o f the public financial management system. Particular attention will be attached to the implementation of the recommendations o f the ongoing CPAR and CFAA to reduce the fiduciary risks andleakages inthe use o fpublic resources. Box 2: Ghana-Public ExpenditureManagement  - 32 - 98. The reform program o f the Government which will be supported by the PRSC includes inter alia: (i)a new Financial Administration Bill to improve the general legal framework for transparent and accountable public expenditure management. Implementation o fthe new bill i s planned to beginimmediately after its passage into law by Parliament in2003; (ii) Central Internal Audit Agency Bill, which will strengthen the independence o f the audit function and define standards of practice in intemal audit, will be presented to Parliament for passage into law after approved by Cabinet inthe context o f PRSC-1. Its implementationi s plannedto beginduringPRSC-2; (iii) a new integrated financial management system (BPEMS) i s beingimplemented that will rationalize budget and expenditure management and provide accurate and timely information. The new system has been deployed on a pilot basis to the Ministry o f Finance and the Accountant General's Department. It will be subsequently rolled out the other central government agencies. It i s presently anticipated that Government core accounting for the Consolidated Fundwill be transferred to the new system before the end o f 2004; (iv) the Government i s presently simplifyingthe Medium-Term Expenditure Framework (the key budget planning instrument) to improve efficiency and revitalize the MTEF process. It is also envisaged to improve consistency between the MTEF and the GPRS and to strengthen the linkages between resource allocation and policy priorities; (v) new cash management and commitment control systems have been introduced to further strengthen expenditure management; (vi) overall reporting on budget execution, including poverty- related expenditures will be further strengthened to improve accountability and transparency; and (vii) the ongoing reforms o f the external audit function are expected to address the problem o f delayed or outstanding audit reports. 99. The Government will conduct PERs each year during2003-05 and use the results to informresource allocation to sectors inline with the GPRS. Aware o f existing capacity constraints, the Govemment will also develop a comprehensive capacity building plan that aims at addressing the relevant needs at all levels o f the public financial management system. 100. The comprehensive reform o f the public procurement system is another key priority area. The enactment o f the new Procurement Bill - envisaged for 2003 - i s a critical first step to establishing a credible and transparent legal framework that meets international standards. DuringPRSC-2, the institutional framework specified inthe Bill will be made operational. This includes the establishment o f the Public Procurement Boardthat will monitor the implementation o fthe reformprocess. The Boardwill publish its first annual report in2004. 101. Notwithstanding the fact that inthe broader sub-Saharan context, Ghana ranks 4th in the 2001 and 2002 Transparency International Corruption Perception (behind Mauritius, Botswana and Namibia), the Government attaches importance to further progress in reducing fraud and combat corruption. In 2003 two key watchdog institutions, the Serious Fraud Office and the Commission o f Human Rights and Administrative Justice will receive additional resources aimed at strengthening their operational efficiency. Other activities that are planned for 2003 include the adoption o f  - 33 - the Freedom-of-Information Bill which would liberalize access to Government information. To improve transparency and stimulate public debate the Government also intends to disseminate budgetinformation ina simplifiedformat to a broader audience. 102. To strengthen the capacity to monitor and evaluate the policy agenda, the Government has prepared a comprehensive GPRS Monitoring and Evaluation Plan adopted in March 2003. The plan includes submittingto Parliament progress reports on GPRS implementation, the preparation o f which will entail: (i) regular conduct o f household surveys, participatory M&E activities and expenditure tracking; (ii) poverty and social impact analysis; and (iii) carrying out Strategic Environment Assessments to review how sectoral policies impact on the environment andnatural resources. 103. Expected Outcomes. By the end o f the three-year PRSC period, Ghana expects to have: a Increased decentralization o f administrative and fiscal authority to facilitate local development; a Made progress towards a professional and motivated public service, through satisfactory implementation of a revised public sector reform program; a Improved quality, transparency and accountability in the management o f public expenditure, by ensuring improved control systems, timely and reliable budget reporting and compliance with generally accepted public finance standards, in particular the newprocurement rules; a Established a more effective budgetary process that translates policy priorities into budget and that allows for monitoring and evaluation o f policy implementation; a Operationalized the GPRS M&E system that lays the ground for an evidence- based decision makingprocess. a Strengthened parliamentary oversight o f Government activities, namely by submitting to the new GPRS Oversight Committee the GPRS Annual Progress Reports; and a Progressed in the involvement o f civil society in the public policy making process, including by establishing citizen report cards inat least three sectors.  - 34 - 6. THE PROPOSED CREDITAND GRANT A. PRSC-1CREDITANDGRANTADMINISTRATION 104. The technical arrangements and the steps to follow in respect to the IDA credit and grant administration are described below. The proposed financial structure for the PRSC-1 is as follows: PRSC-1:US$88 million equivalent (IDA credit) U S 3 7 million equivalent (IDA grant) Borrower andCreditAmount. 105. The Borrower will be the Government o f Ghana. A single-tranche credit of SDR 63.9 million (US$88 million equivalent), would be made available upon credit effectiveness, anticipated to be in July 2003. The operation closing date would be June 30, 2004. It is believed that the current GPRS cycle is likely to require support of two additional single-tranche PRSCs. 106. Grant Amount. Additionally, there would be a grant of SDR 26.9 million (US$37 million equivalent) that would be made available upon PRSC-1 effectiveness, anticipated for July 2003. 107. For FY03, Ghana was allocated grants amounting to SDR 51.4 million (US$ 69.3 million equivalent). Part o f this allocation (SDR 24.5 million or US$ 32.3 million equivalent) was applied to the Health Sector-Wide program (SWAP) and the remainder (SDR 26.9 million or US$ 37 million equivalent) i s being applied to PRSC-1. The decision to apply the resources in this manner follows the guidelines on grants as per OP 8.45. 108. There are strong strategic reasons for this choice. Three projects are being proposed for Ghana in FY03. The Health SWAP and the PRSC-1 have been selected among them for blended financing on account of: (i) the Government's particular interest inusinggrant financing for the critical human development services supported by these two operations; (ii)the greater ease in gaining popular acceptance o f the poverty reduction activities supported by the SWAPandPRSC-1 when important components are identified with grant financing; (iii)the higher development impacts when popular support enables intended beneficiaries to actively accept and use the services provided; and (iv) the greater integration o f these IDA-supported activities with those of other development partners inthe MDBS who use grants exclusively intheir financing. 109. The blend financing will strengthen the benefits expected from PRSC-1 in many ways. First, the availability o f grant financing, which may be identified with components dealing with unequal opportunities o f access to poverty reduction programs, for instance, made it easier to build consensus within Government for these programs. Second, the easier dialogue permitted the adoption of policy changes with strong foreseeable impact  - 35 - on the MDGs. Examples include: (i)abolition o f fees for supervised deliveries immediately in four deprivedregions, with extension to the rest o f the country in 2004 (this allows immediate access to these services by an estimated 172,000 expectant mothers who would otherwise have done without these services); (ii) initiation o f the implementation of high impact rapid delivery programs for U5MR and MMR in two deprived regions, with extension to the remaining deprived regions by 2005; (iii) the financing and implementationo f special programs of assistance and orientation for street children in 2003, with extensions to other vulnerable groups in 2004-05; and (iv) initiation o f the incentive scheme (including scholarships) to retain girls in primary school indeprived districts. The Bank will work with the Government to monitor closely the outcomes inthese critical areas and use the results to further cement national support for the poverty reductionprogram. 110. Disbursements. The operation will follow IDA'S simplified disbursement procedures for adjustment operations." Inother words, the PRSC-1 proceeds will be disbursed in compliance with the stipulated single-tranche release conditions. Disbursement will not be linked to any specific purchases, and no procurement requirements are needed. Once the PRSC-1 i s approved by the Board, the Borrower will open and maintain a dedicated deposit account in U.S. dollars with its Central Bank for the borrower's use. Upon notification o f release o f the tranche, the Association will deposit the proceeds o f the credit and the grant into the deposit account when requested to do so by the Borrower. If, after deposit inthe deposit account with the Central Bank, the proceeds o f the credit and grant or any parts thereof are used directly for ineligible purposes (i.e., to finance goods or services on the standard negative list), as defined inthe development financing agreement, the Association will require the Borrower to either (i) retum that amount to the deposit account for use for eligible purposes or (b) refund the amount directly to the Association. 111, Auditing. Although an audit o f the deposit account will not be required, the Association reserves the right to seek an audit of the deposit account at any time. Inthat event, through the Ministry of Finance and Economic Planning, the borrower would (a) report the exact sum received into the deposit account; (ii) indicate to IDA details o f the consolidated fund account to which the Ghanaian cedis equivalent o f the PRSC-1 proceeds would have been credited; and (iii)submit a report on receipts and disbursements for both the deposit account and the consolidated fund account to enable IDA to review consistency o f the withdrawal with the development financing agreement and achievement o fthe objectives o f the operation. 112. Ownership and implementation. The Govemment has full ownership o f the program to be supported by the proposed PRSC-1, given that: (i) it is fully aligned with the GPRS and draws heavily on the authorities' own policies andprograms section of the GPRS; (ii) Government officials were actively involved in its preparation; and (iii) top important reform measures were adopted as prior actions which were critical to finalize Operational Memorandum: Simplifying Disbursements under Structural and Sectoral Adjustment Loans, February 8,1996.  - 36 - preparation o f the operation. The implementation o f reform program funded by this operation will be coordinated by the Ministry of Finance and Economic Planning. The Minister o f Finance and Economic Planning relies on a broader Ministerial Economic Management Team to leadpolicy changes. 113. Monitoring. As indicated in para. 3, the PRSC-1 i s the Bank's participation in the Multi-donor Budget Support (MDBS). During 2003, Bank staff will work with the other development partners to implement the "Framework Memorandum" agreed for the MDBS Program and seek convergence on reporting requirements, ideally for 2004 onwards (see paras 116-119). DuringPRSC-1, the following reporting requirements will be followed to monitor progress in program implementation: (i) quarterly reports on macro-economic developments, to assess progress on the implementation o f the framework agreed between the Government, the IMFand the Bank, with a lag o f no more than eight weeks after end o f each quarter; (ii) quarterly reports on budget expenditures with breakdown by Ministry, Department, and Agency with a lag of no more than 8 weeks after the end o f each quarter. These reports will also present the breakdown for Items 1-4 o f the Ghanaian budget (personnel, administration, services, investment), identify expenditure authorizations, payments vouchers issued, and payment vouchers liquidated, and specify poverty-related and HIPC financed expenditures; (iii)report on a progress on the PRSC Policy Matrix and triggers, to be submitted during September 2003; (iv) a report on progress on the PRSC Policy Matrix and triggers, later in2003 or earlier 2004, to be made available taking into consideration the preparation o f a possible PRSC-2. Inaddition, the achievement o f PRSC targets will be assessed inthe context o f the GPRS annual review that will document implementation and outcomes o f its reforms. 114. Selected key measures already implemented in the context of PRSC-1. The Government o f Ghana has already carried out the following actions to implement its reform agenda. Those actions identifiedinbold were triggers for PRSC-1. Topromotegrowth, incomes, and employment: 0 as part of more improved economic pricing of energy, electricity tariffs were raised by a combined total of 72 percent in late 2002 and early 2003 and an automatic tariff adjustment mechanism was adopted. Retail petroleum prices were brought to import parity levels in January 2003 and an automatic petroleum price adjustment formula was made effective in May 2003. These measures were implementedwith a view to making the energy sector viable and reduce its dependence on budget subsidies, while a life-line for the protection of the poor is assured through cross- subsidization; 0 decision on power sector reform to restructure VRA, including the separation of transmission from generation, and confirmation of role of private sector on thermal generation; and 0 a survey of regulatory and administrative costs on business was undertaken towards preparing an action plan for reducing transaction costs on business.  - 37 - Toenable the disadvantaged to access basic educational and health services: mapping for targeting assistance to schools was completed for 5 deprived districts ; implementation of national policy of Community-based Health Planning Services was launched; and fee exemption policy for maternal deliveries has been implementedin four underserved regions (Northern, Upper East, Upper West and Central). Toimprove governance andpublic expenditure management: a Local Government Service Billwas submitted to Parliament towards creating the legal framework for devolving authority to local communities; an independent review o f all relevant public sector programhas been launched that aims at aligning these reforms with the strategic priorities o fthe GPRS; a comprehensive census o f public sector employees has been initiated as a critical first step to improve the control o f the wage bill, update the payroll system and develop a medium-term pay and employment policy; a Financial Administration Bill was submitted to Parliament, to regulate financial management of the public sector and ensuring effective and efficient management o f state revenue, expenditure, assets, liabilities and resources o f the government; a Central Internal Audit Agency Bill was approved by Cabinet, to improve independence of the audit function and define standards of practice in internal audit; a Procurement Bill was submitted to Parliament, to provide the legal framework for ensuring that public resources finance quality expenditures during purchases; and a computerized BPEMS was made operational in M o F and CAGD to provide the technical elements required for improving efficiency in the management of public expenditures. 115. Measures for PRSCs 2 and 3. As indicated above, the Bank, the DPs and the Government o f Ghana have agreed to work towards a common policy framework in 2004, in time for PRSC-2. In addition, it is expected that the ESW pieces to be concluded in FY03 would provide input into the dialogue inthe remainder o f 2003. In view o fthe work with the DPs towards convergence in2004 and the expected availability o f the results o f ongoing analytical work, it has been judged prudent to use reasonably broad formulations o fmeasures for PRSC-2, including the triggers that follow below.  - 38 - 116. PRSC-2 Triggers. The decision as to whether IDA will proceed with the PRSC- 2 will be defined by progress satisfactory to IDA in the following areas (and shown in bold inthe PRSC policymatrix): Topromote growth, incomes, and employment: 0 launch power sector reform, including the implementation of the first year of the public-private partnership plan; 0 complete automation (GCMWGCNET) of customs procedures to speed up clearance times at Takoradi and Tema ports, where 60 percent of the country's imports pass through; and 0 implement 2003 tranche of time-bound action plan to remove key regulatory and administrative barriers with a view to improve the investmentclimate. To enable the disadvantaged to access basic educational and health services, 0 establish incentive schemes, including scholarships, to enable girls to complete primary school in deprived districts; 0 extend nationwide fee exemption policy on maternal deliveries; and 0 adopt new health recurrent expenditure allocation formula to protect most deprived areas. To improve governance andpublic expenditure management: 0 begin implementation of the Procurement Bill and make operational Public Procurement Institutions (Public Procurement Board, Secretariat, EntityTender Committees, andTenderReviewBoards); 0 Cabinet issues policy statement on public sector reform with orientations for a comprehensive public sector reform, including public sector pay and employment issues; and 0 expand BPEMS to cover Accra sites of the Ministries of Education, Health, Roads and Highways. B. ALIGNMENT WITHTHEIMF 117. The PRSC has been prepared inparallel and closely coordinatedwith the PRGF, following the agreed institutional division o f labor with the IMF taking the lead on macro-economic sector issues while the Bank takes the lead on structural and social issues. Ina number o f areas where the mandates o f the two institutions overlap, the work i s being coordinated to ensure that consistent advice i s provided to the authorities. Inthis context, the Fund and the Bank recently undertook the review with the authorities of the Expenditure Accountability Assessment Plan (AAP).Future IMF Article IV and PRGF  - 39 - reviews will provide an important input into the assessment o f the macro-economic situation o f the Bank. Similarly, it i s expected that the Fund will rely on the Bank's assessment o f structural and social reforms. c. ALIGNMENTWITHOTHERDONORS' SUPPORT 118. There have been extensive consultations among the Government and development partners (Canada, Denmark, France, Germany, Italy, Japan, Netherlands, the United Kingdom, the United States, the African Development Bank, the European Union, the Nordic Development Fund and the UN system) to support Ghana's poverty reduction agenda. Under the mini Consultative Group (CG) meetings, progress has been made towards improving policy dialogue with the Government. In recent years, donor coordination has been strengthened in the health sector, with DPs having joined to support GoG's program, and several o f them pooling their contributions in a joint (SWAP) support program to the health budget. Steps are also being taken to prepare a programmatic approach to education support. Support to the roads sector i s also well coordinated. 119. InMarch2003, agreement was reached onthe principles o fa common framework for multi-donor support (MDBS) between the Government o f Ghana and participating DPs (currently include the African Development Bank, Canada, Denmark, European Union, Germany, The Netherlands, Switzerland, United Kingdom, and the World Bank). A copy o f the draft Framework Memorandum for the MDBS is attached as Annex 3. Other DPs have indicated that they intend to align their support with the process to the extent possible, even if they will not be full participants. Under the MDBS framework, the following are the main goals: (i) support to the implementation o f GPRS through the GoG's budget ensuring consistency in the policy dialogue; (ii) move towards a common progress assessment framework; (iii) reduction o f transactions cost; (iv) enhancing the predictability o f resource flows; and (v) joint reviews between the Government and interested development partners. 120. Given procedural and timing requirement differences, for the calendar year 2003, some Bilateral DPs and the EU have decided to focus on 5 reform areas o f the GPRS. These areas are: public finance, budget process, public sector reforrn, governance, and decentralization Against this background, these Bilaterals and the EU will soon sign an arrangement (see draft dated April 10 in Annex 4) which supplements the rules agreed in the context o f the Framework Agreement. Inthe context o f this agreement, bilateral DPs and the EU will focus on the five reform areas noted above, which were considered critical for the successful and efficient implementation o f the GPRS. For these areas, a policy matrix has been agreed and will be used as the basis o f dialogue between the Government and participating DPs. A subset of the policy matrix will be defined as triggers. These DPs expect to disburse their assistance in two tranches. First, a disbursement will take place linked to the approval o f a PRGF, and a second disbursement is termed "perfonnance payment". Attainment of the triggers will determine the performance payment.  - 40 - 121. In view of the developments described above, during 2003, there will be two policy matrices (PRSC and the Bilateral DPs and EU). While the PRSC policy matrix covers all GPRS components, the Bilateral DPs and EUpolicy matrix focuses only on the five areas referred to in the previous paragraphs. A detailed analysis o f both matrices shows that all measures of the DPs and EUmatrix inthe areas o f public expenditure and financial management, and public sector reform are part o f the PRSC policy matrix. In terms o f local government service delivery and governance, the overlap i s at about 50 percent. Annex 4 shows that 11 out o f the 12 conditions for disbursement o f the "performance payment" by the bilaterals and the EU overlap with the PRSC-1 matrix. All parties involved have agreed that 2003 will allow to buildthe experience to move towards convergence in the use o f the common framework for the MDGs during 2004. During PRSC-1 appraisal, consultations took place with the bilateral DPs and the EU, who endorsed the PRSC policy matrix. Inthese consultations, it was agreed that after PRSC-1 is considered by the Bank's Boardit will be urgent to work towards agreeing on a common matrix for progress assessment framework andharmonization o f reporting and reviewing procedures. Inthe meantime, duringthe reviews planned for 2003, like it was done for the PRSC appraisal, coordination will continue to facilitate movement o f the parties inthe discussions with the Government 122. The commitment o f the parties involved in the MDBS is to develop a common progress assessment framework for all participating DPs. The dialogue between GOG and DPs over the content o f the matrices in the PRSC-1 and that for other DPs should therefore be pursued in the coming months. Flexibility in the design of the PRSC-2 matrix is therefore seen as an important feature inthe design o f the PRSC. D. ANALYTIC UNDERPINNINGSOFTHE PRSC 123. The PRSC is built on the analytical work and dialogue that assisted the development of the GPRS. Additional analytical work, which supports the PRSC with respect to policies and programs relating to fiduciary and environmental safeguards, has been carried out. 124. In the area of poverty, analytical work was carried out jointly with the Government, based on the household expenditure survey 1998/99 (GLSS4) to provide input for poverty assessments prepared in 2000/01 and used first for the I-GPRS and, later, the full GPRS. Additional knowledge came from independent work by the authorities, which was published in October 2000 in a comprehensive report entitled "Poverty Trends inthe 1990s", using data from the 1991/92 and 1998/99 GLSSs. A new Poverty Note is under preparation by Bank staff (completion expected June 2003), which will update knowledge in this area and, in particular, attempt to clarify what effect the policy and terms o f terms shocks o f 1999-2000 may have had on the poverty situation. The findings o f the FY03 Poverty Note would be used during the preparation o f PRSC-2 for adjustments to the poverty effort judged as appropriate. 125. Inthe area of growth, poverty and public policy, two recent integrative reports prepared by Bank staff provided key inputs for the formulation o f the PRSC. These are CEMs entitled "Ghana - Growth, Private Sector, and Poverty Reduction", FY96, and  -41 - "Ghana - International Competitiveness, Opportunities and challenges Facing Non- Traditional Exports", FYO1. The first dealt primarily with policies to make growth pro- poor and deliver human development services with greater poverty impact. The second focused on promoting growth by enhancing international competitiveness and facilitating the development o f non-traditional exports. A new C E M on Growth, Poverty and Public Sector Management (completion expected June 2003) i s under way. Preliminary findings o f the field work carried out in March 2003, confirmed the appropriateness o f the focus on reducing the weight o f the public sector on the economy as part o f the growth agenda12. Additional knowledge from the final report will be built into the design o f PRSCs 2 and 3. Inthe area o f micro-finance, the December 2002 Bank report "Rural and Micro Finance Regulation in Ghana: Implications for Development and Performance o f the Industry", informed o f the PRSC-1 approach to support the GPRS goal o f strengthening development financing. 126. Inthe area ofpublic expenditure analysis, the Government has carried out PERs annually since 1997, with the results used to inform budgetary choices in the following year. In parallel, analysis o f public sector reform and public expenditure management and policies have been carried out under the ongoing IDA-assisted PUFMARP and PSMP projects funded several reviews and diagnostics as the basis for the design o f reforms. In addition, and in coordination with bilateral and multilateral partners such as UK-DFID,CIDA Canada, andthe European Union, complementarywork was carried out on medium term public expenditure planning and management, budget management risk analysis, auditing and fiscal decentralization, which permitted the development o f the MTEF and a set o f recommendations in different PEM areast3. In FY02, a Bank- sponsored PER looked into the particular issue o f aggregate resource constraint and macroeconomic stability, in order to complement the analysis o f institutional issues carried out in the context o f public sector reform projects and allocative concerns which were the focus o f national analysis. A new comprehensive PER is being launched in FY03, with the results expected inearly FY04, to underpin the design o f PRSC-2. 127. On fiduciary concerns, a CFAA was prepared in 2001 and its recommendations were used to reinforce work supported by the Budget Preparation and Expenditure Management System (BPEMS), Public Finance Management Reform Program (PUFMARP) and the related work under the AAP/HIPC monitoring. As a result o fthese, budget execution andreporting is being improvedwith recent progress summarized inthe HPC-AAP status report (Annex 5) agreed between the Bank and the IMF and the Government. To take stock o f progress achieved and to agree on a set o f priority actions to further strengthen Ghana's fiduciary management, a new CFAA will be completed in June 2003. In the meantime, the PRSC in addition to the recommendations of the l2 Using the Sacks and Wamer (1997) framework and the O'Connel-Ndulu specification, the team concludes that "international growth experience delivers a profound message to Ghana-persistent fiscal expansion and high level o f government spending are clearly harming long term growth and poverty reduction". l3Donor-funded reports on "Risk analysis" and "Review, Reporting and Assessment Mechanisms" were elaborated in the last 6 months in the context of the MDBS, moving a wealth o f information on PEM issues.  - 42 - previous one, has drawn on the mission report o f the FY03 CFAA inidentifying priority actions to reduce fiduciary risks (Annex 6). 128. Interms ofCPAR, Ghanafigures inthe range of countries considered suitable for a PRSC. The last CPAR was carried out in 1996 and recommended that comprehensive procurement reforms be undertaken. These have been developed in the context of the Bank-financed PUFMARP. A new Public Procurement Bill has recently been submitted to the Parliament and is expected to be enacted in 2003. With a view to building on recent progress and agreeing on a road map to further improve public procurement management, a CPAR is currently underway which is planned to be completed by end May 2003. However, building on the March 2003 CPAR mission findings and recommendations (Annex 7), the PRSC's policy matrix has already identified prior actions and triggers considered critical to further strengthen Ghana's procurement practices. Table 7: Analytic Underpinnings CEMIDPR 19951200112003 CEM FY03 will be ready inJune 2003. PER 1999/2000 To be carried out annually, starting inFY04. CFAA 200112003 CFAA will be finalized inJune 2003. PRSCbuilds on CFAA 2001recommendations and also includes key actions identified inthe context ofthe FY03 CFAA preparation. CPAR 2003 A CPAR is currently under preparation andwill be finalized inJune 2003. Key recommendations have already been identified and included inthe PRSC policy matrix. 129. A final reference worth highlighting is that o f a Monitoring and Evaluation System that was developed by the Government to ensure the M&E of the GPRS. The system was designed, following extensive consultations with stakeholders and identifies 52 indicators that will support the evaluation o f results as the implementation of the GPRS proceeds, and could well be the basis for monitoring all poverty-related development activities inthe near fiture. E. ENVIRONMENTAL ASPECTS 130. The proposed operation has been rated a structural adjustment credit govemed under Operational Directive 8.60, and does not require an environmental assessment rating.  - 43 - 131. The Government o f Ghana is aware o f the importance for poverty reduction to meet the Millenium Development Goals (MDGs) o f ensuring environmental sustainability. The cross-sectoral nature o f the environment and its direct and indirect linkages to economic growth and poverty reduction agenda, has been taken into account in the preparation of the GPRS. Ghana has a robust environmental institutional framework and considerable capacities to set, regulate and enforce environmental management standards. The main frameworks are the 1991 National Environmental Policy and the 1992 National Environmental Action Plan. With the transformation o f the former Environmental Protection Council (EPC) into an Environmental Protection Agency (EPA), in 1994, and the creation o f a Ministryo f Environment, GoG showed its commitment to providing support for appropriate environmental management. 132. Over the years, GoG and donors have provided support for strengthening the capacities at the EPA to engage in setting environmental standards and tracking compliance o f social and environmental safeguards. InGhana, the EPA has since the late 1980s adopted environmental impact assessment as a management tool to screen undertakings likely to pose adverse impact on the environment. Environmental screening and assessment became legal in 1999 with the promulgation o f the Environmental Assessment Regulations, L.I. 1652. In Ghana, Environmental Impact Assessment is recognized and applied to most development projects. In this regard, procedures have been established to screen and evaluate all development projects and programs that have the potential to give rise to significant social and environmental impacts. Under the country's Environmental Assessment Regulations o f (L.I.1652), an EL4i s mandatory for seventeen types o f activities classified as critical. These include mining, petroleum and gas field, development, construction o f dams, harbors and roads, logging and disposal. The Government is aware o f the importance to effectively implement the environmental laws and regulations. 133. The Government o f Ghana recognizes the need to better comprehend the potential and likely risks, impact and opportunities of the GPRS on the social and physical environments so as to develop corresponding preventive and mitigationhemediation plans. It has consequently earned out a pilot Strategic Environmental Assessment (SEA) exercise in February 2003. The SEA discussions were focused on review and appraisal o f sectoral policies (e.g., land, forestry, water, housing, health, and transport), using sustainability criteria related to three types o f effects: economic growth, environment and natural resources, and social and cultural conditions. The results o f the pilot SEA exercise, together with an outline o f the next steps (possible preparation o f full SEA) will soon be considered by the Government. F. POVERTY AND SOCIAL IMPACT ANALYSIS 134. In developing policy measures, the GOG and its development partners have agreed on a program to ensure that over time, sufficient analysis o fthe poverty and social impact of policies (PSIA) i s completed, and feeds into the discussion o f policies for each subsequent round o f PRSCs. Most o f the policy reforms have benefited from some prior or ongoing analysis, though the depth o f the analysis on distributional issues and the degree o fpublic debate has varied.  - 44 - 135. Some o f the existing impact analysis work on key policy issues includes a social impact assessment o f the "right-sizing" o f the civil service, or national institutional renewal process, a socioeconomic study o f those tertiary education students who may be eligible for scholarships, a social impact assessment o f land tenure, and a rapid analysis o fthe impact o f value added tax ando fpetroleum price increases. This existingwork has been reviewed and i s summarized inAnnex 8. 136. The process of identifyingareas for PSIA in a participatory manner has been led bythe GOG. With support o fDFID, a workshop took placeinFebruary, 2003, to consult a large number o f government and civil society organizations on priorities for PSIA. Subsequently, the GOG identified 16 potential policy issues that would benefit from distributional impact analysis. Further consultations were held with representatives o f numerous sectoral ministries to discuss the role o f PSIA within their sector, and specifically how such work would feed into their policy agenda. 137. Itis recognizedthat it will take some time to cover allpolicy issues with adequate PSIA and debate and involvement o f stakeholders. In order to narrow down to a reasonable number PSIAs that could be completed prior to PRSC-2, ideally before end December 2003, a ranking took place according to the following criteria: Potentially large expected size and direction o f impacts; a Prominence o f issue inthe GPRS policy agenda andPRSC; a Timingand urgency o fpolicy or reform; a Level o f national debate surroundingthe reform; and Lack o f existing analysis. 138. Based on these criteria, four key reform issues emerged: (i) changes to the tariff structure inthe energy (petroleum and electricity) sectors and how the overall structure o f the sector affects quality and access o f services to the poor; (ii) proposed changes in health care such as a proposal to provide exemptions for maternal delivery; (iii) substantial institutional changes with decentralization which may affect access to or quality o f services or resources; and (iv) analysis o f the policies to promote growth inthe agricultural sector and the degree to which these could benefit smallholders. It is intendedthat once this set of PSIAs has been completed, a second roundwill take place to identify the next most important policy areas requiring further analytical work. 139. Given the importance to ensure that the PSIA work remains operationally focused, with a high likelihood o f feeding into policy, in several cases the PSIA will be anchored within the sectoral ministry, but have a reviewing committee for terms o f reference, methodology, draft review and comment. The reviewing committee includes stakeholders within the sector, development partners, the National Development Planning Commission (currently responsible for the GPRS andmonitoring and evaluation) and the Ministry of Finance and Economic Planning. For those PSIAs being financed by other donors, Bank sectoral staff would provide technical guidance and comments on terms of reference and draft reports. Other donors and the National Development Planning  - 45 - Commission also plan to carry out other PSIAs not directly related with the program supported by the PRSC. For all PSIAs, workshops and fora for policy debate and dissemination form an integral part o f the proposed process. More detail on the planned PSIAs is presentedbelow andinAnnex 9. Energy sector strategy and the poor 140. As referenced above, one o f the most pressing priorities for further analysis i s the cost recovery measures being taken in the energy sector. These measures were implemented to reduce existing GOG debt or significant budget subsidies, and to contribute to financial sustainability o f the sector. These tariff changes were accompanied by the introduction o f a cross-subsidy (petroleum) and a lifeline tariff (electricity) to protect the poor. While increasing fuel prices by 95 percent, the authorities considered the cross subsidy between kerosene and LPG on the one hand (both consumed disproportionately by the poor), andpremiumwhich i s consumed largely by the relatively well to do inAccra. Additionally, in anticipation o f the possible impact o f cost recovery pricing for utility services, subsidies for lifeline water and electricity customers were made effective, amounting to about $50 billion inthe 2003 budget. To the extent that both cost recovery measures result in important budget savings and make room for added social and poverty-related spending and/or delivery of services that previously were unavailable to the poor, their impact on the poor might be further ameliorated. Distributional analysis o f whether such measures are well targeted, how they are being implemented, and what sort o f indirect effects such policies would have, such as on the ability to hrther expand access to the system, will be carried out prior to PRSC-2 given the large number o f people these policies may affect.14 This work, which will be supported bythe World Bank, will be combined with FY04 Economic and Sector work on the energy sector planned which i s planned to include an overall assessment of the sector, an analysis o f its structure, andthe potential role o fprivatization. Changes to health care and the poor 141. Inthe context ofthe program supported byPRSC, the Governmenthas decidedto introduce an exemption policy for matemal deliveries. Potential issues include how to ensure the most effective targeting, how different stakeholders might react, and what sort o f implementation issues might be encountered. However, the specific scope o f PSIA work on changes in the health sector policy will be agreed upon with a broad number o f sectoral stakeholders during a forthcoming MOH/Development Partners Summit Meeting to take place in June 2003. This PSIA would be carried out in the context o f the health sector SWAp. Economic transformation policy for the agricultural sector and the smallholder/ subsistence farmer 14In2001anassessmento fthe lifeline tariff for electricity was carriedout, butneedsto bebroadenedwith further informationonincome, andonthose not yet connected to the system. Giventhe scope ofthe PSIA work inthe energy sector, it may require phasingthe work. Probably, an initial phase could be completed byNovember, 2003, and a subsequentphasebyMarch, 2003.  - 46 - 142. Other reforms supported by the PRSC, that met the criteria above, include the choice o f policies within the rural sector and the need to assess the extent to which they are salient interms o f alleviating poverty and reducing inequityfor small-holder farmers. DFID plans to finance such analysis to be managed by the National Development Planning Commission and completed before end 2003. This study should complement planned Bank Economic and Sector work on the constraints and opportunities for expanding growth in the rural sector, with a focus on factors that could spur high-value growth (agro-processing for non-tradable agricultural goods, expanding export of non- traditional agricultural products, supporting the development o f ago-business marketing). Bank sector staff will review terms o f reference and provide comments on draft and interim reports. Pro-poordecentralization 143. G T Z K f W has been one o f the active donors in supporting the GOGs decentralization initiatives. It plans to support the completion o f a PSIA on how the decentralizationprocess i s likely to affect the poor. The terms o f reference for this work is currently in being drafted and i s expected to be discussed among stakeholders, with a view to be completed by endJune, 2003. The final report and dissemination is expected byNovember, 2003. G. BENEFITSAND RISKS 144. Benefits. The benefits to be expected from the proposedPRSC-1 maybe viewed in three ways. The main and ultimate benefit is the human progress expected from the growthand service delivery outcomes o fthe implementationo fthe program supported by the operation. To the extent that the growth objectives become attainable, especially in the rural sector, including the generation o f higher levels agricultural non-traditional exports, improved employment and income prospects become a reality for a large number o f Ghanaians. Similarly, to the extent that the expansion o f basic health and education services become possible, the PRSC-1 would contribute to the attainment o f the Human Development Goals o f the GPRS. This includes, in particular, the delivery of such services in the currently deprived areas o f the Northem, Upper East, Upper West and Central regions o f the country. Inaddition, there are two intermediate benefits. The first derives from its contribution to closing the extemal financing gap, thereby, helping maintain macroeconomic stability, which is one o f the key objectives sought by the Ghanaian authorities as they implement the GPRS. With adequate external funding, the pressures on the cedi should lessen and, along with it, the pressure on prices from continuing depreciation of the currency. The second relates to its generation of funds to help implement the budget, thereby enablingthe Government to execute the policies and programs underpinning the budget. This is important for the funding o f development support services and social expenditures. 145. Risks. There are four risks to the success o f the program: (i) reforms may the not be sustained owing to weakening commitment as elections approach or in response social opposition to the program; (ii) the macro-financial context may deteriorate and  - 47 - make program implementation difficult as a result o f exogenous shocks such as adverse terms o f trade or increasing regional instability; (iii) fiduciary weaknesses may limit impact; and (iv) capacity limitations may lead to only partial implementation. 146. The first risk is that the program may not be sustained arises from the possibility - - that the government's commitment to the reforms may weaken as the 2004 elections approach, or that there would be social opposition. This risk is mitigated by two factors inthe design of the program. There is a good plan of continuing use of communication and dialogue to strengthen support for the program. This has shown its efficacy already - the dialogue and communication that preceded the many difficult tax and tariff measures taken in late 2002 and early 2003 seemed an important factor in gaining them acceptance. The recent by-election victories by the Government inthe months following those measures corroborate this view. Further, the inclusion o f poverty reduction measures with tangible and early impact (e.g. fee-free access o f poor mothers to delivery services) would help increase the social acceptability o f the program. 147. A second risk is that exogenous shocks such as unfavorable terms o f trade (widening the external financing gap) or increasingregional instability (creating the need for unforeseen security expenditures) could disrupt the macro-financial context of the program. The strong relation with the MDBS development partners helps mitigate the risk o f such events causing the program to fail. The partners have pledgedtheir support inthe form ofpredictable and sufficient multi-year financing, as long as the program is implemented with commitment. They stand ready to adjust the timing o f their disbursements to provide adequate financing as long as the program remains sound. 148. A third risk relates to residual fiduciary weaknesses. Although Ghana has made strides in the area o f probity in public resource management (in the broader sphere o f corruption, Ghana placed 4th in both the 2001 and 2002 Transparency International ranking of sub-Saharan African countries, behind Mauritius, Botswana, and Namibia), there are residual risks of the misapplication o f public finds. This risk is steadily decreasing. The progress made on budget management inthe second half o f 2002 (better commitment control, prompt reconciliation o f budgetary and banking system accounts, and frequent reporting) have diminishedthe risks inthis area. The roll-out o f the BPEMS inthe keyministries in2003 reduces these risks further. This riskis further mitigatedby the elevation to national attention o f fiscal transparency communications, budget account disclosures, and Parliamentary oversight of resource use and development results - all as part andparcelo fthe GPRS process. 149. A fourth risk is that implementation capacity may fall short o fthe requirements o f the program. The Bank, the IMF, and other MDBS partners are helping reduce this risk. This i s being done by supportingthe program as conceived by the authorities, including its gearing (allowing phasing in o f complex reforms). The Bank continues to provide advice on structural reforms with a strong AAA program. The IMF continues to offer macroeconomic management advice (including fiscal) via the services o f a resident Technical Advisor. In addition, donor support under the MDBS would make critical technical assistance available periodically to deal with unforeseen difficulties.  Incaseof reply the MINISTRY OF FINANCE 4% number and date of this letter shouldbeauoted ECONOMIC PLANNING P. 0. BOX MB 40 Our Re$ No. ACCRA YourRe$ Tel REPUBLICOF GHANA May29,2003 GHANA POVERTY REDUCTION SUPPORT CREDIT AND GRANT (PRSC-1) Mr. James D. Wolfensohn President The World Bank LElTEROF DEVELOPMENT POLICY (LDP) Dear Mr. Wolfensohn 1. Iam writing to request, on behalf of the Government of Ghana, the first Poverty Reduction Support Credit and Grant (PRSC-1) from the International Development Association (IDA) to support the programmes and policy measures outlined in our Ghana Poverty Reduction Strategy (GPRS). This letter sets out the actions and activities that the Government will undertake over the medium term 2003-2005 to implement its development agenda. I am attaching a policy matrix we have prepared in collaborationwith the Bank team and other development partners that sets out the contents of this letter in a summary. 2. As you are aware, the present Government of Ghana has since coming into office in January 2001 engaged in a broad programme of reform with the support of the Bank, the Fund, and Bilateral development partners. In his State of the Nation Address on Thursday February 13, 2003, the President reiterated his commitment to the broad policy framework, shared his vision of how to promote growth and reduce poverty while strengthening the people's resolve for the rule of law and good governance based on democratic principles.  Schedule 1 Page 2 o f 28 3. The GPRS, recently approved and recognized by the Boards of the IMF and the World Bank, provides a comprehensive approach to poverty reduction and long-term growth. The dimensions of poverty in Ghana in the 1990s and the lessons of economic reform since the mid 1980's form the basis of the GPRS and the programme of reform which Ipresent in this letter. 4. Prepared through an extensive consultative process with civil society and other stakeholders, the GPRS identifies five priority areas for sustained growth and accelerated poverty reduction; namely, (i) ensuring macroeconomic stability, (ii) enhancing production and employment, (iii) enhancing human resource development, (iv) developing special programmes for the vulnerable and excluded, and (v) improving governance. These five thematic areas form the thrust of the proposed reform programme for which we are requesting support for the Poverty Reduction Support Credit and Grant. Ghana has already begun the implementation of the GPRS and made modest gains, especially in the areas of delivery of basic social services including primary education, primary health care, water and sanitation. 5. In developing the reform programme, Government has been guided by the disturbing fact that although Ghana experienced a growth rate averaging 4 percent throughout the 1990s, the pattern of growth has been fragile and urban centered. Moreover, the source of growth and the nature of economic policies have not transformed economic performance or led to a reduction in poverty, especially among farmers who constitute the bulk of the rural population. Government recognizes that there is the need for new directions. It has, therefore, adopted a programme of reform aimed at improving its efficiency in accelerating growth and poverty reduction, especially in the delivery of public services to those most in need - the rural population, those in the deprived districts, the vulnerable and the excluded. To this end the reform programme rests on three pillars: a. PromotingGrowth, Incomes and Employment b. Improving Service Delivery for Human Development c. Improving Governance and Public Sector Management 6. Government believes that these are the three areas in which PRSC support would reinforce existing programmes and projects with the elements of opportunity and empowerment neededto reach our development goals. 7. The first pillar recognizes that there can be no meaningful poverty reduction without a strong economic foundation and sustained growth. It brings together the first two thematic areas of the GPRS- ensuring sound macroeconomic management, nurturing growth through private sector development, and expanding employment opportunities and income  Schedule 1 Page 3 of 28 generating activities for the poor. Government intends to create the conditions necessary for more rapid growth, especially in the agricultural sector given its major and traditional role in the performance of the economy. Government also intends to build on the achievement of recent years in terms of macroeconomic stabilization, reducing budget deficits, making domestic revenue mobilization more efficient and adopting instrumentsthat facilitate the growth of the private sector. 8. The second pillar brings together the GPRS themes of enhancing human resource development, and developing programmes for the vulnerable and excluded in society. We intend to focus our efforts on the issues of access, equity, and how to efficiently finance delivery of health, education and social services. 9. The third pillar recognizes that good governance is the key factor in making the development process sustainable. It integrates measures to build a democratic, inclusive and decentralized state, improve the performance of the public sector, strengthen public expenditure management, and strengthen the capacity to monitor and evaluate the policy agenda. 10.The Government believes that the proposed operation from the Bank together with direct budgetary support from our bilateral development partners would make it possible to implement measures aimed at achieving the objectives outlined above, and lay the foundation for Ghana to become a middle-income country in the shortest possibletime. 11.The remainder of the letter is organized as follows. It begins with a brief background and the range of policy challenges that we face. It briefly identifies the GPRS priority areas as the road map for the reform programme. It then describes the medium-term (2003-2005) reform programme which focuses on the three overarching pillars. Finally, it describes the monitoring and evaluation strategy. 1.BACKGROUNDAND POLICYCHALLENGES 12, Since 2001, the Government has aimed at formulating and implementing policies that will help to bring about a sound macroeconomic environment necessary to promote growth and poverty reduction. In the 2002 budget, Government sought to consolidate the modest gains achieved in 2001, especially in reducing inflation and in strengthening stability in the core macro indicators. Our goal was to mobilize potential resources (especially domestic tax revenue) more intensively so we can enlarge our development initiatives. Government also sought to improve public expenditure management; allocate resources (including HIPC relief) toward priority areas  Schedule 1 Page 4 of 28 identified in the GPRS; move towards full cost recovery for utilities; reduce the burden of domestic debt on public finances; and enhance agricultural productivity and rural incomes. 13. As you are aware, we made notable progress in stabilizing the economy not least by curtailing inflationary expectations, reducing fears of exchange rate risk and bringing back the confidence of investors, both domestic and foreign. We also met several challenges; including (i) higher-than-expected expenditures on wages and salaries; (ii) accelerated payments of arrears relating to both non-statutory and statutory payments; (iii) higher-than- anticipated subsidies to utility companies; and (iv) substantial shortfalls in expected foreign inflows. The net effect was a higher than expected government domestic borrowing. All these threatened to underminethe goal to lay the foundation for accelerated growth and poverty reduction. 14.The experience of the Government during the fiscal years 2001 and 2002 is that the setbacks in achieving economic policy objectives are but symptoms of larger problems that call for a concerted reform agenda. And to be successful, this agenda must be comprehensive and focus on major macroeconomic, structural, and institutional measures that interact to undermine growth and impede poverty alleviation efforts. In particular, the agenda must be deliberate in the design and delivery of targeted poverty alleviation measures. It must also address the weaknesses in budget implementation, public financial management, the domestic investment climate, the energy sector, the role of the public sector, and our vulnerability to external trade shocks. 15. It is in light of these that Government intends to pursue a reform programme that aims at specific structural and institutional measures and reforms in the three areas which constitute the overarching pillars. Government is aware that without these concerted measures with monitorable targets, attaining sound macroeconomic performance may be difficult, and even if attained, it may not translate into any significant improvement in living conditions if initial structures such as access to markets and the availability of social amenities are unequal. 16. It is our expectation that our development partners, through the Multi-Donor Budgetary Support (MDBS) group, will also support the reform programme described in this letter. The MDBS arrangement aims at supporting GPRS implementation through direct budgetary contribution. At the March 24, 2003 Mini-CG meeting, development partners and the Government endorsed the Framework Memorandum (FM) that will guide the MDBS arrangement.  Schedule 1 Page 5 of 28 17.The Government believes that the MDBS mechanism represents a major improvement in development partnership as far as aid policy and coordination are concerned. Among other things, we have sought in the FM for the MDBS partners to harmonize their procedures, performance assessment, disbursement mechanisms, planning and evaluation missions around the Government of Ghana budgetary cycle. In 2004, it is expected that we will match the policy matrix agreed with the Bilateral DPs and the European Union with the policy matrix that supports the PRSC. 2. THE GHANA POVERTY REDUCTION STRATEGY (GPRS) 2.1 A Vision for Development 18.The Ghana Poverty Reduction Strategy (GPRS), recently approved and recognized by the Boards of the Bank and IMF, represents our medium-term vision for development. It's preparation was preceded by two other national development strategies; namely, the Ghana Vision 2020: The First Step (1996-2000) and the Interim Poverty Reduction Strategy Paper: 2000-2002 (I-PRSP). It is our view that the Vision 2020 represented a major departure of development vision from the earlier development plans. Its specific goal was to build upon the gains of the Economic Reform Programme (ERP) to create the conditions for accelerated growth. It provided the framework within which to design and implement a series of industrial policies aimed at making Ghana a middle-income country by the year 2020. However, the implementation of the Vision 2020 met considerable challenges in part because of weak national ownership, and inadequate financing. 19. The design of the GPRS by the new Government benefited from the Vision 2020 and the Interim-PRSP.The GPRS takes cue from vision 2020's emphasis on accelerated growth through the development of resource-based processing industries using domestic resources, but goes further to focus on rural transformation as the basis for pro-poor accelerated growth. Its preparation went through an extensive consultation process to ensure national ownership and commitment needed for effective implementation. Furthermore, all policy actions were costed and considerable efforts made to ensure that the priority programmes found expression in the budgets. 20. The GPRS acknowledges that notwithstanding the substantial growth in the economy in the 1990s there has been a widening gap in standards of living between the rural and urban areas, between different regions of the country and between genders. Poverty reduction is therefore seen as a major social, political and economic undertaking that needs to be tackled simultaneously through accelerated growth and provision of programmes and projects for poverty reduction.  Schedule 1 Page 6 of 28 2.2 Goalsand Objectives of the GPRS and Planned Reforms 21. Given the multidimensional nature of poverty and the need for simultaneously pursuing growth and poverty reduction, the GPRS provides a comprehensive set of policies, strategies, programmes, and projects to support growth and poverty reduction over a three-year period (2003-2005). It is informed by the conviction of the government that the economy of Ghana needs to be managed effectively to enable wealth creation by transforming the nature of the economy to achieve growth, and accelerated poverty reduction. This goal will be achieved by: 0 Ensuring sound economic managementfor acceleratedgrowth; 0 Increasing production and promoting sustainable livelihoods; 0 Direct support for human development and the provision of basic services; 0 Providingspecial programmes in support of the vulnerable and excluded; 0 Ensuring good governance and increased capacity of the public sector; and 0 The active involvement of the private sector as the main engine of growth and partner in nation building. 22. Strategies for poverty reduction include prudent fiscal and monetary policies; private sector-led industrial productionthrough the application of science and technology; sound and sustainable management of the environment; promotion of commercial agriculture using environmentally friendly technologies; agro-based industrial expansion; export promotion based on diversification and competitive advantages; increased investments in social services; and accelerated decentralization as the key mechanism for policy implementation. 23. Specific programmes, projects and institutional reforms are currently underway to support the realization of the objectives of the GPRS. Public sector reforms, in particular, are intended to align with the objectives of decentralization and pro-poor service delivery. Progress on improving financial management are important to manage fiduciary risks to assure Ghanaians and development partners that budget resources will be used to support government's policy goals and GPRS implementation in particular. The objectives of the GPRS are also consistent with the Millennium Development Goals and the efforts towards the realization of the goals are represented in the capsule below:  Schedule 1 Page7 o f 28 2.3 Poverty Reductionand Useof HIPC Funds in 2002 24. In 2002, Government began the implementation of the GPRS. Actual expenditures for basic services, and income generation activities for the poor and vulnerable of the society amounted to US$320 million (excluding donor funded poverty expenditures). The amount represents 25.5 per cent of total Government Expenditures. 25.About 75 per cent of those expenditure was on basic human development services - primary health care, basic education, sanitation and safe drinking water. The rest of the resources were spent on employment generation, good governance, human rights, public safety, and disaster managementand in improving the well being of the vulnerable in the society. Emphasis was also placed on the creation of employment opportunities through training in vocations and employable skills of the youth including those with disabilities and the provision of credit and food-processing machinery to women. 2.4 Poverty Reductionand Use of HIPC Funds in 2003 26. In preparing the 2003 budget, the government ensured the integration of the poverty reduction programmes of all MDAs into the budget process. To implement programmes and projects more directly affecting the poor,  Schedule 1 Pane 8 o f28 Government has allocated a total of US$545 million made up of US$418 million from GOG, and US$80 million from the HIPC fund for 2003 and about US$47 million of HIPC resources carried over from 2002. The total poverty reduction allocation in 2003 excluding donor resources represents 29.6 per cent of total government expenditure and it is expected that with increase in the share of non-interest and non-wage expenditures recurrent poverty related spending will increase in subsequent years. 27. The resourceswill be used to improve human development through increases in accessto basic services in education, health and sanitation, safe water and for improvements in incomes of the poor and vulnerable in the society through employment generation and the provision of productive assets. Priority will also be given to the implementation of special programmes for the vulnerable and excluded such as the physically challenged, and also mitigating the impact of disasters on victims and protection of the rights of women and children. 3. THE POVERTYREDUCTIONSUPPORT PROGRAMME 28. As mentioned earlier, there can be very little poverty reduction without growth, but we also acknowledge that growth does not necessarily lead to poverty reduction. Our approach to deliver on the commitments made, even Growth and Prosperity" as we call the GPRS, is two-pronged - promoting as we sought the viewpoints of the people in developing our "Agenda for growth and reducing poverty. 29. On growth, we aim to increase the scope for financing our development and improve the environment for doing business in Ghana, while at the same time improving the performance of the rural sector in the interest of the poor. We will also address those issuesthat have hindered us from improving on the delivery of services for human development. 30. In addition, we recognise that we need to go the extra mile to ensure that in the area of good governance we actually implement what we intend and that what is intended for the poor does get to the poor. Government aims to ensure the rule of law and the promotion of human rights as well as the attainment of social justice and equity. We also intend to protect the disadvantagedand the needy in society through special programmes. 31. We admit that the Ghanaian public service has not been able to support the implementation of our development agenda for a number of reasons. There are capacity constraints, which need to be addressed as a matter of urgency - these include weaknesses of the public financial management system and the restructuring of the public and civil services to improve on efficiency and  Schedule 1 Page 9 of 28 effectiveness. In the area of public sector reforms, past efforts have not delivered the anticipated outcomes. Government intends to proceed with greater focus, more vigour and commitment. We envisage that the reforms we are pursuing in the economy, in the human resource sector, and in the area of service delivery both in the public and private sectors will reduce implementation constraints identified and, to a large extent, help to improve on the absorptive capacity of the economy. The policy reforms under each of the three main pillarsare detailed below. 3.1 PromotingGrowth, Incomesand Employment 3.1.1. TheIssues 32. As the GPRS points out, the structure of the national economy and for that matter the composition of national output has not changed much since the 1950s.The economy predominantly depends on agriculture. The composition of the agriculture sector has changed very little. We have added a few more staples and more export crops have been introduced. The average farm size is still small, agriculture production remains largely rain-fed, traditional production techniques still dominate, and most agricultural products are exported unprocessed. 33. The composition of the industrial sector has been no different. Studies show that efficient firms are those that export. Most firms in Ghana's manufacturing sector are not involved in exports. Only about a third of firms export some of their output and these export crops comprise no more than 35 percent of their output. 34. The annual growth rates of the agricultural and industrial sectors have not reached the 5 percent mark throughout the 1990s. During the last 20 years, the only noticeable change in the composition of national output has been a modest growth of the service sector led largely by the financial sector and retail trade. As indicated in the GPRS, various studies and surveys of the business enterprises have identified the following key issues as critical in inhibiting growth : High public domestic debt High-cost business environment Stagnation of rural development. 3.1.2. Strategy 35.The first subset of reforms aims at overcoming the inhibitors of growth: (i) the limited scope for financing development by both the private and public sectors; and (ii) the high cost of doing business. The broad objectives of the  Schedule 1 Page 10 o f28 medium term macro-framework are to promote private sector-led growth including small-scale business development, in a manner consistent with poverty reduction. Re-creating the scope for financial development requires curtailing the fiscal deficit, limiting public sector borrowing, and reducing the domestic debt to a sustainable level. Reforming debt management is a key area of reform we intend to pursue as part of our strategy to promote growth, incomes and employment. 36. Our goal of domestic debt management reform is to reduce the stock of debt from the current 29 percent of GDP to about 13 percent by end 2005, paying down the debt with a mixture of debt relief from the HIPC initiative, divestiture receipts, and external assistance. We intend to reduce our debt service burden through improvement in the sustainability of the domestic debt, including increased budgetary discipline and the elimination of budget subsidies to parastatals and therefore putting an end to their soft budget constraints. We believe the combination of these measure will ultimately create more fiscal space, and make it possible to direct resources to social services and poverty reduction programmes. 37. The second subset of reforms is aimed at addressing the high costs of doing business and improving the business environment while protecting the poor. The specific measures include: Creating a more stable supply of energy for production and also for household consumption, and ensuring the viability of the electricity and petroleum products sub-sectors by enabling them to sell at economic prices. At the same time we will be pursuing a programme of cross- subsidization for the poor (through the provision of life-line protection) and eliminating the need for budgetary subsidies. 0 Enhancing international competitiveness by facilitating trade, especially in adopting measures that reduce the cost of unloading imports containers, enhance the speedy clearance of goods from the ports, and reduce the length of custom procedures. 0 Improving business climate by reducing overall transactionscosts of doing business by eliminating the excess burden of regulationsand administrative processes. 38. In view of the importance of energy which not only affects the prospects of growth but also the struggle against poverty for the majority of low income households, Government has over the past 3 years gradually been adjusting tariffs for water and electricity in order to keep the water and energy sectors viable while protecting a life-line protection for the poor. Tariffs for electricity and water were raised by 60 and 40 percent respectively in August 2002 and  Schedule 1 Page 11of 28 by a further 12 percent in March 2003. This should bring substantial improvements in the finances of the utility companies and contain their subsidy burden on the budget. To ensure that utility tariffs are fully aligned with current market conditions, an automatic adjustment mechanism is now in place and the Public Utilities Regulatory Commission (PURC) has been charged with the responsibilityto administer it. 39. In line with government policy orientation of an efficient and reliable energy sector, a Power Sector Reform plan was approved by Cabinet in April 2003. The plan aims at enhancing electricity generation, transmission, distribution and regulation and promoting the role of the private sector, especially in thermal generation of power. The specific measures include (i) forming two electricity companies, one for the Southern sector and the other for the Northern sector of the country (ii) making Volta River Authority (VRA) continue with hydro power generation while private investment is allowed in thermal generation; (iii) taking way transmission from VRA and given it to a new company and (iv) make the Energy Commission focus its work on licensing and technical inspection and answerable to the Minister of Energy. We will continue the implementation of these measures, includingthe public- private partnership plan, over the next three years in order to ensure a stable supply of energy in the country. 40. With regard to petroleum products, retail prices were increased by 60 percent in February 2001 in order to halt the operating losses of Tema Oil Refinery (TOR). This was followed in mid-January 2003 with a further price adjustment of about 90 percent bringing retail prices to import parity levels. In terms of major institutional reform to make the petroleum sector more efficient, a National Petroleum Tender Board (NPTB) established in March 2003 will henceforth have the mandate and independent authority to make adjustments in petroleum products prices according to an automatic adjustment formula without further approval from the Ministry of Energy. In order to amortize TOR debt build-up due to past mis-pricing of petroleum products, a Debt Recovery Levy (DRL) was announced in 2003 budget as part of the adjustment formula and this has been approved by parliament. Before the end of 2003, Government intends to review the experience with using the automatic pricing formula, and on that basis consider the possible liberalizationof petroleum products in 2004. 41. In the area of trade facilitation, government believes that simplifying and speeding up custom procedures are paramount. To this end government is moving ahead with the automation of customs procedures at the nation's major entry ports. The project has been completed at the airport and it is to be extended to the seaports of Tema and Takoradi - the entry points of 60 percent o f t he country's imports by the end of the year. It is expected that  Schedule 1 Page 12of 28 custom clearance procedures at the seaports will fall from 2 days to 1day and from 24 hours to 2 hours at the airport. 42.The Government has set out to improve the business environment and to remove obstacles to firm-level competitiveness. As preparatory to removing burdensome regulations and simplifying administrative processes, government has completed a survey of the regulatory and administrativecost of doing business. In this context, the government is determined to implement a time-bound action plan to reduce the cost of doing business. In terms of reducing the time cost of doing business start-ups in Ghana and improving compliance with the Companies Code, Government is computerizing the operations of the Registrar- General's Department (RGD). We have also decided to decentralize the operations of RGD by establishing offices in all regional capitals. This will also enhance the RGDs revenue generating capacity. 43. The third sub-set of reforms aims at improving the economic environment of the rural sector. This particular sector has been selected because of the economy's comparative advantage in the agricultural sector, its link to industry, and its potential as a source of income and employment for the largest segment of the population. In addition, it is a response to the fact that farmers were the one group that benefited least from the gains made in poverty reduction in the 1990s. government therefore intends to ensure that in our two-pronged strategy for growth and poverty reduction, the rural poor, the majority of whom are farmers, can and does benefit. The specific measuresto be undertaken include 0 Enhancing the incentive structures for cocoa farmers and 0 Establishing sound micro-finance schemes to improve access and harmonize the terms and conditions of the supply of credit for the predominantly small and medium scale farmers, especially food crop farmers who dominate the ranks of the poor. 44. Government has set out to improve and sustain the cocoa industry through higher farmer incomes and improved farm maintenance. It has subsequently increased producer prices on 4 occasions since 2001, reaching a level of about 68 per cent of F.0.B price in 2003. The objective over the medium term is to increasethe farmers' share of F.0.B price to about 70 per cent and also increase total annual production to about 419,000 metric tonnes by 2005. 45.Aware of our dependency on cocoa and our vulnerability to adverse price movements, the government has sought to diversify our export base into other non-cocoa activities. Notable among these are the President's special  Schedule 1 Page 13 o f 28 initiatives in cassava, palm oil, and cotton. These are also intended to stimulate private enterprise, improve productivity and create jobs both in agriculture production and in processing. Under the cassava initiative, a factory has been established in the Central Region (identified as one of the deprived districts by measure of income levels). This factory is to be fed by out-grower farms in seven districts. About 5000 farmers are being organized and assisted to cultivate cassava for processing into high-grade industrial starch. The government is also implementing a programme to alleviate poverty for people, particularlyfor the rural communities using the forest and wildlife sector. Under the National Forestry Plantation Development Programme there are plans to achieve a target of 30,000 hectares annually for the medium-term through the poverty alleviation focused community plantations. 46. We also intend to revamp the micro-finance sector The key measures to be undertaken include 0 Coordination of all micro-finance initiatives by a central agency housed in the Ministryof Finance and Economic Planning 0 Stakeholder review of existing policies 0 Streamlining and expansion of revolving credit schemes to ensure that more people can engage in profitable ventures, create wealth and reduce poverty. 47. Government regards continued macroeconomic stability as critical for a framework that promotes growth, incomes and employment generation. Government intends to pursue a medium term economic programme for 2003-2005 that aims to accomplish the following objectives. 0 Improve the standard of living of all Ghanaians by accelerating real GDP growth to above 5 per cent; 0 Increase poverty spending, financed in part through debt relief under the HIPC Initiative; 0 Reduce inflation to single digit by end of 2004 and beyond; and 0 Rebuild gross official reserve holdings to 3 months of imports of goods and services by 2005. 48. Agriculture is expected to play a progressive role in achieving our growth objective. Agricultural growth is expected to rise from 4.1 percent per annum in 2002 to 4.8 percent per annum by 2005. The service sector, which has consistently enjoyed the fastest growth, is expected to experience a modest growth rate of 5.1 percent in 2005 compared to the 4.7 percent growth rate in 2002. Industry is projected to experience increased growth with the implementation of agro-processing initiatives proposed in the GPRS. The overall targets for the period 2003-2005 are provided in Appendix Table 2.  Schedule 1 Page 14o f28 49. For 2003 the objective are the following: 0 A real GDP growth rate of at least 4.7 per cent; 0 Maintaining the rate of inflation to no more than 22 per cent by end 2003;'' 0 An overall budget deficit equivalentto 3.9 per cent of GDP; 0 A domestic primary budget surplus of 2.9 per cent of GDP; and 0 The rebuilding of gross official reserve holdings equivalent to 2.3 months of imports of goods and services. 50. On the monetaryfront, our monetary policy in 2003 aims at reducing the rate of inflation and minimizing exchange rate volatility. With the support of a strengthened fiscal position, this should ensuring that adequate bank credit is available to support the growth of the real sector It is also expected that the flexible exchange rate policy will continue to provide incentives for increased production of exportable goods, and enhance competitiveness on international markets. Monetary and fiscal prudence in 2003 are expected to play a complementary role to slow down the rate of depreciation of the cedi and make the economy more stable for productive activity to flourish. 3.2. Improving Service Deliveryfor Human Development 51. In the area of improving service delivery for human development, access and equity issues will be prime concerns with emphasis placed on the deprived areas of the country. Government also intends to focus on efficiency as well as equity in the financing of education and health, to ensure a greater poverty impact of our actions in these areas. 3.2.1Education 52. Despite progress made over the years in providing access to education, Ghana still faces many challenges especially with regard to quality and management efficiency. Inequalities in access persist on regional and gender lines while issues of quality remain of concern. Increaseaccess/ completionand quality in basic education, patticularlyin 3 most deprivedregions (Northern, UpperEastand Upper West) l5 The target for inflation has recently been revisedupwards to account for the unexpected spike inthe rate o f inflation as a result o f the recent increase inpetroleum prices o f over 90 per cent, as well as increases in utilitytariffs o fabout 12per cent.  Schedule 1 Page 15 o f 28 53. Our strategy on education focuses on addressing inequalities in access; shortfalls in spending; the limited and restrictive non-salary expenditures; and the acute management gaps, particularly in teacher deployment and supervision, distribution of learning material, retention of qualified personnel and coordination of donor support. To develop capabilities in all regions of the country, the strategy focuses on better prioritisation and targeting as well as developing stronger partnerships with the non-state sector. Efficiency measures are also critical to achieving outcomes in education, particularly in the elimination of the severe management gaps and improving donor coordination. Efficiency measures will therefore underlie government investment in the sector. 54. To address the issues of access, completion and quality in basic education, a number of initiatives have been undertaken. We have established a list of deprived districts based on 11weighted criteria related to quality, access and management efficiency to be used to target financial and material support such as funding for rehabilitation, construction, head teachers' impress, provision of textbooks, other teaching and learning materials and school furniture. To target assistance to schools in deprived areas, school mapping has been completed for eight deprived districts, for the identification of underserved communities in basic education. Our intention is to continue to prioritize financial and material support to deprived districts on the basis of the updated list. School mapping will be continued in the medium term to cover an additional ten and then twenty districts within the period. 55.To address gender biases in completion of primary education, all government-controlled fees for girls in public primary schools would be eliminated by the end of 2004 in the deprived areas. I n addition incentives (including scholarships) will be providedto retain girls in school. Government will, by the end of 2004, introduce capitation grants in public primary schools in underservedareas and in all public primary schools for the disabled. 56. Measures to improve the quality of education include teacher retention, the adequate supply of core textbooks and other teaching and learning materials. Currently a number of scattered programmes exist to attract and retain teachers in certain deprived areas and operated by various stakeholders. Our intention is to conduct an evaluation of these existing programmes to inform the proper implementation of the teacher relocation and retention scheme. The scheme will first be piloted in specified deprived areas and expanded nationwide. Improvement in pupil: teacher ratios especially in deprived regions are expected in the order of the following: Northern 35:l will be maintained; Upper East 51:l to 45:l; Upper West 37:l to 35:l. The pupil-textbook ratio is also expected to improve to 1:4in the 3 most deprived  Schedule 1 Page 16 of 28 regions- Northern, Upper East and Upper West- so that each child has access to textbooks in the four core subject areas. Improve eficiency and equity of financing education with attention to greater poverty impact 57. An EducationStrategic Plan (ESP) has recently been completed and contains targets and indicators that will assist in delivering the necessary reforms and reducing poverty. The intention is for a sector-wide approach with Government exercising responsibility for sector planning and supported by partnerships with the home, schools and local and wider communities. Our ESP also includes a framework to access international support under the Education for AII/Fast Track Initiative (EFA/FTI) to enable Ghana achieve its medium term education targets and ultimately the MDGs. 58. As part of the reforms contained in the ESP, a revision of the tertiary cost recovery strategy is to be undertaken in 2003 and efforts made to implement the revised policy in 2004. An increase in non-salary expenditures as a share of total expenditures from 5.31 per cent in 2001 to 8.5 per cent in 2005 will be made to ensure a more even balance in expenditures. Additionally, efforts will be made to improve budget execution measured by an increase in the proportion of non-salary recurrent expenditures from 63.4% in 2002 to 85% by 2004. 59.The expected outcomes for the education sector based on the various interventions include an increase in national GPER from 80% to 90% with specific targets for the three most deprived regions. Specifically girl's GPER is expected to increasefrom 76% to 90% by 2005. This will go a long way in helping Ghana attain the MDGs. 3.2.2Healtb 60. Health outcomes have improved over the past decade and Ghana records some appreciable gains such as a life expectancy rate of about 60 years in 1998 which is high compared to other countries within the sub-region, and an infant mortality rate of 57 per 1000 which means that Ghana has the lowest IMR in West Africa. In spite of these attainments, there are wide geographical disparities in outcomes, particularly in under-five and maternal mortality and in child malnutrition. The three northern and the Central regionsare particularly disadvantaged in this regard. 61. Underlying constraints in the provision of quality health care are efficiency and financing gaps. These include limited decentralisation, inadequate motivation of professional staff, ineffective supervision and monitoring, and  Schedule 1 Page 17 of 28 weak links between facilities and communities. Financing constraints are reflected in weaknesses in the implementation of the user-fee exemption policy, yet-to-be established links between the exemption policy and the proposed national health insurance scheme, concentration of considerable resources at the regional level and limited success with partnership of other government agencies and the private sector. 62. In order to bridge the equity gaps in health care, the following direct interventions will be made. Resource allocation criteria16 and a facility distribution plan are being developed to improve targeting of poor groups and geographical areas. In addition, the GPRS proposes a redistribution of health workers in favour of deprived areas and the provision of outreach services and clinics in deprived rural and peri-urban areas will be increased. 63. In view of the current rapid loss of our well-trained and qualified health personnel, Government considers that managing to retain the existing numbers of health professionals in the deprived areas, will be a major achievement. 64. To ensure the availability of health workers especially in deprived areas therefore, Cabinet is expected to review and approve a programme of relocation and retention of health professionals. These measures are expected to be reflected in the 2004 budget and will cover in a phased manner, the provision of financial incentives, accommodation, opportunities for career development and expanding enrolment in training institutions in deprived regions. Bridge equity gaps in access to quality health care services (Northern, Upper Easf, Upper Westand Central) 65. To address inequities in access to quality health care, the Community Based Health System (CHPS) adopted and launched by Government, emphasizes basic primary services and includes community outreach activities. Our intention is also to implement a high impact rapid delivery programme for under-five and maternal mortality within at least 2 deprived regions by the end of 2003 and covering 4 regions by end 2005. The focus of the programme is on the following interventions: EPI-PIus17; IMCI-PIUS'~;and Selected Ante-natal interventi~nsl~and using specified operational strategies A study onGeographic Resource Allocation inthe health Sector o fGhana, has beenalready undertaken for the MinistryofHealthunder a contract with the Oxford Policy Management Unitin2001. "Topreventimmunizablediseases,VitaminAdeficiencyandintestinalparasites To prevent and care for pneumonia, diarrhoea, malaria and malnutrition I 9To prevent matemal andneonataltetanus and low-birth weight resulting frommalaria and severe anaemia inpregnancy as well the mother-to-child transmission ofHIViAIDS  Schedule 1 Page 18 of 28 including health centre-based delivery and community-based promotion and outreach/mobile services. 66. Government recognizes that the MMR is quite high and that our women die in childbirth even though the nature of the causes (including haemorrhaging, infections, eclampsia etc.) is preventable. Government has in the past supported four free ante-natal visits, while user fees are charged for delivery. We recognize that the reduction of maternal mortality and morbidity is very dependent on a pregnant women's access to essential obstetric care. To improve on maternal mortality, therefore, Government has adopted an exemption policy for deliveries, to be operationalised immediately in the four underserved regions (Northern, Upper East, Upper West and Central) where maternal mortality is high and supervised deliveries are low. It is our intention to extend this exemption to the entire country by end of 2004. This measure we believe is an action that will go a long way to improving our health outcomes in the area of maternal health and also enable us achieve the MDG targets that we are signatory to. EnsuringSustainableFinancingArrangements that Protect the Poor 67.The Ministry of Health has finalised and adopted a second Five-Year Programme of Work (POW) and Common Management Arrangements for 2002-2006 utilising a sector wide approach involving several partners. Under this second POW, the reforms to the public sector role in health delivery, begun under the first POW will be pursued vigorously. The overall goals of the second POW are to reduce the inequalities between the north and south, urban and rural areas, and on gender. It also promotes strongly, the implementation of the CHPS (referred to in par. 82). 68. Drawing on the Ministry of Health report A Profile of Inequalities in Ghana" " published in 2000, Government intends to improve on equity in financing. Government aims to adopt and implement, a new recurrent expenditure allocation formula to be used in the 2004 budget process, which will favour the most deprived areas. This is expected to result in an increase in the share of the sector's recurrent spending for underserved regions from 32% to 39% by 2005. Recurrent expenditures for health at the district level are expected to be not less than 42% for the period. This will enable district hospitals provide a greater range of services at that level. 69. We are determined that payment at the point of service delivery should not prevent access to essential care. We propose that over time, pre-payment schemes and insurance should replace fees applied at the point of service delivery. We are convinced that exemptions may still remain a requirement for a pro-poor health strategy to distribute the cost burden according to  Schedule 1 Page 19of 28 ability to pay and to health needs. In this regard, the existing exemptions system will be reviewed and modified to improve protection for the poor whilst the evaluation of the financial implications and management arrangements for the National Health Insurance (NHI) are finalised. By 2005, steps would have been defined for the implementation of the NHI. Meanwhile, the total amounts spent on exemptions are expected to increase by no less than 10% annually for the period 2003 - 2005. 70.The expected outcomes for the health sector include an improvement in U5MR and MMR; a significant reduction (15% on average) in U5MR in the intervention regions after 3 years of full implementation is expected. The Maternal Mortality Ratio estimated at 2.620per 1000 live births in 2001 is also expected to decline as a result of these ante-natal interventions and the exemptions for maternal deliveries. The increase in the capacity of districts to provide a greater range of services offered at that level, an improved ability to adopt health policiesthat are pro-poor and sustainablewill all go to ensure these outcomes. The number of doctors in deprived areas is also expected to increase at best and at worst remain stable during the period and overall to retain health sector personnel, especially in deprived areas. Retention of Health andEducation Personnel 71. On retention of health services personnel and for education, Government reiterates is concern with the present situation where the country is experiencing a high attrition rate and intends to do all that is necessary to retain its qualified staff. It acknowledges the good quality of staff trained and recognizes that to retain them Government would need to offer competitive remuneration and attractive conditions of service. It acknowledges the need to keep in mind the fact that such differential conditions of service may have implications for the wider reforms being planned for the entire public service, but also considers that salaries for health and educational personnel may need to be re-considered as costs of service delivery and not be narrowly defined as personal emoluments. 3.2.3.ReducingthespreadoftheHIV/AIDS epidemic 72. I n recognition of the severity of HIV/AIDS and the need to promote and coordinate a unified national response, we established the Ghana AIDS Commission, a multi-sectoral body providing leadership in the coordination of all HIV/AIDS related activities, in advocacy, monitoring and evaluation and resource mobilisation. The government has since developed a National 2o2001Annual Report ofReproductive and Child HealthUnit, MOH.The MMRstated inthe GPRS of 2 per 1000was based on earlier estimates available.  Schedule 1 Page 20 of 28 HIV/AIDS and STI Policy to guide national response and a national HIV/AIDS Strategic Framework. 73. The challenges faced in this area include the relatively higher prevalence rates of certain key population groups in certain areas and the increasing number of orphans and vulnerable children with the level of infection and very limited gains in behaviour change. A renewed focus on HIV/AIDS prevention is key to achieving sustainable poverty reduction, given the low costs relative to treatment. Increased resources are required to provide for care and support for those living with the disease and their families, to reduce exclusion and further enhance prevention. 74. Currently, efforts of Government in responding to HIV/AIDS are being supplemented by donor projects, non-governmental organizations, community-based organizations and faith-based organizations. About 800 Local Response Initiatives have so far been developed and are being implemented. We will continue the implementation of these and the development of new initiatives at the local level over the period. Government will accelerate the implementation of these community programmes in 2004 and will place emphasis on deprived regions which have as of now, developed few local plans for reducing the spread of AIDS and have thus not benefited much from the funding availablefor local initiatives on HIV/AIDS. 75. Additionally, a nationwide policy for behaviour change and communication activities related to HIV/AIDS is being developed and will be adopted by 2004 for implementation. An improvement in the messages for HIV/AIDS prevention is expected as a result of this and ultimately a reduction in the prevalenceof HIV. 3.2.4SpecialProgrammesfor the VulnerableandExcluded 76. A national programme for street children has been initiated by government with a target of meeting the needs of 1,500 children with an integrated package of services and 3,000 children benefiting from at least one service all by 2005. The integrated package of services offered includes the provision of formal or informal education/vocational skills training (depending on age and background), health services and counseling. Parents/guardians of the affected children will also be supported with micro finance where necessary. We have initiated programmes to re-integrate children with their families wherever possible. Lessons learned from this initiative for street children are being documented and the approach is likely to be replicated nationwide if successful.  Schedule 1 Page21 o f 28 77. Vulnerability mapping is also planned for 2005, using information from nationwide householdsurveys. 3.3 Promoting Good Governanceand PublicSector Management 78. Key elements of our reform efforts in the area of governance have focused on instituting controls and enhancing the effectiveness of public expenditure, strengthening public financial management, increasingthe efficiency of public procurement, improving public service performance and customer focus, cementing the rule of law and ensuring the appropriate social order, through strengthening the legal sector and police service, and empowering governance institutions and civil society to contribute to the attainment of national developmentobjectives. 3.3. PublicExpenditure Management l a 79. Government is complementing its current debt management efforts with measures aimed at forestalling any accelerated and/or unsustainable growth of the deficit. The establishment of the Economic Policy Coordinating Committee (EPCC) has strengthened coordination and oversight of public expenditure management. Quarterly expenditure ceilings for each MDA are established and agreed by Cabinet, and EPCC monitors performanceagainst the ceilings via sub-committee reports (on expenditure, revenue, commitments). The Financial Administration Regulations (FAR) Bill currently before Parliament will buttress the efforts underway aimed at strengthening the public expenditure regulatory framework, and will provide a strong basis for Government's actions towards modernizing and strengthening the regulatory framework. Once passed, we will ensure strict enforcement of sanctionsfor non-compliancewith rules set out by the Law. 80. As regards budget formulation, the Government in 1998/99 adopted the Medium-Term Expenditure Framework (MTEF) which classifies the budget on the basis of outputs and activities and links them to specific MDA objectives on a three-year rolling basis. This has led to improvements in the quality of budget preparation at the MDA level. We have adopted a new chart of accounts, and will continue to pursue improvements in the framework for budgeting, by taking steps to align functional classifications with GFS. Government will strive for further improvements through: reviewing and strengthening the MTEF process, the institution of systems for tracking expenditures and commitments on a monthly basis, as well as the full disaggregation of the General Government Services item in the budget. In addition to ensuring greater transparency in the formulation of the budget, enhanced efficiency of public expenditure will be pursued through inter alia the revival of the PER process.  Schedule 1 Page22 o f 28 81. Over the last year, we made operational on a pilot basis in the Ministry of Finance and Economic Planning (MFEP) and the Controller and Accountant General (CAGD) the Budget and Public Expenditure Management System (BPEMS) which seeks to integrate and computerize all phases of the revenue/expenditure management cycle. The BPEMS also ensures the receipt of real-time information, thereby allowing timeliness, facilitating transparency and limiting discretion in decision-making. In 2004, Government intends to extend the BPEMS to cover the three additional ministries responsible for a significant amount of public expenditure, namely the ministriesof Health, Educationand Roads and Highways. 82. In line with enhancing accountability in the management of public resources, Government has been pursuing the strengthening of its internal audit function. Cabinet has completed review and approval of the Central Internal Agencies Audit Bill. It is expected that Government will soon begin to realize all the benefits of the internal audit function, and be assured that the functionality and integrity of the public expenditure management system is maintained. We see passage of new legislation in this area as critical to improving compliance with established procedures for internal control, and ensuring the achievement of the highest level of performance in the conduct of assigned responsibilities. 83. We have also focused attention on improving public resource spending efficiency. Our efforts are in hand, as evidenced by the progress made with the reforms of the public procurement system being undertaken. The value of public procurement ranges from between 20 and 25% of GDP with upwards of 80% on non-wage Government expenditures being made via the public procurement system. In the late 1990s, it was clear that given the key weaknesses in the system - the lack of well-functioning systems for monitoring the conduct of activities and/or tracking commitments, the non- uniformity of procedures due to the multiplicity of circulars and the existence of outdated, unrealistic directives - Government needed to embark on a comprehensive reform of the systems of public procurement to ensure that the resources deployed through them were used in the most economic and efficient manner, and to entrench `value-for-money` as the underlying principle. 84. MFEP through its Policy Procurement Oversight Group (PPOG) has pursued the development of a comprehensive, well-articulated policy governing public procurement. With assistance from our development partners, and after widespread consultation, these efforts have culminated in the preparation of the Procurement Bill (currently before Parliament) that, when enacted, will provide the appropriate framework to safeguard the integrity of the country's  Schedule 1 Page 23 o f 28 public procurement system, and establish a central oversight function - the Procurement Board - and tender review authorities at each level of public procurement. The Procurement Board will be vested with the requisite autonomy to determine the strategic focus of future procurement policy, set standards of practice, ensure compliance with policies, enforce sanctions, evaluate the effectiveness of national procurement practices and oversee the development of requisite skills within MDAs. 85. As you are aware, Government has placed a lot of importance on improving public financial management systems. In March 2002, Government's Public Financial Management Committee developed short, medium and long-term action plans'' to address identified weaknesses within the country's public financial management systems. These plans provided a sound platform for the formulation of implementation strategies, and with the support of its development partners, we have begun work on priority activity areas, and the emphasis placed in this area has begun to pay off. Progress with addressing short-term priorities has been good. 0 Updateof National Accounts 0 Tracking of HIPC/Poverty related activities 0 Reductionof Payroll leakages 0 Regular Bank Reconciliation of Accra Treasuries which account for 80% of GoG expenditure 0 Introduction of Commitment Control System Progress in the above-mentioned areas helped to address several weaknesses identified in the 2001 CFAA and the HIPC Expenditure Accountability Assessment carried out in 2001 The Government commitment to address those weaknesses is demonstrated by progress reported in the status report on the HIPC Assessment Action Plan, recently agreed between the Government and the World Bank and the International Monetary Fund. 86.The medium-term reform actions, to be implemented between 2003 and 2005 aim at consolidating gains made to date and focusing the reform processon achieving the necessary improvements in efficiency, accountability and transparency within the shortest possible time and at minimal cost. It is expected that these measures would eventually help address the findings and recommendations of the recent assessment on public procurement and financial management. 21 Government o f Ghana: Comprehensive Financial Management ReformAction Plan(March 25, 2002).  Schedule 1 Page24 o f28 3.3.2. PublicSectorReform 87. It is clear to Government that an efficient and effective public sector is a prerequisite for sustained economic development. Various initiatives have been undertaken in this area since we adopted the policies set out in the Economic Recovery Programmes of the mid-1980s. As you are aware, the initial emphasis of these efforts was on cost-reduction through institutional downsizing. This was followed by a more strategic approach which included financial management reform, efforts to enhance revenue generation and a reorientation of the public sector. Government sees this approach as having brought some improvements, for example with regards to the introduction of information technology into the public sector, improvements in the performance of the revenue agencies and the introduction of the MTEF. 88. However, despite efforts carried out to date under programmes such as the National Institutional Renewal Program (NIRP) and the Civil Service Improvement Program (CSPIP), evidence suggests that current public sector capacity is at a level below that required to effectively implement and ensure sustainability of Government's priority programmes Iike the GPRS. Effective implementation of reform efforts will hinge on Government putting in place effective institutional structures, roles and procedures particularly for the Central ManagementAgencies (CMAs), as well as for the Subvented Agencies (SAs); enforcing compliance with established rules; and tackling condition of service and compensation issues- which we intend to do so as to ensure the success of our reform programmes and of the Growth and Poverty Reduction Strategy. 89. It is clear that a comprehensive sector-wide approach to restructuring the public sector is needed. As a first step, we have embarked on an in-depth review of reform efforts undertakento date. A census of the public sector is underway and will be completed by the end of the year. The results will allow updating of databases and strengthen our payroll management efforts with a view to gaining firmer control of our wage bill. Work on a refocused strategy for public sector reform will continue, and the intention is for Cabinet to issue a policy statement on public sector reform, including public sector pay and employment with a view to define a time-bound revised reform program. Next steps of implementation of the revised time-bound reform programme should follow. 3.3.3.Decentralization 90. Government continues to pursue greater involvement of communities in its efforts to reduce poverty, generate growth and ensure accountability of the  Schedule 1 Page 25 o f 28 central and local government machinery. The District Assembly system initiated in 1998 aimed at creating a forum where local representativesof the people and other agencies jointly agree on local development priorities and the actions required to achieve them. It is into this system of institutionalized grassroots participation that we are seeking the best way to transfer discretion and the resources requiredto address local priorities. 91. Our Decentralization Action Plan is currently being finalized. Among other things, it seeks to ensure an appropriately-phased devolution of power and responsibility for service delivery, and makes provision for the input and involvement of non-governmentalorganizations. We recognize the need for a comprehensive effort to build and strengthen capacity at the District level, and actions are being taken to build the requisite capacity at the sub-national level for strategic programme and project selection. The Local Government Service Bill currently before Parliament seeks to ensure that appropriate control is vested at the sub-national government for human resource development. 3.3.4.Enhanced TransparencyandParfi'cipation 92. Government intends to cement the political democratization process that has made Ghana a shining example for the rest of the continent. The Constitution provides a strong foundation for the establishment of good governance, and we see our efforts in this area as being crucial to ensuring sustainability of reforms, programs and initiatives being undertaken in pursuit of its development policies. Government's National Governance Programme (NGP) established in 1997 with development partner support has moved the agenda forward on a number of fronts. The NGP has assisted Governmentto refine and operationalize a framework for national governance, notable achievements include the computerization of court processes leading to the development of the Fast Track Court, assistance in the development of business plans for a number of governance institutions and helping Government institute a Thematic Group on Governance to monitor and coordinate governance activities of the Consultative Group of donors. 93. We intend to continue to pursue activities that will strengthen the electoral process, including dealing with voter register integrity; supporting the work of various governance institutions - such as the Commission on Human Rights and Administrative Justice (CHRAJ), the National (NMC), and the National Commission for Civic Education (NCCE); and enforcing the provisions of the Constitution with regards to the promotion and protection of fundamental human rights. It is essential that Parliament be supported to enable it adequately fulfill its oversight mandate, and we will continue our  Schedule 1 Page26 o f28 efforts in this area, as well as with strengthening the Judiciary, its processes and its organs of enforcement. 94. In addition to the above, Government is strengthening the legislative framework for enhanced accountability and the protections of rights and the rule of law. The proposed Freedom of Information Law, currently before Parliament, seeks to provide greater access to government information, and action will be taken to ensure the necessary supporting oversight mechanisms at both national and local level are put in place. This year, the budgets of key accountability institutions - SFO and CHRAJ - have been increased in real terms. 95. Aware of the weaknesses of our domestic revenue mobilization, the government is already taking a range of measures designed to strengthen revenue collection and administration. In addition to the creation of a National Tax Audit Team, we have established a Revenue Agencies Governing Board (RAGD) to enhance coordination in all aspects of domestic revenue mobilization. 4. MONITORING AND EVALUATIONOF GPRS 96. To effectively monitor and evaluate the implementation and outcomes of programmes and projects in the GPRS an M&E Plan has been developed. A Parliamentary Committee has been established to oversee the GPRS implementation process. After extensive consultations with all relevant stakeholders 52 indicators to be monitored were identified. An M&E system that will be used to track the indicators to assess progress of the GPRS implementation has also been put in place. Aligned with the GPRS M&E plan, and expanded as needed, is the quantitative matrix to monitor PRSC implementationwhich was prepared in collaborationwith Bank staff. 97. Various studies will be conducted to explore linkages between interventions and their impacts on growth and poverty reduction. In addition, other participatory monitoring tools such as the citizens' report cards will be used to assess programme impacts. Surveys will be used to track expenditures to determine the extent to which resources were used for the actions that had direct impact on the target group. 98.A number of Poverty and Social Impact Assessment (PSIA) studies will be conducted. Three of such studies will be conducted in 2003. The criteria for the selection of these studies will include the expected size and direction of impact, prominence of issue in government's development agenda, anticipated policy reform, and the level of national debate surrounding the issue and related reform.  Schedule 1 Page 27 of 28 99.To evaluate the impact of the GPRS on the poor in a more comprehensive way a CWIQ is being conducted in 2003 by the Ghana Statistical Services (GSS). In 2004 a more extensive household survey (GLSS5) capable of disaggregating to the district level will be conducted. Meanwhile, data from GLSS4 and the 2000 Census is being mergedto complete the development of a district level Poverty Map. The results of the poverty map will be published by the end of the year. In 2004 the GSS will also launch a vulnerability mapping exercise. 100. Finally, the M&E system has launched a Strategic Environment Assessment (SEA) programme aimed at assessing the impact of the GPRS policies on the environment to ensure that growth arising from GPRS implementation can be sustained. A workshop on SEA was organized to launch the programmeon February26ththrough the 28th2003. 5. CONCLUSION 101. The policy measures described in this letter are fully consistent with the Government's commitment to spearhead the drive towards growth, the diversification and deepening of the economy, poverty alleviation, social equity and prudent economic management. The annual Budget Statement and Economic Policy will continue to be the main instrument for delivering the programmes outlined in the GPRS. It will be the instrument to show the flexibility of Government to the changing needs and the Government's responsiveness to special needs of the different communities and the different sectors of the economy. 102. The implementation of the reform programme presented in this letter shall remain the responsibility of the various Ministries, Department and Agencies as part of their normal functions in the production and delivery of public goods and services. The overall coordination of the programmes and activities shall remain the responsibility of the Ministry of Finance and Economic Planning. 103. On behalf of the Government of Ghana, Iwish to thank IDA for the programme assistance provided under the ERSO I11in 2001 and recently for the 2ndHealth Sector Project. The ERSO support was critical in layingthe  Hon. Yaw bsafa-Mhb, M.P. Mirrister of Financeand Ecanctmic Planning  Schedule 1 Page29 of 30 APPENDIX TABLE1: WILL THE MILLENNIUM DEVELOPMENT GOALS (MDGS) BE MET? fi The linkbetweenthe MDGs& GPRSTargets - Status at a Glanceas at May 2003 MillenniumDevelopmentGoal CorrespondingGPRS Target Will MDG be State of met? supportive Environment Halve proportion o f those in extreme Reduce proportion below poverty line Probably Strong poverty from 39% - 32%; and extreme poverty from 27% -21% Halve proportion o f people suffering Reduce proportion o f underweight Unlikely Fair from hunger children under five from 25% -21% By 2015, all children complete *Longterm target -Achieve UPE Potentially Fair primary schooling *Increase Primary GER from 80% - 90% by 2005 Eliminate gender disparity inprimary Increase GER for girls from 76% - 90% Potentially Fair & secondary education by 2005 and by2005 to all levels by 2015 Reduce Under-five Mortality by two- Reduce Under-five Mortality from Probably Strong thirds 1lO/lOOO to 95/1000 Reduce maternal mortality by three- Reduce Maternal mortality rate from Probably Strong quarters between 1990 and 2015 200/100,000 to 160/100,000 Increase proportion o f births attended by skilledhealthpersonnel from49% - 55% Halt & reverse the spread o f Reduce new infections in 15-49 age group Potentially Fair HIV/AIDS to 24% by 2005 Halt & reverse the incidence o f No specific target Insufficient data Fair malaria & other major diseases Integrate principles o f sustainable Reduce proportiono f forest loss by 10% Potentially Fair development into country policies and programmes and reverse loss o f environmental resources Halve the proportion o f people Increase proportion o f population with Potentially Fair without access to safe drinking water sustainable access to an improved water by 2015 -- UrbanAreas - source InRuralAreas -from40%-54% by2005 from 70% - 78% by 2005 Deal comprehensively with L D C Cancel proportion o f official bilateral aid Potentially Strong debt and make debt sustainable inthe long term Reduce debt service as proportion o f exports  Private 13.6 13.6 13.8 14.1 Public 6.1 9.4 10.4 10.5 Gross national saving 20.3 21.2 22.2 22.6 Private 19.2 17.3 17.0 16.5 Public 1.2 3.9 5.2 6.1   u b 2 M E u 0  P 'i 0 Y u  I B rr( I I  .-E U eBe M L U 0 2 u zY z 8 I 0 V I e 3 E M 3 5eR I 3 3 -   -0 8 .-x 3 2 m 0 1 W  M W 2L 2 5 32  Schedule 3 Page 1o f 5 QUANTITATIVE MONITORING INDICATORS Exuandsuuulv of PRSC-1 energy services economicallv while Increasedavailability of Reducesubsidies MoFEP 450 billion cedis in Annual protectingthe Door electricity 2002 Reduce systemloss PURC 26% in2002 PRSC-2 Reducesubsidies MoFEP 50 billion in2003 Annual Reducesystem loss PURC NiA Annual PRSC-3 Reduce subsidies MoFEP NiA Annual Reducesystemloss PURC 2004-NA (target Annual in2005 is 18 %) Improvetrade PRSC-1 facilitation Increasedexport growth Increasedexports BOG 1,867 million US$ Annual 2001 Reducedtrade related Reduced Customs Clearancetime at administrationbarriers: administrationtime customsreducedas follows: KIA -from 24 to 2 hours; TemaandTakoradi -from2 days to 1 day PRSC-2 Increasedexport BOG 2003 -USS2,31 Annual growth million Reduced Clearancetime at administrationtime customsreducedas follows: TemaandTakoradi -from 2 days to 1 day  Schedule 3 Page2 o f 5 PRSC-3 I Increasedexport BOG 2004- US$2,56 4nnual growth billion Improve Increasedprivate PRSC-1 Investment investment Climate ForeignDirect BOG US$89 million in Annual Investment 2001 Reducedtime for GIPC/MoPSD Ghana - 126days in businessregistration 2001 Creditto the private BOG 2002 - 47 percent sector as a share of domestic credit23 PRSC-2 Annual ForeignDirect BOG Investment Reducedtime for GIPCiMoPSD businessregistration Creditto theprivate BOG 2003-55 percent sector as ashare of domestic credit PRSC-3 ForeignDirect BOG Investment Reducedtime for GIPCMoPSD Ghanamoves closer Annual businessregistration to 2001 IDA averageof I 8 days Creditto theprivate BOG sector as ashare of domestic credit ~~ 23 Credit from deposit money banks to the private sector.  Schedule 3 Page 3 o f 5 Improve rural PRSC-1 sector farm and non-farm growth Increaseagriculturereal Agriculture growth MOFEPIMOFA 2002: 4.5% 4nnual growth Increasedrural sector Producerprice Cocoa 2002: 68% F.0.B householdcash crop BoardiMOFA income:cocoa Increasedexports of Increasedexports of Cocoa Cocoaexports: cash crop: Cocoa cash crop: Cocoa BoardMOFA 2001: US$381.1 million 2002: US$463.4 million PRSC-2 Agriculture growth MOFEP/MOFA 2003: 4.7 % 4nnual Producer price Cocoa 2003: 69%ofFOB BoardIMOFA price Increasedexportsof Cocoa Cocoaexports cash crop: Cocoa BoardiMOFA PRSC-3 Agriculture growth MOFEPiMOFA Annual Producer price Cocoa 2005: 70% F.0.B BoardiMOFA Increasedexports of Cocoa Cocoaexports cash crop: Cocoa BoardMOFA Increaseaccess, Increasedenrollmentin PRSC-1 completion and 3 northemregions aualitv in basic (70%inNorthem, 79% Gross Primary MOE-EMIS/GSS In2002: Annual education, in UpperEast, and63% EnrollmentRate 80% National particularly in inUpperWest) by2005 (GPER) three most --- 62% Northem 70%UpperEast deprivedregions 56%UpperWest PRSC-2 Annual GPER MOE-EMIS/GSS In2003: %National -%Northem -% UpperEast -% Upper West PRSC-3 Annual GPER MOE-EMISIGSS In2004: %National -% Northem -% Upper East -% Umer West  Schedule 3 Page 4 o f 5 Improved Increaseofactualnon- PRSC-1 efficiencvand salary recurrent eauitv of financing expendituresas a share Actual MOEnon- CAGD andMOE 2002-63.6% Annual education with of total education salary recurrent actualexpenditure attentionto greater recurrentexpenditures expenditures as a retums povertyimpact from 5.3 percentin percentageof 2002 to 8.5 percentin budgetedMOEnon- 2005 salary recurrent expenditures PRSC-2 Actual MOE non- CAGD andMOE Annual salaryrecurrent actual expenditure spending as a returns (audited percentageof accounts) budgetedMOE non- salary recurrent education expenditures PRSC-3 Actual MOEnon- CAGD andMOE Annual salary recurrent actual expenditure spending as a retums(audited percentageof accounts) budgetedMOEnon- salary recurrent education expenditures Bridgeeauitv gaps PRSC-1 in access to aualitv Improvementsin healthcare maternal and child DPT3 coverage rate MOHannual 2001 DPT3 Annual (MOH) services healthinthe most by region reports and GDHS Northern: 82.3% 4-yearly deprivedregionsas Upper East: 77.1% (GDHS) measuredby a Upper West: 91.2% reductioninthe under Central: 81.3% five mortality rate and an increasein superviseddeliveries (as a proxy for matemal % supervised MOH annual 2000 - Supervised mortality): deliveriesbyregion reports andGDHS Deliveries- 49% U5MR in2005 PRSC-2 (per 1000) Northern: 130 DPT3 coverage rate MOHannual Annual (MOH) Upper East: 115 by region reports and GDHS 4-yearly Upper West: 117 (GDHS) Central: 107 MOH annual % supervised reports and GDHS By 2005, % Supervised deliveriesby region Deliveriesat 55%  Schedule 3 Page 5 of 5 PRSC-3 DPT3 coveragerate MOHannual Annual (MOH) by region reports andGDHS 4-yearly (GDHS) %supervised MOHannual deliveriesby region reports and GDHS Ensuresustainable Reductioninout of PRSC-1 financing pocketspendingand arrangementsthat increasedutilization of Amount ofmoney MOHFinancial 2001 - 16billion Annual protectthe Door healthservicesby the spent on exemptions Report cedistotal poor per region PRSC-2 Amount ofmoney MOHFinancial Annual spent on exemptions Report per region PRSC-3 Amount ofmoney MOHFinancial Annual spent on exemptions Report per region.  Schedule4 Page 1of 1 Ghana PRSC and MillenniumDevelopmentGoals - PRSC Monitoring Indicators Increaseresourcesgoingto deprived Executionrate ofnon UniversalPrimary districts for educationonthe basis of expendituresas share of salary recurrent updatedlists andschoolmapping total expendituresfrom expenditures of the (PRSCI-3) 5.3%in2002 to no less education sector budget Target: Ensurethat by than 8.5%in2005 2015, all childrenwill be Implementteacher retention scheme in able to completea full most depriveddistricts(PRSC2-3) NationalGPER increases from 80 to 90%(2002- Ensuretimely delivery of textbooks for 2005) primaryschools inmost deprivedareas (PRSC2-3) Provideincentives(scholarships)to From2002 to 2005, Gross Primary enablegirls to completeprimary school in primary school drop out EnrollmentRate empowerwomen depriveddistricts (PRSC2-3) rate for girls reducedfrom (GPER) 39%to 30% Target: Eliminategender Eliminateall school fees for primary disparity in primaryand school pupils in deprivedareas (PRSC2-3) From2002 to 2005, girls' secondaryeducation, GPER increasesfrom 76% preferablyby 2005, and to 90% to all levelsofeducation by no laterthan 2015 Goal 4: ReduceChild ImplementCommunity-basedHealth Increasedutilization of DPT3 coveragerate Mortality PlanningandServices (CHPS), with healthservices in most priority to mostdeprivedregions(PRSCl- deprivedregions, leading Target: Reduceby two 3) to reductioninU5MR in4 thirds, between 1990and most deprivedregions 2015, the under-five Implementhigh impactrapiddelivery mortality rate programfor U5MR andMMR within 4 most deprivedregions (PRSC1-3) Reformexemptionsystemto provide subsidies for the poorest(PRSC1-3) Goal5: Improve ImplementCHPS, with priority to most Increaseinsupervised % superviseddeliveries Maternal Health deprivedregions(PRSCl-3) deliveriesfrom49% in 2000 to 55% in2005, Target: Reduce by three Implementhighimpactrapid delivery leadingto areductionin quarters, between 1990 programfor U5MR andMMR within 4 maternalmortality ratio, and2015, the maternal most deprivedregions (PRSCI-3) particularly in4 most mortality ratio deprivedregions Adopt exemptionpolicy for deliveriesin4 most deprivedregions (PRSCI) and extendto rest of country (PRSC2-3) Goal 6: Combat Implementcommunityinitiatives to HIV/AIDS prevalencerate HIV/AIDS prevalence HIV/AIDS, malaria, preventHIV transmissionandprovide for pregnantwomen aged rate for pregnant and other diseases :are to PLWHAs, AIDSorphansand 15-24maintainedbelow women aged 15-24 familiesinmostdeprivedregions 5% in2005 Target: Have haltedby CPRSC1-3) 2015 and begunto reversethe spread of [mplementCHPS, with priority to most HIV/AIDS leprived regions(PRSCI-3) implementhigh impactrapiddelivery xogram for USMR andMMR within 4 nost deprivedregions(PRSCI-3)  GHANA POVERTY REDUCTION SUPPORT CREDIT Annexes ANNEXES: Annex 1: Progresson ERSO I11Triggers Annex 2: Status Report on Triggers for the HIPC Floatingcompletion Point Annex 3: Framework Memorandum MDBS Annex 4: Multi-Donor Budgetary Support Program Annex 5: Expenditure Accountability Assessment andAction Plan (AAP) Annex 6: GhanaPublic Financial Management Annex 7: Ghana CPAR 2003: Summary o fKeyFindingsandRecommendations Annex 8: IssuesandBackground Impact Analysis Annex 9: SummaryList ofPrioritized Studiesfor PRSC-2 Annex 10: Country at a Glance Annex 11: KeyEconomic Indicators Annex 12: Key Social Indicators Annex 13: KeyExposure Indicators Annex 14: Ghana- Status of Bank Group Operations Annex 15: IMFPublic InformationNotice Annex 16: Timetable o fKey ProcessingEvents  Annex 1 Page 1of 1 ANNEX1: PROGRESS ERSOI11TRIGGERS ON 1. Poverty Reduction: (i) preparation o f an Action Final GPRS transmitted to the Bank and the IMFon Plan for implementing the GPRS, including February 20, 2003. Annual tranche o f the GPRS reduction o f regional disparities concerning access integratedwith the 2003 budget. to education and health; and (ii) integration o f the GPRS with the annual budget, beginning with the 2002 budget. 2. Decentralization o f Functions to District Local Government Service Bill submitted to Assemblies, including strengthening of the capacity Parliament in early 2003. Decentralization o f o f local Governments. functions to DAs delayed due to non enactment o f Local Government Service Bill. 3. Continued Implementation o f Restructuring Plan Electricity tariff raised inAugust 2002 (60 percent) conceming the Energy Sector: (i)the adjustment o f and inMarch 2003 (12 percent). Henceforth, tariffs to reach economic levels; and (ii) progress in automatic adjustment mechanisminplace. implementing a restructuring plan (unbundling o f transmission and generation functions) for VRA and Important increase (90%) o f prices o fpetroleum ECG (involving divestiture). products made effective on January 17, 2003. National Petroleum Tender Board henceforthhas the mandate to make adjustments inpetroleum prices accordingto the automatic adjustment formula. Restructuring plan o f VRA (separation o f transmission and generation activities and confirmation of private sector role inthermal generation) - Cabinet decided favorably inApril 2003 Divestiture o f ECG - not met. In early 2003, consultant report on power sector reforms points to unfavorable international market conditions as a constraint to meet objective. 4. Enhanced Govemance, including the NACP adopted. This has beenaccompanied by a implementation o f a National Anti-Corruption Plan broadpublic discussion o f corruption issues. A (NACP). number o f high level former Government officials and managers o f public companies have been prosecuted. Cabinet approvedreforms to strengthen the internal audit functions. New Procurement Bill and Financial Administration Billsubmittedto Parliament inearly 2003. 5. Strengthening Monitoring and Evaluation by key Role of stakeholders in monitoring has increased. stakeholders and civil society. M&E of GPRS prepared in participatory manner adopted in early 2003. The Parliament's role has been enhanced in monitoring GPRS (Oversight Committee established). 6. Promotion o f Non-Traditional Exports: Limited progress so far. Important areas include formulation o f an export-led growth strategy with importlexport regime, labor laws, industrial the aim o f accelerating the growth o f non-traditional relations with unions, and trade and support exports. infrastructure and services.  Annex 2 Page 1of 2 ANNEX2: STATUSREPORT ONTRIGGERSFORTHEHIPC FLOATING COMPLETIONPOINT (February2003) PRSP. Preparation o f a full PRSP and satisfactory The full PRSP was finalized and sent to implementation for at least one year, as evidencedby the joint the IMFand World Bank inFebruary staffassessment o fthe country's annual progress report. 2003. Macroeconomic stability. Continued maintenance o f The final review o f the PRGFprogram macroeconomic stability as evidenced by satisfactory couldnot be completed. A new three-year implementation o f the PRGF-supported program. PRGF-supported programis proposed for Boardconsideration inApril 2003. Use of budgetary savings. The use o fbudgetary savings from The tracking system is inplace and HIPC interimdebt service reliefhave beenused inthe priorityareas relief is additional to budgetary spending indicated inTable 6 and monitored inthe framework for on social sectors. The GPRS hasjust been poverty reduction expenditures. Informationon the use of these finalized and therefore there is not yet an savings andon poverty expenditures has beenpublishedintime annual progress report. to be considered ina public review o f GPRS implementation, as input to the annual progress report on the GPRS. The increase intotal spending onthese priorities must equal or exceed HIPC relief (less relief usedfor domestic debt reduction) duringthe interimperiod. Governance 0 Procurement reform. Regulatory and oversight body to New procurement code hasbeen implementnewprocurement code hasbeen approved by cabinet andwas sent to established. parliament inearly 2003. Preparatory work for the new regulatory and oversight body is expected to beginonce the bill has been approved. 0 Internal audit. Operational intemal audit capacity has Staffing efforts underway, but been established through full staffing o f existing unattractive pay and conditionsreportedly intemal audit positions. hamperingrecruitment. Public expenditure management 0 Reports on cash expenditures and commitments by Newreporting systemimplemented, but MDAs,classifiedby function, havebeenpublished data not yet published. monthly inthe Government gazette, following implementation o f new reporting system. 0 A computer-based financial management information System has been installed on a pilot basis systemto underpinthe new expenditure reporting at the MoF andCAGD. It is envisaged to system has been installedon a pilot basis inthe test the new system before it will be MinistryofFinance, CAGD, andat least two key rolled out to other ministries. sector ministries. Decentralizationof Government functions 0 Devolutiono fresponsibilities to local districts, as Local service bill sent to parliament in evidenced by (i) submissionto Parliament o f a local early 2003. District Composite Budgets service bill to enable the decentralization o f human not yet implemented inpilot districts.  Annex 2 Page 2 of 2 development o f DistrictComposite Budgets inpilot districts. Education 4 The primary gross enrollment rates for girls has The primary gross enrollmentrate for increased from 72 percent in2000 to 74 percent. girls reached 77 percent in2001/02. ~ ~ Health 4 The percentage o fhouseholds with access to safe Ruralwater coverage is estimated at 44 water has increased from 40 percent in2000 to percent. 46 percent inrural areas. 4 Recurrent health expenditures at district and lower Estimatedshare o f expenditures on health levelGovernments have risen from 42 percent o fthe at district and lower levels remained at 42 total recurrent healthbudget in2000 to 45 percent. Dercentin2001. Energy Sector 4 An automatic price adjustment mechanismhasbeen Pricing formula not implementedin2002. put inplace andimplementedmonthlyto reflect Will be applied from March2003. changes ininternationalmarket prices inlocal currency inthe petroleum sector, and includes all taxes incorporatedinto the adjustment formula at end-March 2002. 0 A strategy for achievingfull economic pricing inthe Strategy established and implemented electricity sector, including lifeline pricing to ensure since August 2002. affordability for low income users, has been implemented.  Annex 3 Page 1o f 6 ANNEX 3: FRAMEWORKMEMORANDUM BETWEENTHE GOVERNMENT OF GHANA AND DEVELOPMENTPARTNERS MULTI-DONORBUDGETARYSUPPORT PROGRAMME INSUPPORT OFTHE IMPLEMENTATIONOF GHANA POVERTYREDUCTIONSTRATEGY Mini-ConsultativeGroup Meeting, 24 March2003, Accra, Ghana Draft  Annex 3 Page 2 of 6 TABLE OF CONTENTS Preamble Introduction Assumptions andPrinciples ProgressAssessment Framework Review Process Responsibilities of the Government of Ghana Responsibilities of the Development Partners Anti Corruption Termination Continuation  Annex 3 Page 3 o f 6 1. PREAMBLE 1.1 This Framework Memorandum (FM) describes the common framework for the development o f grant, credit and loan agreements through the Multi-donor Budgetary Support Programme (MDBS) to support the Ghana Poverty Reduction Strategy (GPRS). This FM has been reviewed and accepted by the Government o f Ghana (GoG) and Development Partners24(DPs) inAccra on 24 March 2003. 1.2 This Framework Memorandum (FM) will be supplemented by individual arrangements between each individual DP and the GoG. The contents in the individual funding arrangements take legal precedence over this Framework Memorandum. However, DPs will establish funding arrangements that are compatible with the spirit and provisions o f this FM. This arrangement does not constitute an international treaty. 1.3 Amendments to this FM can be made by way o f an exchange o f letters in terms acceptedby all DPs involved inthe MDBS andthe GoG. 2. INTRODUCTION 2.1 The GoG and DPs consider the Framework Memorandum for Multi Donor Budget Support as the common basis for support to the implementation o f GPRS through the GoG's budget. 2.2MDBS i s open to other DPs who might wish to participate. The agreement to participate does not imply that all the participating DPs will be providing resources in any given year. However, it does imply that the spirit o f this arrangement will be respected. MDBS DPs currently include, the African Development Bank, Canada, Denmark, European Union, Germany, The Netherlands, Switzerland, United Kingdom, and the World Bank. 2.3 The objectives o f MDBS are to harmonize DPs' policies and procedures in order to minimize transaction costs for the GoG. This includes: 0 agreeing to common benchmarks against which performance i s assessed; 0 improving dialogue between DPs andthe GoG; 0 basing funding commitments and disbursements on the achievement of agreed targets. 2.4 Other potential advantages include: reduction in competing demands on the GoG from DPs, reduction in tied aid, promotion o f GoG accountability for service delivery, facilitation o f broad-based discussion on reform agenda, and improvedDP co-ordination.  Annex 3 Page 4 o f 6 2.5 The MDBS also aims at increasing the predictability o f donor flows. This will benefit overall economic development and the implementation and efficiency o f programmes inpriority sectors. 3 ASSUMPTIONS AND PRINCIPLES 3.1 The MDBS assumes the following: 0 The GPRS sets out the GoG's poverty reduction strategy. 0 The Medium Term Expenditure Framework (MTEF) budget process provides the instrument to allocate resources in line with priorities set out inthe GPRS within the resource envelope. 3.2 The following principles apply: 0 The GoG andDPs agree that triggers for performance-based disbursement should berealistic, withinthe power ofthe GoG to achieve, and limited innumber. 0 DPs will work closely with the GoG to harmonize procedures andpractices with respect to both MDBS and improved harmonization inrespect o f the GPRS cycle i.e. policy dialogue, priorities, planning, conditionalities, disbursement cycles, reporting, monitoring, accounting, assessment and audit. 4 PROGRESSASSESSMENT FRAMEWORK 4.1 The Progress Assessment Framework is the set o f policy reform measures and poverty reduction goals that will be usedto assess progress o f GPRS implementation. 4.2 The GoG and DPs will use the progress assessment framework and GPRS review process as tools for dialogue on progress on GPRS implementation. Through a continuous process, it will allow the GoG and the DPs to assess progress towards agreed medium term objectives and the implementation status o f specific measures. Progress will help to determine appropriate levels of future funding for the budget. 4.3 The MDBS is based on a common set o f policy and poverty reduction goals. These goals are agreed between the GoG and the participating DPs and will be based on the goals o f the GPRS. For 2003 the progress assessment framework will consist o f two matrices (MDBS Policy Matrix [bilaterals and EU], and World Bank Poverty Reduction Support Credit). The two matrices for 2003 will be the subject o f separate arrangements. All participants in this FMintend to work towards the use of a single matrix based on the GPRS. 5 REVIEW PROCESS 5.1 Subject to the individual bilateral arrangements between the GoG and each DP, the review process for MDBS will be common for all DPs and based on the GoG review process o f the GPRS. Participants will meet on an agreed schedule to jointly review implementation and the attainment o f objectives.  Annex 3 Page 5 o f 6 5.2 The timing o f review meetings through the year will be decided in such a way that the budget process is facilitated and that the PRSC requirements and the bilateral DPs' need for inputs to their decision-making processes are accommodated to the extent that i s possible. 5.3 The review process will use information gathered through ongoing processes to ensure that individual DPs do not set up a parallel review process. The review process should endeavor to minimize additional technical work. However, should the quality o f regular information prove not to be satisfactory, the DPs and the GoG will establish by discussion a timeframe and the possible support DPs could offer to build the capacity needed to provide this information. 6 RESPONSIBILITIESOF THE GOG 6.1 There are three over-arching requirements: 0 The GoG i s expected to maintain an appropriate macro-economic framework. This will usually be within the context o f a PRGF arrangement with the InternationalMonetary Fund; 0 The GoG i s expected to develop an appropriate monitoring and evaluation system i s developed by the GoG and will be used to assess progress on the implementation o f the GPRS and to provide feedback for the further strengtheningo fthe strategy. 0 Progress is made inreforms represented inthe progress assessment framework as mutuallyestablished from year to year. 6.2 The GoG, in accordance with its rules, regulations, policies, and procedures, and subject to the availability o f h d s will: Implement the GPRS. 0 Ensure that total expenditures and sector allocations effectively reflect the GoG's poverty reduction commitment andthat the budget i s comprehensive. 0 Provide the DPs with the agreed upon reports. 0 Co-ordinate and organize the semi-annual MDBS meetings, inconjunction with the MiniConsultative Group. These meetings will be used for programreview, information sharing, andprogress reporting. 0 Co-ordinate andorganizejoint assessment missions. 7 RESPONSIBILITIESOFTHE DEVELOPMENTPARTNERS 7.1 The DPs are committed to working in partnership with the GoG and facilitating implementation o f the GPRS both through direct budget support and complementary support provided through DPs' wider development cooperation programmes. To the extent possible and consistent with their internal laws, policies, procedures and individual bilateral agreements with the Government, DPs commit themselves to:  Annex 3 Page 6 o f 6 0 Support implementation o f the GPRS by informing the Government as to the level o f their planned budget support with indicative commitments for the following years. The actual commitments will be made in individual bilateral arrangements between each DP andthe Government 0 Work towards achieving the goal o f a programmatic approach withina common framework. 0 Endeavor to co-ordinate the timing o f their disbursements in line with the Government's budgetary requirements. 7.2 The DPs will endeavor to follow the principles enshrined inthe FM. Reference to its key processes should be includedin individualbilateral funding arrangements to the maximum extent. These arrangements will mainly provide further details on the obligations o f each participant and the procedures for disbursing funds together with any standard conditions for development cooperation that the individual DP may have. The DPs agree to keep such general conditions to a minimum. 8 ANTI-CORRUPTION 8.1 The Government and DPs agree that corruption undermines good governance and wastes scarce resources. The GoG and DPs intend to cooperate closely in order to ensure transparency, accountability andprobity inthe use ofpublic resources. 9 TERMINATION 9.1 Any differences or controversy that arise inrelation to the MDBS shouldbe settled by means o f dialogue and consultation between DPs and the GoG. The GoG and each DP will promptly consult with the other participants whenever a DP proposes to suspend or terminate, in whole or in part, support to the GPRS. If a DP invokes remedial measures or if support from a DP i s no longer available, the GoG will promptly review and make necessary revisions to the Program, in consultation with the other DPs, to ensure that the expenditure framework corresponds with the available resource envelope. 10 CONTINUATION 10.1 The MDBS represents a substantial shift in terms o f DP policy dialogue with the GoG, as well as DP co-ordination. DPs and the GoG undertake to expand and improve the arrangements established for 2003 in pursuit o f the principles in Sections 2 and 3.  Annex 4 Page 1o f 7 ANNEX4: BILATERALDPSAND THE EUROPEAN COMMISSION-MDBS ArrangementbetweenGovernmentof Ghana andBilateralDPs andthe European Commission25 - (10 April Draft) MDBS POLICYMATRIX FOR 2003 1. For the calendar year 2003, the Bilateral DPs and EUwill focus on five key reform areas considered critical for the successful and efficient implementation o f the GPRS. These areas are: public finance, the budget process, decentralisation, public sector reform and governance. These areas derive from the dialogue that has been pursued over the last year in the context o f the Mini-Consultative Group meetings and the National Economic Dialogue. For these areas, a policy matrix is set out below and will be used as the basis o f dialogue between the Government andparticipating DPs. A subset o fthe policy matrix will be defined as triggers. Attainment o f these triggers will determine the performance payment (see below). 2. Whenprogress has beenachieved inthese central areas, the DPsmay want to focus in greater detail on specific sector issues in areas such as health, education, agriculture, roads, private sector and energy. This will facilitate harmonizationwith the PRSC and GPRSperformance assessment frameworks. DISBURSEMENT MECHANISM FORTHE BILATERALDPSAND EU 3. The following i s the basic disbursement mechanism that will be employed. However, DPsmayhave variations intheir respective approaches to disbursement that would be definedbytheir bilateral agreements andbe made knownto all partner signatories. 4. MDBS bilateral DPs and the EU will deliver two tranches annually: 1) a base payment in the first quarter (2nd quarter in 2003); and, 2) a performance payment in the third quarter. While individual DPs will require some flexibility, it is intended that the split between the performance tranche and the base tranche will be on a 50/50 basis. In2003, there will be two parts to the performance payment (a) public finance management and (b) governance (including public sector reform and decentralization). These two parts will be allocated on a 50hO basis. 5. Disbursement of the base payment will be determined by a positive outcome o f the annual IMFPRGFreview inthe year previous to the Ghana budget execution year. 6. For the performance payment in2003, disbursement o f either part o f the performance payment will be made upon satisfactory assessment o f achievement o f all six triggers. The disbursement may be made at a later stage, no later than the end o f the fiscal 25African Development Bank, Canada, Denmark, EuropeanUnion, Germany, The Netherlands, Switzerland, UnitedKingdom  Annex 4 Page 2 o f 7 year, provided triggers are satisfactorily fulfilled and the individual development partners are able to accommodate such delay. Installments will be deposited in a foreign exchange account in the name o f the Government held at the Bank o f Ghana. Within 48 hours the Bank o f Ghana will credit the Cedi equivalent (using the Central Bank (buying) exchange rate on the date o f `purchase') to the Central TreasuryAccount and will be used as budgetrevenue. In the event interest accrues on the foreign exchange account, this will be added to the Central Treasury Account. The Bank o f Ghana will immediately acknowledge receipt o f the foreign exchange funds, inwriting, to the respective DP and the Ministry of Finance. The Ministryo f Finance will acknowledge receipt o f the Cedi equivalent on its Central Treasury Account, in writing, to the respective DPs, copied to the Chair o f the MDBS DP group. TECHNICAL ASSISTANCE FUND 9. DPs recognize that the Government may require a flexible and responsive technical assistance (TA), which i s not available in public institutions or ongoing projects to support reforms and review processes required to implement the GPRS. The GoG and DPs believe that these needs could be met by a pooled funding arrangement that would allow the GoG to identify, procure, budget, monitor and evaluate TA. While not all DPs can contribute to the fund, it is expected that a percentage o f the total Budgetary Support will be used to support priority actions for the successful and efficient implementation o f the GPRS. Thereafter, the percentage will be determined annually, based on performance and mutually agreed TA needs. This mechanism should ideally lead to all TA being programmed and budgeted like any other resources regardless o f the source o f funds. 10. Everyattempt will be made to planthe use o fthe pooled TA with other DPs unable to participate in the pooling o f resources but also supporting the GPRS to ensure that planning o f TA is undertaken in a harmonized manner and avoid duplication o f resources. DIALOGUE AND REPORTING 11.Regular dialogue betweenthe signatories to the Programme is essential for continued DP commitment to the Programme. In order to keep all DPs informed, regular dialogue will be throughthe quarterly Mini-Consultative Group Meetings. 12. However, for purposes o f this programme, substantive discussions would take place twice a year. The first MDBS assessment will be conducted 17-27 June 2003. This would be undertakenthrough a sub-group o f the Mini-Consultative Group, chaired by the Minister o f Finance, and including key representatives o f the Government andthe MDBS DPs (including DP observers). The GoG and DPs will produce regular  Annex 4 Page 3 o f 7 monitoring reports-to inform the policy dialogue. The reports will include the following: 1REPORTING I RESPONSIBLE 1 Quarterly DP-reports to the Government on disbursement (programme, sector DPs and project) andprojections o f disbursements for the next two quarters Quarterly reports on expenditures against the budget and on a set o f macro- GoG economic indicators A report onprogress onthe policymatrix andtriggers GoG Annual report (inMay) onprogress on the implementationo f the GPRS ~GoG TIMETABLE EVENT IMF PRGF expected to make first disbursement following board approval. IMF and Bank board endorse the GPRS. MDBS First Disbursementtied to the approval of the PRGF GoG (NDPC) produce the first annual assessment of the GPRS MDBSASSESSMENT GOGANDDPS: BY a) Assess progress against 2003 triggers b) Take decision onperformance tranche c) Agree matrix and triggers for 2004 d) DPs agreeprocessfor harmonizationofthe two arrangements. e) Policy Dialogue basedon the reports set our above Chair o f MDBSDP Group passes from DFID PRGF FirstReview December ASSESSMENT 13. Annually, ajoint assessment between GoG and DPs will be undertaken to scrutinise: 0 the quarterly and annual reports produced by the Government o f Ghana as specified inthe section on `Dialogue andReporting'; 0 the assessment by the Government of the triggers and indicators specified in the policy matrix, as stipulated above; and 0 (from 2004) activities fundedbythe Technical Assistance Fund. 14. The 2003 Assessment will be carried out (tentative dates) 16-27 June by ajoint team comprising representatives from GoG and DPs (including the World Bank).  Annex 4 Page 4 o f 7 Audit 15. The following audit arrangements will be established: 0 The Ghana Audit Service (GAS) carries out an independent annual external audit o f the Government Accounts. The annual audit report by the GAS shall be presented to MDBS DPs as soon as it becomes available. 0 Inthe event that GAS is unable to deliver their ambitious target to reduce the time lag between the end o f the fiscal year and the availability o f the audit report, the Accountant General may be asked to commission an external audit to produce a timelier audit o fthe Government accounts. 0 Inthe event this is required, GAS will contract assistance from an internationally recognized audit company. The MDBS DPs would finance this audit. The terms o f reference for this selected external audit and a shortlist o f audit companies would bejointly prepared and agreed by the GoG, GAS andthe MDBS DPs. The GoG andthe MDBS DPs would endorse the selection o f auditors. The audit reports will be discussed as part o f the annual review mechanism. LEAD PARTNERS 16. The chair o f the D P N D B S group rotates on an annual basis. (DFID i s currently the chair). Duringthe design o f the MDBS programme certain DPs have been identified to co-ordinate discussions on the areas covered in the policy matrix. This practical distribution of the workload will be useful during the MDBS Assessment in June. GoG and DPs should explore whether the concept o f lead partners can be useful in takingforward MDBS andthe wider development agenda inGhana. AREAS FOR GoGAPPRO\'AL DPsAPPROVAL ISSVES AGREEMEKT  Annex 4 Page 5 of 7 (DRAFTMDBSBILATERALAND EUPOLICYMATRIXFOR2003 (10THAPRIL, 2003) THE 12TRIGGERS TO DERTERMINEDISBURSEMENTOF THE PERFORMANCE TRANCHE ARE INITALICSAND ARE NUMBERED) Public finance management Overall objective: improve financial management OBJECTIVE TRIGGERITARGET2003 VERIFICATION SUBSEQUENTYEARS BPEMSimplemented I.A computer basedfinancial PUF.VARP ProgressReports BPEMS roll-out to all MDAs inall ministries management information system Maintenancearrangements in operational on apilot basis: MoF and place. CAGD. Improvedquality and 2. Monthlyfinancial reports Reportssubmitted Shorterperiodof submission, usefulness of financial (commitments and expenditures) 100%coverageonce BPEMSin reports producedby produced, reconciled with theBOGwithin place CAGD 8 weeks. Transparencyand 3. Procurement Bill laid before Dateof gazettenotification PublicProcurementBoard value for money in Parliament established; public expenditure Training planbeingimplemented Transparency of largeprocurement deals. Improvedextemaland Reducednumber of overdueextemal 31 reports for Parliamentare Furtherreductionintime-lag; intemal auditing audit reports andreducedtime lag in overdue.The auditreport on follow-up fromParliamentary controls submission of the MDA annual auditto MDAs for 2000 hasjust been discussion Parliament submittedto Parliament('1 8 months). Following the approvalofthe regulatory Implementationactionplanon frameworkbill, an actionplan (staffing course andtraining) for internalauditinghas beendevelopedand costed. Overall financial Medium-TermAction Planfor financial Planandbudget ImplementationMedium-Term managementimproved managementreformsaccepted, costed Action Planon course and integratedinto budget Presentationofthe budget Following approvalofthe Financial statement to Parliament brought Administrationbill, atrainingplanis Dateof gazettenotification forward. costedandintegratedinto budget Training planimplemented  Annex 4 Page 6 of7 Translation of the GPRS into the Budget OBJECTIVE VERIFICATION SCBSEQUENTYEARS Total budget is 4. Shipfrom 2002 to 2003 2002 and 2003 budget Statements Futurebudgetsconsistentwith stated consistentwith the discretionaly budget broad sector Governmentpriorities expenditurepriorities allocations is consistent with the outlinedinthe GPRS. GPRS Governmentpriorities increasingly 2003 budget is consistentwith determinedthroughparticipationand GPRSpriorities consultativeprocesses. 5. Budgeted Poverty Reduction BudgetStatement 2003 actual expenditures for Items3 and4 Expenditure of GoG (including (GOG andDP) for healthandeducation HIPC) increasesover the 21.7% match the allocationinthe budget. of the total Government Increaseinthe percentageof funds for Expenditure in 2002. socialand economic servicesallocatedto the most deprivedareas. The budget is Methodologydevelopedto ensure Reportson DP flows producedby 2004 (and subsequentyears) budgets comprehensivei.e. that all donor flows are properly ADMU. captureincreasedlevelsof fundingand GOGbudget captures capturedandexpendituresare expenditures[IGF, subsidiesandDP all Government reflectedinthe budget funds] activitiesand all sources of funds MTEF simplified and Methodologydevelopedto MediumTermAction Plan 2004 MTEF budgetbasedon asimplified extended simplify MTEF to focus on implementationreports. methodologyandincorporatingitem 1and outputs ratherthan activitiesand 2 expenditure. to ensurethat items 1 and2 are fully allocatedto objectives and outputs. Regular M&E of GPRS 6. Annual Review of the GPRS Report Submitted Measuresof quality and timeliness and implementation implementation conducted by feedinginto GPRS policy. MEPRC GRPS M&E systemimplemented Public Sector Reform OBJECTWE TRIGGER~ARGET 2003 VERIFICATION SUBSEQUENTYEARS Efficiency and service 7. .Census ofpublic sector Evidenceofreport Payreform strategydevelopedandpayroll delivery of civil employees completed. updatedon the basisofthe census. service improved. Right-sizingof the public sector is 8. IndependentReview of Public Evidenceofreport andcomments progressingas planned Sector Reform considered by the from steering steering committee Committee Cost ofredeploymentplans inthebudget andplanimplementedaccordingto plan. 9.Developpolicy to encourage Evidenceof Policy documents deployment of teachers and health from respectiveMinistries. AEP benefitsandcosts ofreassignment workers to remote and rural includedinthebudget. areas Overallleadership Recommendationsfrom Public Recommendationsofthe review Public Sector Reformrefocusedand andmanagementof Sector reformreview programs will be discussedat Cabinet level. accelerated. Public Sector Reform basis for policy statement.  Annex 4 Page 7 of 7 Decentralization Overall Objective: Improved Local Government Service Delivery OBJECTIVE SUBSEQUENTYEARS Establishment of a IO.Local Government Service Bill laid Dateof gazette notification Priority activitiesbeingimplemented decentralization before Parliament inasystematicandcoordinated policy framework to manner improveservice CompletedComprehensiveAction plan delivery. for decentralization(including fiscal Implementationof Action Plan reform endorsed) by submittedto Cabinet by MLGRD Translate GPRS MediumTermDevelopmentPlans and NDPC M&E studyreport. Compositebudgetspreparedby priorities into plans Annual District Action Plansare Districts anddisaggregatedbudgets and budgetsat compliantwith GPRS guidelinesand providedbyMDAsto regionaland District level. priorities. district stakeholders. Improveduseofbudget actuals in2002 comparedwith 2001. Relationshipandresponsibilities Streamliningcapacity JointGoGand DP reviewto co-ordinate Recommendationsof Review betweencentralGovernmentandwith building at local local levelcapacitybuilding initiatives Published. regionalanddistrict levelbodiesare levels. rationalizedand enforced. Governance Overall Objective: Improved Accountability OBJECTIVE TRIGGE~ARGET 2003 VERIFICATION Improvedtransparency 1 1. Freedom of information Bill Draft Bill Implementationof Act and accountability submitted to Cabiner bl' AG Whistle-blower bill submitted to GoG make public GPRS reviews parliament Improvedoperational 12.Real increase in the GoG 2003 budget statement Same trigger efficiency of key budget allocation ro good institutionsdealingwith governance statutor). bodies (for Increaseinfundingandor efficiency governanceand example, CHRAJ, Audit Service, of the Judiciary. corruption ElectoralCommission, Office of Parliament and the Media Commission Measuresfor improving One fast track court set up in each implementationandeffectiveness region by June 2003. Courtssitting Approval ofthe Codeof Ethics26by Establishmentofthe Office of Cabinet (expected secondhalfof2003) Accountabiliry Postsfilled ImprovedParliamentary Parliamentary committees (Finance Proposalsubmitted Implementationof the plan. oversightof public and Public Accounts) to submit finance proposal for TA to the PUFMARP Secretariat. 26 Draft completed, featuring guidance on gifts and conflicts o f interest for Ministers and Political Employees.  Annex 5 Page 1of 2 ANNEX5: EXPENDITURE ACCOUNTABILITYASSESSMENT ACTION PLAN( U P ) AND (January 2003) INDICATORACTIONSTOSTRESGTHEN PROGRESSTO DATE ACTLON ON PLANSAND FROMAGREEDACTION INDICATEDIMPROVEMEhTS(OUTCOMES) PLANS~~AND TIME HORIZON (S/M2*' BUDGET FORMULATION Compositionof budget entity Definition of institutionalunits I1 to be covered by the general A review of Govemment accounts inthe banking Go\,emment sector (S) systemis underway. Progressneededindefining institutional unitsthat go into (i) central Govemment (e.g., subventedagencies, PURC, State EnterpriseCommission), (ii) subnational levels, and(iii) on including fiscal andquasi-fiscal activities(e.g., utility subsidies, studentloansby SSNIT, rural extensionservicesby CocoaBoard). Limitations to use ofoff- NIA budget transactions Government activitiesfunded to a significant extent through special funds (Roads, Energy, Oil exploration,DACF, and GETF) andeducationand healthfees plus some subventedagencieshave substantial own revenueresources30. Reliability o fbudgetas NIA In2002, there were considerabledeviations inthe guideto outtum-level compositionof expenditure, particularlyon the wage bill. New cash management system underpinnedby quarterlyexpenditure ceilings introducedinearly2003. Commitmentcontrolis also beingenhanced, especially over the wage bill. Dataon donor financing Improvereportingon donor I1 Problemswith the reliability, periodicity and activities(M) timeliness of datareportedby MDAs anddonors. MoF has preparedactionplanto enforce compliance. Dataare improvedfor health,but remainweak for education, agricultureand road sectors. Classificationofbudget Developanew chart of FI New Chart of Accountswas adoptedin late 2002. It transactions accounts(S) will allow classificationof budget dataon an administrative,economic and(with an appropriate bridge table) functionalbasis. ImplementBPEMSinMoF, I1 Implementationinitiated at MoF andCAGD in CAGD and key ministries (S). early 2003. Roll-outduring 2003 to Accra sitesof Complete BPEMS the ministriesofhealth; education; androadsand implementation(M). transport (coveringabout 65 percentoftotal primary expenditure). Identification ofpoverty Create unit inthe MOF to FI The unit is inplace andoperational. reducingexpenditures develop estimateso f actual poverty-reducingexpenditure (SI 2' Action plans were agreed between the Government, the IMF, and World Bank. 28 S = short term, i.e., action that is expected to be completed inone year. M= medium term, i.e., action that is expected to be completed in2-3 years. 29 Progress to date should include: short description of progress and improvements; note degree of implementation, Le., whether implementationhas been initiated (11), is not yet started (NS), or is complete (FI, for fully implemented). 30 Estimated to represent between 3 percent and 10percent o f total expenditures.  Annex 5 Page 2 o f 2 INDICATOR ACTIONS TO STREYGTHEN PROGRESSTODATE ACTION PLAYSAND ON FROM AGREEDACTION INDICATEDIMPROVEMENTS (OUTCOMES) PLANS2'AND TLME H O W N (S/M**' Establishclassificationsystem FI Poverty and HIPC AccountingManualadoptedin to track povertyspendingusing May 2002. Systemis inplaceandproducesreports. GPRS and budget classification Currentlyexcludesdonor-financedexpenditure. (SI Quality of multi-year Rejuvenationof the MTEF (M) I1 MTEF usedfor costingof GPRS andpreparationof expenditure projections 2003 budget. METF unit movedinto the Budget Division Unit.Current MTEF containstoo many activitiesandneedsto be standardized.Processto simplify MTEF launchedandto bemade effective in2004. BUDGETEXECUTION Level ofpayment arrears Enforcecompliancewith I1 Improvementof controlsnecessary, especiallyas regulationson commitmentsto regardscapitalexpenditure. OperatingManualto controlbetter expenditurepath strengthenthe commitment control systemto be andarrears (S) made effectiveby MoF by Mid-March 2003. Audit of 2002 arrearsexpectedby mid-2003. Quality of intemal audit Reformedandaugmented I1 Existingintemal audit inCAGD andsome MDAs intemalaudit capacitywith requiressignificant upgrading. Cabinet approval of clear guidelinesandconsistent law to strengthenthe intemalaudit functions(e.g., methodology(S) establishmentof aCentralInternalAudit Agency) expectedby mid-March 2003. Use of trackingsurveys Conduct PETS (M) FI PETS ineducationandhealthavailable. Beneficiaryassessmentof the agricultureextension servicesinthe pipeline. Quality of fiscalhanking Reviewandimprovestructure FI datareconciliation of Governmentbank accounts Monthly reconciliationbetweenCAGD and BOG (SI inplacesince July 2002.Reconciliationwill be facilitatedby the further rationalizationofbank accounts(see item 1above). EstablishHIPC sub-account(S) FI Account establishedin2001. BUDGETREPORTING Timelinessof intemalbudget MeetGhanaianbudget law I1 Fully reconciledreports issuedwithin 4-6 weeks. reports regulationsonreporting(M) Authorities seekingto reducethis to 4 weeks as requiredby law. Classificationusedfor Developcomprehensive I1 New chart of accountsinplace, but developmentof budgertracking functionalclassification(both bridgetable will berequiredto producereports domestic and externally with functionalbreakdown. As reportedin4 above, financed expenditures)for dataon extemalfinancingis still problematic. within year reporting(S) Timelinessof accounts CAGD presents set of annual FI closure public accountsandfinancial In2002, CAGD succeededinpresentingaset of statements to the Auditor accountsandfinancial statements for the previous Generalwithin statutory3- year, basedon accountingdatafrom histreasuries, months after the endof year by end-March. Expectedto complyagain this year. (no timeframe) Timelinessof final audited StrengthenAuditor-General Legalrequirement is 6 monthsfrom the end of the accounts department (S) year Auditor Generalworking to eliminatebacklog. Final auditedaccountsfor 2000 were sent to parliamentinSeptember 2002.Accounts for 2001 still pending.  Annex 6 Page 1o f 5 ANNEX6: GHANA PUBLIC FINANCIAL MANAGEMENT A. BACKGROUND The Country Financial Accountability Assessment ("CFAA") performed on Ghana during 2001 raised several recommendations to limit the level o f fiduciary risk, specifically as regards public financial management. Although an update o f the CFAA i s underway for completion by June 2003, inputson the current state o fpublic financial management and fiduciary risk were required to inform the PRSC design. To this end, duringPRSC appraisal an evaluation o f the current status o fpublic financial management was carried out. In addition to technical discussions and in situ verification o f systems, the evaluation took in consideration several recent reports available on financial management and fiduciary issues (DFID, CIDA, HIPC, PUFMARP Progress Report February 2003 and others). Interviews also took place with the BPEMS team, the PUFMARP coordinator and DFIDand the resident representative o f the IMF. Moreover, a well attended workshop was held with all key role players in the Public Financial Management Reform Program. The workshop analyzed key elements o f similar reforms, with specific reference to the South African experience. Valuable ideas were shared and common ground was established for a high-level benchmark o f the key building blocks o f the Public Financial Management Reform Program ("PUFMARP"). The workshop confirmed that the key buildingblocks o f typical public financial management reforms are being addressed inthe PUFMARP and discussed potential policy and implementation issues for each building block. Agreement was reached on the policy and implementation issues raised and this led to the identification o f areas that were addressed in the PRSC policy matrix. Agreement was also reached on the urgency to approve the Central Internal Audit Agency Bill duringPRSC-1 so that its implementation can be launched, after passed into law, later in2003. B. MAINFINDINGS Ghana has made progress in the key areas o f concem regarding public financial management as identified in CFAA 2001. The key areas identified during the CFAA 2001 for improvement are summarized inthe table below and progress noted duringthe PRSC appraisal i s reflected in the last column. The discussions during the mission also confinned that there i s shared vision and high level o f support among key stakeholders for the implementation of PUFMARPreforms. Inspiteoftheencouragingdevelopments, thefollowing areasofpublicfinancialmanagement need further attention or strengthening: e Current practices to account for donor funding and report on aid-in-kind are not satisfactory. It was agreed that the Government will develop and implement measures to improve management and monitoring o f donor funding. Objective i s to improve the comprehensiveness o f the budget. These measures could for example include specific disclosure requirements for aid-in-kind. Most o f the implementation issues discussed during appraisal referred to capacity constraints. The Government has begun to develop capacity building plans for CAGD and MoFEP. It was agreed to consolidate this work into a comprehensive capacity  Annex 6 Page 2 of 5 building plan to address PFM requirements at all relevant levels. This is aimed at reducing the risk o f failure o fPUFMARP. 0 Cabinet approval o f the Central Internal Audit Agency Bill needs to be accelerated. It was agreed that this would be considered an action to be met prior to Board consideration o f the PRSC. As the implementation o f the new legislation i s likely to yield first results not before the second half o f 2004, the Government will develop and put inplace interim measures to strengthen the intemal audit function. 0 Ownership for the new BPEMS, in particular at the level o f CAGD i s a matter o f concern. BPEMS design and implementation appears to be dominated by external consultants; buy-inand participation o f the relevant technical levels should be improved to ensure success o f BPEMS implementation. It was agreed that the core accounting (revenue, budget and fund requisitions, other expenditures under the control o f CAGD) for the Consolidated Fund be transferred to the new BPEMS before the end o f 2004. This would ensure that the new system receives the required attention at the relevant technical levels. C. CONCLUSION The level o f fiduciary risk remains high, but i s mitigated by visible progress made, the commitment of the Government to the PFM reforms noted in the CFAA and PRSC and the continued highvisibility and support for PFMreforms at a political level. Sufficient ground exist for PRSC disbursement. CFAA 2001- KeyAreas, RecommendationsandProgress K E Y AREAS OF CONCERN PROGRESS DETERMINEDDLUNG PRSCA P P W S a RepulatoryFramework A legislative framework Pass new procurement A new Procurement Bill has been submitted to existed, but lackedmodem legislation Parliament for approval. PFM standards, were not complied with and sanctions Clarify intemal audit A new Central Intemal Audit Agency Billhas were not enforced. arrangements been submitted to Cabinet for approval. This will improve independenceo fthe function and introduce new standards o f practice. Enforce sanctions Whilst on mission, it was widely reported inthe press that the previous Minister o f Finance was jailed for causing financial loss to the state. This concem will be further addressedwith the enactment o f the new FinancialAdministration Bill. MediumTerm Revise and maintain the A new FinancialAdministration Bill hasbeen legislative framework submittedto Parliament for approval. It defines the powers and duties o fthe MoFEP, MoFEP Chief Director, CAGD and spending officers. It also provides that the CAGD should prepare annual financial statements in accordance with generally accepted public sector accounting standards.  Annex 6 Page 3 o f 5 IKEY AREAS OF CONCERR K E Y RECOMMENDATIOSS PROGRESSDETERVIYEDDURIXG PRSC APPRAISAL Short Term The linkages between Improvedconsultation on The MTEFi s establishedin all MDA's. The policies, planning, budgeting MTEFsector priorities GPRS has progressively provided a basis for and resource utilization linkingpolicy, planning andbudget formulation. required improvement, to The MTEFhas also integrated recurrent and provide a basis for improved investment expenditure and there is greater accountability for service recognition o f donor expenditure inthe budget. delivery and financial Evidence o f material extra budgetary expenditure management. i s limited. For 2003 the large unallocated amount previously provided for control bythe MoF and usedto fund unbudgeteditems has been eliminated. Capacity buildingin MDA's and Parliament on MTEFIGPRS training given but constrainedby MTEF pressure to produce annual budgets. Improverevenue forecasting Revenue forecasting has improved; further work is required. Formal mid-year budget reviews Significant variations between actual and budgeted expenditure remain a problem. Medium Term Some work has been done on improving the Further transparency in the classification system as part o f the BPEMS budget process and implementation. Further work i s necessaryto improvement inthe quality facilitate a comprehensive picture o f Govemment o f performance indicators expenditure. The HIPC poverty tracking mechanism has been successfully implemented as an interimmonitoring tool prior to introduction o f BPEMS. This provides a useful first step to monitoring pro-poor expenditure. However, detailed benefit incidence analysis is requiredto assess whether the expenditure tracked does actually impact on the poor as expected. 1Expenditure Control Short Term Several problems were BPEMS implemented as BPEMS will commence operations in2003 but identified that contributed to soon as possible will operate only in CAGD and a few MDA's. a weak expenditure control The initial impact during2003 is likely to be fairly system: limited untilthe system stabilises. - Lack ofeffective commitment control Improve expenditure Commencing2003 MDA's prepare annual cash - Paperbased accounting control and more timely plans, quarterly expenditure plans and monthly systemrestricts analysis expenditure reporting. cash forecasts. CAGD transfer cash on a monthly and production o f basis to newly opened MDA Bank Accounts management information within approved quarterly ceilings. The quarterly - Incomplete and expenditure plan forms the basis to limit cash outstanding drawings. reconciliation - Asset andliability At the aggregate level summary statements o f registerspoorly monthly and cumulative statements o f government maintained revenues and expenditures are produced bythe - Financialmanagement CAGD within 6 weeks o f the end o f a month. skills baseinadequate  Annex 6 Page4 o f 5 KEY AREAS OF CONCERY KEY RECOMMENDATIONS PROGRESSDETERmED DURING PRSCA P P M s U and poorlyremunerated These statements currently reflect only transaction Ineffective intemal audit data processed through Treasunes, but still Late submission o f excludes all MDA project expenditure financed by financial statements loans and grants Penodic attempts are made by MoF to incorporate this expenditure but no routine accounting mechanism currently exists. Similar issues relatingto non-reporting o f intemally generated funds exists In some MDAs (MoH) some additional more comprehensive reporting i s undertaken although this is not pro\en timely, accurate or complete MediumTerm MDA's financial The implementation o f BPEMS and the approval management policies and o fthe new Financial Administration Bill, currently proceduresto be reviewed, before Parliament, should provide the basis to manuals to be produced. proceed with this. Staff training to be Development o f a comprehensive capacity provided, professional building plan i s included inPRSC-2. standards to be introduced and professional capacity created Improve intemal audit The establishment o f a new Central Intemal Audit Agency and units in MDA's should pave the way for improvement inthis regard. Consideration should be given to the improvement o f the current control systems, since it may still take some time to enact and implement the proposedsolution. Accounting& Financial Short Term Reporting A number o fproblems M D N C A G D systems Conceptual design o f the BPEMS ledger has been existed, including: shouldbe streamlined and subjected to a brief overview. One ledger for the Lack o f explicit national focused on providing whole o f govemment is foreseen, with sub ledgers accounting standards. accurate, timely and for MDA's, etc. The Consolidated Fundand other InadequateMDA accounting complete information on funds will also be accountedfor inthe system. and reporting. transactions The core ledger is supported by funding, Absence o f audited commitment, order andpayment controls. A consolidated accounts. Public BudgetingModule i s currentlybeing tested. Adequate reporting facilities appearsto be inplace. There remains some technical accounting system design issuesto be resolved, e.g. payroll and revenue integration. There are some remaining technical issues that i s being addressed. Efforts have been made during 2002 to reduce the number o fbank accounts but excessive numbers still remain. From 2003 one main expenditure Bank Account will be opened for each MDA.This will beginto address the problembut further extensive rationalisation is required.  Annex 6 Page 5 o f 5 KEY AREAS OF CONCERN KEY RECOMMENDATIONS PROGRESSDETERMINEDDURISG PRSCAPPRAISAL The biggest concem, ho\ve\er, i s the apparent lack ifinternal ownership for the project, especially at he le\ el of CAGD. Inadequateparticipation may stem from a lack o f manpower and delegation on he CAGD, but it is recommended that these be 3ddressed and the core accounting (rebenue, ndget, fundrequisitions, other expenditure x-ocessedby CAGD and cash balances) o f the Zonsolidated Fund be implemented on BPEMS in PRSC 2. Chart o f accounts should be 4 new chart of accounts havebeendesigned and harmonised (MTEF, implemented. Standardization in MTEFand BPEMS & CAGD system) ilignment with GFS i s included in PRSC 2. Improvethe lag in 4nnual financial statements for the Consolidated submission o f annual Fundsubmitted to the Auditor-General inearly financial statements. May 2003, five weeks later than statutory timeframe (end-March). MediumTerm BPEMS should integrate The system design allows for this. Inventories are all paper based systems, however excluded from the initial scope o f payroll, cash management, implementation. commitment control, inventory, etc. National accounting The new FA Bill i s prescriptive inthis regard and standards should be this will also be influencedbythe recent issuing of established and accounting International Public Sector Accounting Standards. system designed to comply IndependentControls and Short Term Monitoring New Audit Law (2000) Improve audit planning, During the PRSC appraisal this was not covered, enacted including greater move from transactional to but will be assessed inthe CFAA 2003. independenceand authority. more analytical and New law createsAudit comprehensive auditing Service Board & MDA Audit Implementation Committees Professionalize and quality New Audit Law does not control extemal auditor improve cooperation between inputs AG and PAC MediumTerm Improve PAC budget resources Publiciseperformance audit reports when submitted to PAC to enable investigation and resolution of issues arising.  Annex 7 Page 1of 3 ANNEX7: GHANA CPAR 2003 SUMMARYOFKEYFINDINGS RECOMMENDATIONS - AND A. BACKGROUND The procurement bill was submitted to Parliament early 2003. In March 2003, the Parliamentary Accounts Committee (PAC) invited interested persons to send views and comments to PAC. The Coordinator of procurement reforms inthe MoFEP submitted to PAC the CPAR mission's comments on the draft bill. Bank staff attended, as an observer, the PAC meetingdiscussing comments on the bill and the impression i s that MPs are keen to have the Bill enacted. However, the Bill faces opposition. The ThirdWorldNetwork (TWN), a local NGO, has been campaigning for the suspension of the bill. TWN opposes WTO, WB and IMFpolicies and feels the Bill i s being forced to Ghanaians.Their mainpoint i s that the bill would open market to the detriment o f Ghanaian firms. Meetings have been held with TWN to explain that: (i) bill the has gone through adequate stakeholder consultations; (ii)the market i s already opened by economic liberalization; (iii) bill allows margin o f preference for Ghanaian manufacturers the and contractors; and (iv) the bill would bringvalue to Ghana regarding use of public funds and reductiono f corruption. TWN agrees with the key objectives o f the bill and the value for money it will bring to Ghana. However, in the PAC meeting, TWN made a passionate plea in its presentation that the Bill be suspended and subjected to more consultation. Vested interests of public officials and private firms benefitingfrom the current discretionary practice should not be ruled out as sponsoring opposition to the billand working to have it suspended. B. MAINFINDINGS General assessment: Ghana's public procurement practices are assessed as inefficient. Public procurement i s carried out ina discretionary manner, poses a highriskto public funds and contributes substantially to corruption. The economy i s paying a heavy premium for this inefficiency (e.g. in one ministry, it was reported that it procures goods 40% more expensively than the private organizations). Donor projects, particularly World Bank projects, are safe only on contracts subject to prior review and for projects using specially prepared procurement procedures manuals (projects signed after 2000). Existing procurement regulations are unclear and not "mandatory", have many loopholes and contain outdated practices. Examples of outdated practices include telephone requests for quotations, use of merit points for evaluating works contracts, use o f engineer estimates as cut-off point for contract awards, excessive use o f sole source and selective tendering by use of same firms repetitively. Works contracts are subject to Tender Boardrules butnot contracts for goods and services. Staffing of procurement functions: The public procurement function suffers from not being adequately profiled in the public service. In a majority of procuring entities the procurement function i s diffused in administrative functions. There i s a general lack of adequate numbers of procurement proficient personnel to man procurement units. Procurement professionals trained inthe public sector are often lost to the private sector. There are difficulties of attracting andretainingprocurement professionals due to poor remuneration and lack of proper job allocation. ProcurementPlanning and RecordKeeping: Out ofthe 24 institutions assessed, none of them had procurement plans except for World Bank-financed projects. Procurement planning  Annex 7 Page 2 o f 3 i s also very inefficient in World Bank-financed projects. Procurement record keeping i s also poor. Out of the 24 institutions assessed 17, or 65 percent, were found to have poorly kept procurement records. Oversight: Oversight of the fiduciary management is a central function of the MoFEP and aims at ensuring proper use and accounting of public resources by all public entities. However, oversight by the MoFEP i s weak. Government does not conduct procurement audits and internal audit i s almost non-existent. The Audit Service covers a fairly low portion of financial and procurement transactions due to a combination of constraints, key ones being inadequate staffing (there are only 6 qualified accounts in the Service), inadequate operating budgetand unclear procurement rules against whichto audit transactions. Contract administration,a major concern: Government is paying a heavy premium through poor contract management. Over 50 percent of the 290 contracts assessedexperience cost overruns (often more than 30 percent above original contract price) and problems such as excessive and uncontrolled variations or extensions, contracts being signed on basis of incomplete designs and flawed specifications, improper application of fluctuation clauses to the disadvantage o f Government, and contractors being paid in full against partially completed contracts. Non-performing contracts arerarely terminated intime nor damages applied. Supplier's Credits: Government continues to source and enter into contracts under the supplier's credits that do not achieve value for money. Foreign suppliers, credit firms or contractors offer the credits to fill the `needs gap' of MDAs. The contracts reviewed can at best be described as unfavorable to the government. A value for money (VFM) assessment by Crown i s a rescue and firefighting operation, which does not ensure economical final products. Capacity of the private sector: The capacity of local contractors to handle large contracts is constrained by lack of adequate and easily accessible credit, proper management shlls, fiscal discipline, and equipment The local engineering firms have limited capacity (in terms of numbers, size of firms and competencies) to undertake large contracts. However unlike contractors, they benefit from taking subcontracts, by forming associations and joint ventures with large foreign firms. The result is that some contracts are awarded politically to local firms without adequate capacity to perform. There i s evidence o f many poorly done roads due to the inadequate capacity of contractors enhancedbypoor oversight by public officials. Corruption:There is a general perception that corruption is widespread in the public service. Government and the civil society have on-going initiatives to fight corruption but these have proven to take time to result in tangible impacts. More efforts are needed to create awareness of anti-corruption measures. The current Government assumedpower inJanuary 2001 and its President emphasizes the GPRS stated policy o f "zero tolerance on corruption". On the basis of this policy direction, it i s envisaged that Government would be committed to improving the efficiency o f the public sector and to implementing the Action Plan and other recommendations inthe CPAR. `Green Procurement': The Environmental Protection Agency has programs on environmental education and practice notes on waste management, water management, industry, use o f pesticides/chemicals and protection o f natural habitat. However the EPA does not have a specific negative list o f goods and works that should not be procured as they harm the environment.  Annex 7 Page 3 of 3 C. CONCLUSION The CPAR Action Plan i s anchored on a three-pronged strategy: The passing o f the Public Procurement Bill and its implementation. These are key to establishing a credible legal framework for public procurement and to putting in place sound procurement practices. The Bill will regulate procurement practice, ensure it i s carried out in a structured manner, instead o f a discretionary manner and reduce procurement-related corruption. The Bill places accountability and responsibility for procurement on public officials to whom Government has placed responsibility for carrying out public programs and use o f funds. The procurement law will harmonize government and donor procedures and reduce cost o f transactions and areas o f conflict. The law will also enable private sector and civil society provide oversight on public procurement. Capacity buildingat all levels will be a necessity. 0 Improvements in financial management (by way o f implementation CFAA recommendations) are key to establishing sound base for oversight on public procurement practices. Improving procurement alone cannot ensure proper use o f public funds or remove fiduciary risks. Strengthening o f the internal audit and Ghana's supreme Audit Service. Audit i s the most effective way o f monitoring compliance with agreed procedures on financial and procurement transactions. Sanctions taken against erring officials are powerful deterrents to malpractice. The Ministry o f Finance should pay particular attention to establishing a credible internal audit and to provide adequate funds to the Audit Service to make it perform effectively in order to inform Ghanaians in a timely manner how their taxes are spent. The CPAR Action Plan recommends enacting the Bill recently submitted to Parliament, establishing the institutions provided in the Bill and requiring that procuring entities begin complying with the new law. The PRSC supports this process by emphasizing the needto ensure timely compliance withplanned actions. The country's economic, social and political situation i s assessed as fair for transparent and competitive public procurement. While the level o f fiduciary risk remains high, it i s mitigated by recent progress and stated commitment o f the Government to procurement reforms. Therefore, Ghana figures inthe range o f countries considered suitable for a PRSC.  Annex 8 Page 1of 2 ANNEX8: POVERTY AND SOCIAL IMPACT ANALYSIS ISSUES IMPACTANALYSIS AND BACKGROUND ACTION INPOLICY EXISTINGWORK OR PLmSED ISDICATIVE MATRIX WORK, BY WHOM STAKEHOLDEW FOR POLICYIMPLEMENTA Implementing electricity CEED study on lifeline tariff Regulator (PURC) tariff adjustment tariff and financial viability) under various scenarios, looked Utilities (ECG) mechanism that keeps coherent and if so, under what at the impact o f various tariff MinistryofFinance and sector viable while conditions, what risks? changes on compound Economic Planning, NDPC, protecting the poor through How effective i s the lifeline in households. It was completed MinistryofEnergy a lifeline tariff reaching the poor? At what in2001 and requires updating, Consumer Groups direct and indirect costs expansion to other customer NGOsor service providers (access)? groups, consultation, and in- extending electricity Where are the price sensitive depth analysis of expenditures Development partners points, and are people starting to as a percentage o f income disconnect or turntowards other levels. fuels? Planned PSIA with Bank Expenditures on electricity by support. income group, as a percentage o f income. How much do those not connected to the systemhave to spendfor energy (traditional fuels)? Adjust petroleum prices Looking forward, what are the Simple background analysis Regulator (PURC) towards economic levels to mediumterm effect ofpetroleum (using GLSS data) from the Tema OilRefinery keep sector viable, whde price increases on the poor? D o Bank of Ghana. Needs to be MinistryofFinance and cross-subsidizing infavor assumptions about which fuels deepened, perhaps with the Economic Planning, NDPC, o f the poor are used by the poor holdtrue? assistance o f quantitative Ministryof Energy What are the multiplier effects? modeling and qualitative focus Industryandconsumer How do the different groups, reviewed and checked groups (oil dependent stakeholders within the system against survey data. businesses) benefit or lose? PlannedPSIA with Bank Oil companies support. Development partners Enhance incentive More analysis andreview o f Broader sector ESW being MinistryofAgriculture structure o f cocoa sub- existing analysis is requiredfor launched on the constraints and Farmer/producer sector PRSC-2 to assess whether other opportunities to expand organizations measuresmay be critical in demand within region and for Development partners improving rural incomes inan international markets. This (including FAO) equitable manner (both will include (i)agro-processing Universityof Ghana geographically and among for the non-tradeable sector (ii) different size farmers) expanding exports o f non- traditional agricultural products; (iii)support for developing agro-business and marketing. DFIDsponsored PSIA planned on the extent to which GPRS policies for agricultural transformation will generate benefits to smallholder/ subsistence farmers.  Annex 8 Page2 of2 POTENTIALISSUESEXISTINGWORK OR PLANNED NDICATIVE WORK, BY WHOM STAKEHOLDERS FOR POLICY IMPLEMENTA Improve efficiency and What are the income levels o f Socioeconomic survey o f Ministry o f Education equity o f financing those who receive scholarships students receiving tertiary Student Unions education with attention to at present compared to the education has been completed. Tertiary facilities greater poverty impact: income levels o f those who do Prior to PRSC-2 the sector will Others TBD Revise cost recovery not (% leakage)? Can those assess whether further analysis policy for tertiary currently receiving scholarships i s required to revise the cost education which favors afford to pay? H o w does recovery policy for tertiary access by the poor admmistration o f such a system education. currently function? H o w could itbe improved? Adopt exemptions policy H o w i s such a policy likely to be Agreement on scope o f Ministry o f HealtWGhana for maternal delivery implemented? H o w will the proposed PSIA, TORS,during Health Service different stakeholders react Ghana Health Summit inJune, Health care providers duringimplementation? What 2003. NGOs are the intended, and unintended Development partners consequences o f this reform? Ministry o f Finance Decentralize Government: H o w will decentralization affect GTZ will finance a PSIA on Ministry o fLocal the quality o f services delivered pro-poor decentralization, to be Government at the local level to the poor? completed by October, 2003. Others to be determined H o w will different stakeholders Terms o f reference to be Developmentpartners be likely to react? What risks circulated by June 2003. Ministryo f Finance exist? (Institutional and stakeholder analysis and consultation) Reformpublic sector pay What are the indirect impacts o f Extensive social impact Civil service organizations and employment policies the public sector wage bill? assessment by KPMGcarried DevelopmentPartners aiming at a public sector What i s the actual impact, ex- out o f the rightsizing (national Ministry o f Finance size that releases resources post, o n those involved inthe institutional renewal) process Others TBD for fightingpoverty alternative employment program and direct impacts already (possible tracer study o f those completed. retrenched)? Strengthen formulation to For PRSC-2 and PRSC-3, public No expenditure tracking studies Local, district, central improve expenditure expenditure reviews, and to date, but public expenditure government representatives programming inline with expenditure tracking could reviews are carried out Service providers at the CPRS priorities answer questions on the annually. Citizens report cards facility level percentage o f funding that are being piloted in3 districts Ministryo fFinance reaches different groups, levels inGhana, and expenditure Developmentpartners o f government (how much tracking will be incorporated Others TBD leakage there is). This can be into future PRSCs. complemented by citizen report cards or other tools for community-level monitoring. Change invalue added tax What are the costs and benefits Analysis was carried out o f the Ministry o f Finance o f this tax, both directly, and direct impact o f this tax. Small businesses and others indirectly? H o w does it increase However, o f interest would who must pay the tax the total tax burden o n large also be the second-order Development partners businesses, small businesses, and effects, and the effects o n (including IMF) individuals? H o w has it worked specific groups such as small its way through the economy? businesses. Has it producedthe intended benefits? Ifso, where have those fiscal savings been allocated?  Annex 9 Page 1of 1 ANNEX9: POVERTYAND SOCIALIMPACTANALYSIS SUMMARY LISTOFPRIORITIZED STUDIES FORPRSC-2 STUDY TIMETABLE IMPLEMENTATION ARRANGEMENTS I.Growth,Income,Employment 1.Energy Sector Strategyand the Poor: End-2003 Phase 1 With World Bank financing, Ministry o f Issue: Evaluate the impact on the poor o f (second phase Energy will provide overall coordination, current energy sector policies, with a focus on March 2003) with core stakeholder committee recent changes intariffpolicies. Both direct including NDPC, Ministry o f Finance and as well as indirect effects will be studied. Economic Planning, regulator, utilities Giventhe demand from GOGstakeholders to and consumer groups to comment on cover both electricity andpetroleum, the TORs and on draft reports. PURC analysis i s likely to be sequenced, with an (regulator) to serve as key technical initial phase inDecember, 2003 and a second counterpart. phase by March, 2003; the decision on which elements to sequence first will result from consultation with GOGauthorities and alignment with ongoing Energy Sector Strategy ESW, which will cover key institutional changes including restructuring andprivatization. 2. Economic Transformation policy for the End-2003 With DFIDfinancing, NDPCwill agricultural sector and the small-holder coordinate study, but should be anchored /subsistencefarmer. Issue: Assess the impact inthe Ministry ofAgriculture for o f GPRS policies for the agricultural sector feedback on scope o f work, draft reports. and the extent to which they generate benefits Bank staff will comment on TORs and for small-holder/ subsistence farmers. draft reports. 11. ImprovingService Delivery for Human Development 3. Proposed Changesto Health Care and the End-2003, if This PSIA would be managedbythe team Poor: Issue: Assess the impact on the poor o f confirmed inJune managing the SWAP inthe Ministry o f recent changes to the health care system: HealtWGhana HealthService with Main issues to be agreed among stakeholders technical oversight and advice from the inthe forthcoming healthsummitinthe development partners. context o f the SWAP inJune, 2003. It is expected that such work will coincide with areas contained inthe PRSC (e.g. impact o f exemption policy for deliveries). 111.ImprovingGovernanceandPublic Sector Management 4. Pro-Poor Decentralization. Issue: GTZ is revising GOGterms o freference Analyze how the proposedan ongoing End- 2003 for this work. I s expected to circulate decentralization process will affect the poor. revised terms o freference to stakeholders GTZKfW currently inthe process o f byend-May, finalized TORSby end-June. consulting various stakeholders to refine scope Bank and sectoral specialists will o f work. comment on terms of reference, draft and interimreports as necessary.  Annex 10 Page 1of 2 Ghana at a glance Sub- POVERTY and SOCIAL Saharan Low- Ghana Africa income Developmentdiamond' 2002 Population, mid-year(millions) 20.4 674 2,511 Life expectancy GNI per capita (Atlas method, US$) 270 470 430 GNI (Atlas method, US$ billions) 5.5 317 1,069 Average annual growth, 199642 Population(%) 2.6 2.5 1.9 Laborforce (%) 2.9 2.6 2.3 GNI Gross Per primary Most recent estimate (latest year available, 199642) capita nrollment Poverty (% of populationbelownationalpovefiy line) Urbanpopulation(% of totalpopulation) 40 32 31 Life expectancy at birth (years) 60 47 59 1 Infant mortality(per 1,000live births) 59 91 76 Child malnutrition(% of childrenunder 5) 25 Access to improvedwater source Access to an improvedwater source (% of population) 64 55 76 Illiteracy(% ofpopulation age 15+) 26 37 37 Gross primaryenrollment (% of school-age population) 79 78 96 -Ghana Male 82 85 103 Low-income group ~ Female 76 72 88 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1982 1992 2001 2002 Economicratios* GDP (US$ billions) 4.0 6.4 5.3 6.4 Gross domestic investmentlGDP 3.4 12.8 26.6 19.7 Exports of goods and serviceslGDP 3.3 17.2 43.6 40.6 Trade Gross domesticsavings/GDP 3.7 1.3 7.0 7.0 Gross nationalsavingdGDP 3.5 3.6 21.3 20.3 Current account balance/GDP 4.8 -9.2 -5.3 0.6 Interest payments/GDP 0.7 1.2 7.8 6.3 Total debt/GDP 36.4 70.1 117.5 108.1 Total debt service/exports 15.5 20.8 17.0 12.8 Presentvalue of debtlGDP 78.4 71.2 I Presentvalue of debtlexports 169.8 165.0 Indebtedness 1982-92 199242 2001 2002 200246 I (average annual growth) - GDP 4.9 4.2 4.2 4.5 5.0 Ghana GDP per capita 1.5 1.5 1.6 1.9 2.3 Low-incomeorou~ Exports of goods and services 6.8 9.5 -1.3 -1.5 2.7 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investmentand GDP (%) (% of GDP) c Agriculture 57.3 44.8 35.2 35.4 20 Industry 6.2 17.4 25.2 25.4 i o Manufacturing 3.6 9.3 9.2 9.3 0 Services 36.4 37.8 38.9 39.2 -10 -20 Privateconsumption 89.8 86.6 75.2 75.2 -30 Generalgovernmentconsumption 6.5 12.1 17.8 17.8 I Imports of goods and services 3.0 28.8 64.4 52.7 -GDI +GDP I 1982-92 199242 2001 2002 1 (average annualgrowth) Growth of exports and imports (X) Agriculture 2.1 3.8 3.7 4.1 I Industry 7.1 3.7 3.0 3.1 40 Manufacturing 7.3 1.2 7.6 7.0 30 Services 7.8 4.6 5.1 5.3 20 i o Privateconsumption 4.9 5.2 4.1 5.0 0 General governmentconsumption 4.5 4.5 2.3 3.0 -io Gross domestic investment 7.1 1.9 4.0 5.0 -Exports -O'lmports Importsof goods and services 7.4 13.7 10.0 -6.8 Note: 2002 data are preliminaryestimates. Group data are through 2001. *The diamondsshow four key indicatorsin the country (in bold) comparedwith its income-groupaverage. Ifdata are missing, the diamond will be incomplete.  Annex 10 Page 2 o f 2 Ghana PRICESand GOVERNMENT FINANCE 1982 1992 2001 2002 Domesticprices (% change) Consumerprices 22.3 10.0 32.9 14.8 ImplicitGDP deflator 27.9 12.6 34.6 22.8 Government finance (% of GDP, includes currentgrants) Current revenue 6.0 18.5 25.1 21.9 97 98 99 00 01 Current budget balance -3.2 4.2 5.1 1.1 1 Overallsurplus/deficit -6.1 -9.0 -6.8 -GDPdeflator -CPI TRADE 1982 1992 2001 2002 (US$ millions) Exportand import levels(US$ mill.) Total exports(fob) 986 1,867 2,064 I Cocoa 302 380 463 Timber 114 618 689 Manufactures Total imports (cif) 1,589 3.781 4,099 Food 38 Fueland energy 162 257 275 Capitalgoods 277 Export price index (1995=100) 85 78 81 96 97 98 99 W 01 Import price index (1995=100) 103 99 96 ~xports lmports Terms of trade (1995=100) 83 79 85 BALANCEof PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balanceto GDP (YO) Exportsof goods and services 711 1,105 2,419 2,593 2 7 Importsof goods and services 813 1,845 3,433 3,304 0 Resourcebalance -103 -740 -1,014 -711 2 4 Net income -89 -106 -131 -153 -6 Net currenttransfers -1 255 644 842 8 -10 Current account balance -192 -592 -283 38 -12 -14 Financingitems (net) 191 467 362 248 -16 Changes in net reserves 1 124 -79 -286 -18 Memo: Reservesincludinggold /US$ millions) 314 368 431 679 Conversionrate (DEC, local/US$) 21.4 437.0 7,175.5 7,690.0 EXTERNAL DEBT and RESOURCEFLOWS 1982 1992 2001 2002 (US$millions) Composition of 2001 debt (US$ mill.) Total debt outstandingand disbursed 1,469 4,499 6,225 6,591 IBRD 131 87 IDA 125 1,631 F: 193GCi@@ Total debt service 111 235 415 337 IBRD 16 20 5 5 IDA 1 14 26 79 Compositionof net resourceflows Officialgrants 0 215 429 316 Officialcreditors 44 383 198 161 Privatecreditors 13 3 -53 -49 Foreigndirect investment 22 88 50 Portfolioequity 0 World Bank program Commitments 0 297 190 200 A IBRD - E Bilateral - Disbursements 24 170 B- IDA D- Other multilateral F Private Principalrepayments 8 15 18 53 C-IMF G Short-term - Netflows 16 155 Interestpayments 9 19 12 31 Net transfers 7 136 DevelopmentEconomics 5/14/03  Annex 11 Page 1of 3 ANNEX11:KEYECONOMIC INDICATORS Actual Estimate Projected lndicaior 1997 I998 1999 2000 2001 2002 2003 2004 2005 National accounts (as % GDP at current market prices) Gross domesticproduct 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 35.8 36.0 35.8 35.2 35.2 35.4 34.9 34.4 34.6 Industrya 25.7 25.3 25.4 25.4 25.2 25.4 25.7 26.0 26.0 Services" 38.6 38.7 38.8 39.3 39.6 39.2 39.4 39.6 39.4 Total Consumption 95.8 89.8 96.3 96.1 93.0 93.0 89.9 88.5 88.3 Gross domestic fixed 23.8 22.4 21.5 24.0 26.6 19.7 23.0 24.2 24.6 investment Governmentinvestment 12.4 11.3 9.8 9.2 12.8 6.1 9.4 10.4 10.5 Private investment 11.4 11.1 11.7 14.8 13.8 13.6 13.6 13.8 14.1 (includes increasein stocks) Exports(GNFS)b 32.4 33.9 31.9 46.2 43.6 40.6 42.1 42.8 40.8 Imports(GNFS) 53.0 46.7 49.2 65.9 64.4 52.7 55.8 54.9 52.0 Gross domesticsavings 4.2 10.2 3.7 3.9 7.0 7.0 10.1 11.5 11.7 Gross national savings' 6.9 8.1 7.6 15.6 21.3 20.3 21.2 22.6 23.4 Memorandum items Gross domesticproduct 6885 7475 7775 5000 5298 6400 6566 7039 7610 (US$ million at current prices) Gross national product per 4033 4270 4266 2955 3007 3491 3797 4038 4281 capita (US$, Atlas method) Real annual growthrates (%, calculatedfrom 1975 prices) Gross domesticproductat 4.2% 4.7% 4.4% 3.7% 4.2% 4.5% 4.7% 5.0% 5.0% market prices Gross DomesticIncome 4.3% 6.3% 3.1% 3.8% 8.0% 8.3% 8.3% 7.6% 6.0% Real annual per capita growthrates (%, calculated from 1975 prices) Gross domesticproduct at 1.5% 2.0% 1.8% 1.2% 1.6% 1.9% 2.1% 2.4% 2.4% marketprices Total consumption 5.3% 1.8% 3.1% 1.7% 7.1% 4.1% 6.9% 4.5% 3.2% Private consumption 5.6% 1.1% 6.4% -2.5% 9.2% 11.8% 11.9% 7.5% 4.8%  Annex 11 Page2 of 3 KEYECONOMICINDICATORS (Cont'd) Indicator 1997 1998 1999 Balance of Payments (US%m) Exports (GNFS)b 2257.8 2559.0 2473.0 2442.1 2419.0 2593.0 2907.1 3192.1 3284.1 MerchandiseFOB 1810.2 2091.4 2006.0 1936.0 1867.0 2064.0 23 14.0 2568.0 2656.0 Imports (GNFS)~ 3808.6 3541.1 3826.0 3388.3 3433.4 3304.0 3895.1 4180.1 4376.6 MerchandiseFOB 3041.5 2918.0 3252.0 2759.0 2831.0 2714.0 3169.0 3432.0 3581.0 Resourcebalance -1550.8 -982.1 -1353.0 -946.2 .1014.4 -711.0 -988.0 -988.0 -1092.5 Net current transfers 476.1 605.8 590.2 587.7 643.9 841.6 880.3 662.0 768.0 (including official current transfers) Current account balance -1147.4 -408.5 -853.0 -419.4 -283.4 37.6 -130.7 -121.1 -129.5 (after official grants) Net private foreign direct 55.3 -10.3 17.6 65.3 88.3 50.0 87.0 100.0 57.0 investment Mediumand Long-term loans (net) 499.9 348.9 126.1 97.0 103.7 -114.8 12.0 56.0 61.0 Other capital (net, including 497.5 270.3 485.3 134.0 89.1 66.5 -45.0 -120.0 -22.0 errors and omissions) Change inreservesd 103.7 -69.7 233.1 52.0 -79.0 -286.0 -181.0 -186.0 -173.0 Memorandum items Resource balance -22.5% -13.1% -17.4% -18.9% -19.1% -11.1% -15.0% -14.0% -14.4% Real annual growth rates ( YR75 prices) Merchandiseexports -0.7% 16.3% 8.9% 1.O% -1.3% -1.5% 2.7% 4.6% 4.0% (FOB) Merchandise imports 30.5% 15.9% 9.6% -26.0% 10.0% -6.8% 7.6% 13.2% 5.4% ( C W Publicfinance (as % of GDP at current market prices)' Current revenues 18.7 20.5 18.0 19.8 25.1 21.1 26.2 26.7 26.4 Current expenditures 16.5 17.3 16.4 18.5 20.0 20.0 20.0 17.5 16.2 Current account surplus (+) 2.1 3.2 1.6 1.3 5.1 1.1 6.2 9.2 10.2 or deficit (-) Capital expenditure 12.4 11.3 9.8 9.2 12.8 6.1 9.4 10.3 10.4  Annex 11 Page3 o f 3 KEYECONOMIC INDICATORS (Cont'd) Actual Estimate Rojected Indicator 1997 1998 1999 2000 2001 2002 2003 2004 2005 Monetary indicators M2/GDP (at current market 23.5 23.1 24.0 26.7 26.9 31.4 30.2 30.2 30.2 prices) Growth o f M2 (%)' 41.9 28.1 19.8 33.4 48.4 50.0 25.0 18.9 12.5 Price indices( YR90 =loo) Merchandise export price 116.5 121.2 106.7 102.0 99.7 112.0 index Merchandise import price 94.0 88.0 89.5 102.6 95.6 98.4 index Merchandise terms of trade 123.9 137.7 119.2 99.5 104.2 113.8 114.6 127.0 127.7 index Real exchange rate 76.2 82.5 82.9 53.5 52.8 56.0 (us$/Lcu)g Consumer price index 27.9% 19.3% 12.4% 25.2% 33.0% 14.8% 26.9% 8.3% 6.0% (% growth rate) GDP deflator 19.5% 17.0% 14.0% 27.2% 34.6% 22.8% 27.6% 13.3% 7.1% (% growth rate) a. IfGDP components are estimated at factor cost, a footnoote indicating t'Data-YR' fact should be added. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes useo f IMF resources. e. Should indicate the level o f the government to which the data refer. f. GrowthofM2, excluding foreign currency deposits g. "LCU" denotes "local currency units." An increase inUS$/LCU denotes appreciation.  Annex 12 Page 1o f 1 ANNEX12: KEYSOCIAL INDICATORS Latest single year Same regionlincomegroup SubSaharan 1970-75 I980-85 1994-00 Africa Low- income POPULATION Total population, mid-year (millions) 9.8 12.6 19.3 658.9 2,459.8 Growth rate (% annual averagefor period) 2.6 3.2 2.2 2.6 2.0 Urban population(%of population) 30.1 32.3 38.4 34.4 31.9 Total fertility rate (births per woman) 6.6 6.4 4.2 5.2 3.6 POVERTY (% ofpopulation) National headcountindex Urban headcountindex Rural headcountindex INCOME GNI per capita (US$) 310 360 340 470 410 Consumer price index (1995=100) 0 302 133 140 Food price index (1995=100) aa 242 INCOMEEONSUMPTION DISTRIBUTION Gini index 40.7 Lowest quintile (% of income or consumption) 5.6 Highestquintile (Yoof income or consumption) 46.7 SOCIAL INDICATORS Publicexpenditure Health (% of GDP) 1.7 2.4 1.2 Education(% of GDP) 5.8 2.5 4.0 3.6 3.4 Social security and welfare (% of GDP) Net primaryschool enrollmentrate (% of age group) Total Male Female Access to an improved water source (% ofpopulation) Total 64 55 76 Urban 87 a2 a8 Rural 49 41 70 Immunization rate (% under 12months) Measles 21 73 53 57 DPT 22 72 46 57 Child malnutrition(% under 5 years) 25 Life expectancy at birth (years) Total 51 55 57 47 59 Male 50 54 56 46 58 Female 53 57 58 47 60 Mortality Infant (per 1,000 live births) 103 a5 58 91 76 Under 5 (per 1,000 live births) 186 157 112 162 115 Adult (15-59) Male (per 1,000 population) 459 400 334 504 294 Female (per 1,000 population) 377 334 294 459 261 Maternal(per 100,000 live births) 590 Birthsattendedby skilled healthstaff (%) A7 44 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment ratios exceeding 100 indicate discrepancies between the estimates of school-agepopulationand reportedenrollment data  Annex 13 Page 1of 1 ANNEX13: KEYEXPOSURE INDICATORS Actual Projected Indicator 1997 1998 1999 2000 2001 2002 2003 2004 2005 Total debt outstandingand 6196 5987 8544 8485 6977 7136 6880 6801 6703 disbursed(TDO) (US$m)" Netdisbursements(US$m)a 26 224 39 95 79 98 116 128 142 Total debt service (TDS) 578 622 587 528 482 416 389 369 347 (US$m)a Debtanddebt service indicators (%) TDOIXGSb 274.4 234.0 345.5 345.5 286.8 273.7 241.0 221.3 203.4 TDOIGDP 90.0 80.1 109.9 169.7 131.5 112.4 94.3 82.1 74.3 TDSIXGS 23.5 22.1 21.1 23.0 18.9 18.4 15.6 13.4 13.1 ConcessionaliTDO 62.5 69.5 51.0 53.3 67.1 67.9 72.8 76.4 80.5 IBRD exposureindicators (%) IBRDDSIpublic DS 2.7 0.9 2.3 1.1 1.o 1.3 1.1 0.9 0.0 Preferredcreditor DSipublic 50.9 41.3 34.3 30.9 40.8 35.8 40.3 49.1 55.7 DS (%)` IBRDDSIXGS 0.7 0.2 0.5 0.2 0.2 0.2 0.1 0.1 0.0 IBRD TDO (Us$mId 30 27 18 Ofwhichpresentvalueof guarantees(USSm) Share o f IBRD portfolio (%) IDA TDO (US$m)d 2507 2701 2894 3064 3222 3390 3427  9 9  Annex 15 Page 1of 5 EXTERNAL RELATIONS Public Information Notice DEPARTMENT Public Information Notice (PIN) No. 03/62 International Monetary Fund FOR IMMEDIATE RELEASE 700 lgthStreet, NW May 16,2003 Washington, D. C. 20431 USA IMF Concludes 2003 Article IV Consultationwith Ghana On May 9, 2003, the Executive Board of the InternationalMonetary Fund (IMF) concludedthe Article IV consultation with Ghana.31 Background Overall economic performance in Ghana during 2002 was mixed. Twelve-month inflation continued to fall, from 21 percent at end-2001 (downfrom a peak of 42 percent in March2001), to 15.2 percent at end-2002. Larger-than-normalinflows of foreign exchange from the pre- financing of the cocoa crop contributed to a further improvement in gross international reserves to nearly 2 months of imports, despite a shortfall in external donor support. The stimulus from an improved terms of trade (relating to higher cocoa and gold prices, only partly offset by higher unit costs for imported petroleum), and a pick up in credit to the private sector, suggest that the targeted 4% percent real growth rate for the economy may have been achieved. Good progress was also made on certain parts of the structural reform agenda, including in the areas of tax administration, financial sector reform, the move to full cost recovery for electricity and water, and governance. Budget execution, however, was adversely affected by a large overrun on the civil service wage bill, non-implementationof the budget's key revenue measure, delays in moving forward with the divestiture program, and a shortfall in donor financing (partly policy-related).These were only partly offset by gains from improved tax administration and cutbacks in the capital spending, with the result that recourse to net domestic financing was 3.3 percent of GDP higher than the 31UnderArticle IV of the IMF's Articles of Agreement,the IMF holds bilateraldiscussionswith members, usuallyeveryyear. A staff team visits the country,collects economicand financial information, and discusseswith officials the country's economic developmentsand policies.On return to headquarters,the staff preparesa report,which forms the basisfor discussion by the Executive Board.At the conclusion of the discussion,the ManagingDirector, as Chairmanof the Board, summarizesthe views of ExecutiveDirectors,and this summary is transmittedto the country's authorities.  Annex 15 Page 2 o f 5 budgeted target of 0.3 percent of GDP, even after full application of an adjustmentfor shortfalls in external support. Non-implementationof Ghana's petroleum pricing formula during 2002 led to substantial losses (estimatedat 2 percentof GDP) by the state-owned Tema Oil Refinery. In mid-January 2003 the authorities raised petroleum prices by 95 percent on average, following an assumption by the government of almost 3 percent of GDP in debts of the refinery. Altogether, the slippages increasedthe stock of domestic government debt to nearly 29 percent of GDP at end-2002, or 8% percent of GDP higherthan envisaged at the time of the 2002 budget. Driven by higher-than-expected government borrowing and, late in 2002, by a surge in cocoa revenues, broad money growth reached 50 percent by year's end. In response,the central bank stepped up open market operations in the fourth quarter and raised its prime interest rate by 3 percentagepoint (to 27.5 percent) in early 2003. The cedi depreciated against the US. dollar by 14.7 percent in the twelve months ended December 2002, and the real effective exchange rate remained broadly stable during the year. In February 2003, the Government of Ghanafinalized and publishedthe Ghana Poverty Reduction Strategy (GPRS), which sets out the country's broad policy agenda for 2003-2005. The authoritiesare generating support for this strategy from the IMF, in the form of a new three- year arrangement under the Poverty Reduction and Growth Facility (see Press Release No. 03/66), as well as from Ghana's other development partners. ExecutiveBoard Assessment Directorsnoted that, following an initial strong consolidationeffort, Ghana's macroeconomic performancein 2002 had been mixed. Progresswas made in rebuildingforeign reserves and implementingstructural reforms, particularly in the areas of tax administration, financial sector reform, and governance. Weaknesses in budget execution and parastatalfinances- compounded by a shortfall in donor financing-had, however, resulted in a further substantial rise in the stock of domestic debt, and had complicated the implementation of monetary policy. Against this background,Directors welcomed the authorities' program for 2003-05 and recent actions to strengthen publicfinances as an appropriate response to restore the strong reform momentum that will continueto be needed to deliver on the ambitious goals of Ghana's Poverty Reduction Strategy. The GPRS has benefited from extensive consultation with civil society, and providesa sound framework for achieving the government'sobjectives of raising privatesector- led growth and further reducing poverty. Directorsstressed that, to attain these objectives,the authoritieswill need to make a sustained effort to achieve and maintainmacroeconomic stability, in particularthrough effective budget implementation,and press ahead with their structural reform agenda, including in the areas of financial sector reform and publicenterprise restructuring. Directorsobserved that the resurgence in inflation in early 2003 was most likely the result of a one-time realignmentof prices in responseto larger-than-anticipatedadjustments in petroleum prices. The achievement of single-digit inflationwill neverthelessrequirestrong action in the period ahead. Directorswelcomed, in this regard, the tightening of monetary policy by the Bank of Ghana, and urged continued readiness to take additional measures as necessary. They also underscoredthe important role that strict fiscal disciplinewill haveto play in supportingthe disinflationeffort.  Annex 15 Page 3 o f 5 As regards fiscal policy, Directors commended the government's effortsto boost the country's budgetaryresourcesthrough lasting tax measures.Together with continued external support and further improvements in tax administration, the enhanced revenue base should make it possible to achieve the spending priorities set out in the GPRS. Directorswelcomed the attention paid by the authorities to the social impact of the recent tax measures, but a few Directorscautionedthat they will further increase the complexity of Ghana'stax structure and might fuel inflationary pressures. Directorswere encouraged by the authorities'renewed commitmentto strengthening expenditure discipline, but viewed with concern the continued rise in the civil servicewage bill. Giventhe need to containfuture increases in the wage bill, Directors urged the authoritiesto embark on a fundamental reform of the civil service, in collaborationwith the World Bank and other donors. In the immediate period ahead, they stressed that effective public expendituremanagementwill be key to ensuring that the fiscal aggregates and the composition of spending, with a clear focus on investment and poverty related expenditures, are realized as programmed.This will require careful and timely monitoring of budget execution and prompt corrective actions if necessary while, going forward, further continued efforts to strengthen public expenditure managementwill be needed. Directorswelcomed the steps taken to strengthen the finances of the major public enterprises, including the adjustments to petroleum, electricity, and water pricingto bring them toward full cost recovery. They urged full implementation of the pricing formulae and encouraged the authorities to liberalizepetroleum pricing at the appropriatetime. Directorsalso looked forward to rapid progress on the divestiture of the largest state-owned bank to reinforcethe operation of the petroleum sector on a commercial basis, and help improvethe overall soundness of the banking system. Directorssupported the authorities'structural reform priorities in the agricultureand energy sectors. They encouraged continued strong efforts to promotetransparency, good governance, and fight corruption by further strengthening the audit and legal systems. To enhancethe contribution of the financial sector to private sector development, Directorslooked forward to early approval of comprehensivefinancial sector legislation, which will also includea new law to strengthen the fight against money launderingand terroristfinancing. They underscored the importanceof full implementation of relevant UN resolutions. Directorsencouraged the authoritiesto adopt timebound action plans for their reforms, includingto secure timely technical and financial assistance over the medium term. They also highlightedthe importance of carefully assessing the poverty and social impact of the reform process. Directorsacknowledged the progress,with technical assistance from the Fund, on improving Ghana's fiscal and monetarydata. To allow effective surveillance and monitoringof GPRS outcomes, they encouraged the authoritiesto continue to improve the quality and timeliness of Ghana's economicstatistics, in particulardata on prices, national accounts, and trade. Public information Notices (PINS)are issued, (i) at the request of a member country, followingthe conclusion of the Article IV consultationfor countriesseeking to make known the views of the IMFto the public. This action is intended to strengthen IMF surveillanceover the economic policiesof member countries by increasing the transparencyof the IMF's assessment of these policies;and (ii) following policy discussions in the Executive Boardat the decision of the Board.  Annex 15 Page 4 of 5 Ghana: Selected Economicand FinancialIndicators,1999-2003 1999 2000 2001 2002 2003 Prog. 11 Est. (AnnualPercentagechange, unlessotherwise specified) Nationalincome and prices Real GDP 4.4 3.7 4.2 4.5 4.5 4.7 Real GDP per capita 1.8 1.2 1.6 1.9 1.9 2.1 NominalGDP 19.0 31.9 40.2 23.3 28.3 33.6 GDP deflator 13.9 27.2 34.6 18.0 22.8 27.6 Consumerprice index (annualaverage) 12.4 25.2 32.9 15.9 14.8 26.9 Consumerprice index (end of period) 11.8 40.5 21.3 13.0 15.2 22.0 Externalsector Exports,f.0.b. -4.1 -3.5 -3.6 7.6 10.6 12.1 Imports,f.0.b. 11.4 -15.2 2.6 7.8 -4.1 16.8 Export volume 8.9 1.o -1.3 3.7 -1.5 2.7 Importvolume 9.6 -26.0 10.0 11.1 -6.8 7.6 Terms of trade -13.4 -16.6 4.8 6.9 9.1 0.7 Nominaleffective exchange rate (avg.) -9.3 -46.3 -24.0 ... -11.7 ... Realeffective exchange rate (avg.) 0.5 -35.5 0.7 ... -0.6 ... Cedis per US. dollar (avg.) 2,669 5,431 7,179 ... 7,947 ... Governmentbudget Domestic revenue (excludinggrants) 6.0 42.9 43.5 38.1 27.5 60.3 Total expenditure 9.0 39.6 65.5 34.0 2.4 50.0 Current expenditure 13.1 48.9 50.5 22.8 28.8 33.5 Capital expenditureand net lending 4.1 24.1 95.7 39.4 -38.7 104.1 Money and credit Net domestic assets 21 46.0 49.1 13.5 6.6 14.0 -1.7 Creditto government21 38.2 57.7 0.0 1.8 32.6 0.0 Creditto pubic enterprises2131 9.0 19.2 9.7 1.9 -9.0 1.5 Creditto the private sector 2131 24.9 34.4 12.0 17.1 17.7 18.8 Broad money (excludingforeign currency 19.8 33.4 48.4 25.2 50.0 25.0 deposits) Reservemoney (excludingforeign currency 35.8 52.6 31.3 18.7 42.6 24.5 deposits) Velocity (GDPIend-of-periodbroad money) 5.2 5.1 4.8 4.9 4.1 4.4 Treasury bill yield (in percent; end of period) 34.2 42.0 28.9 ... 28.2 ... (In percentof GDP, unless otherwisespecified) Investmentand saving Gross investment 21.5 24.0 26.6 22.3 19.7 23.0 Private 11.7 14.8 13.8 13.1 13.6 13.6 Public 9.8 9.2 12.8 9.2 6.1 9.4 Gross national saving 9.9 15.6 21.3 16.3 20.3 21.2 Private 8.3 14.3 16.1 11.6 19.2 14.9 Public 1.6 1.3 5.1 4.7 1.2 6.3 Governmentbudget Total revenue 16.4 17.7 18.1 18.7 18.0 21.6 Grants 1.7 2.1 6.9 4.2 3.1 4.6 Total expenditure 26.2 27.7 32.7 28.4 26.1 29.3 Overall balance (excludinggrants) 41 -9.8 -10.0 -14.6 -9.7 -8.1 -7.7 Overall balance (includinggrants) 51 -8.0 -9.7 -9.0 -7.0 -6.8 -3.9 Domestic primary balance 0.4 2.6 3.8 3.1 2.0 2.9 Divestiturereceipts 0.3 1.2 0.0 0.8 0.0 0.7  Annex 15 Page5 o f 5 Net Domestic Financing 6.3 8.5 2.3 0.3 4.8 0.0 Externalsector Current account balance61 -11.6 -8.4 -5.3 -6.4 0.6 -1.8 Externaldebt outstanding 109.9 169.7 131.5 124.0 112.3 96.4 External debt service, includingto the Fund 6.8 11.2 8.5 6.8 7.8 6.3 (in percent of exportsof goods and 21.1 23.0 18.9 15.9 18.4 15.6 nonfactorservices) (in percentof governmentrevenue) 37.5 56.5 34.1 29.4 37.1 24.2 (In millionsof US. dollars, unless otherwisespecified) Current account balance6/ -895 -419 -283 -393 38 -131 Overall balanceof payments -266 -123 -2 -146 39 -77 Change in externalarrears (decrease-) 62 27 61 0 -61 0 Gross internationalreserves(end of period) 317 264 344 629 631 811 (in months of importsof goods and 1.o 0.9 1.2 2.0 1.9 2.3 services) Nominal GDP (in billionsof cedis) 20,580 27,153 38,071 46,875 48,862 65,262 Sources: Ghanaians authorities;and IMF staff estimates and projections. I / Based on MEFP of 1/31/02(EBS/02/16) 2/ In percent of broad money at the beginning of the period. 3/ Credit from deposit money banksto public enterprises and the privatesector respectively. 4/ Before domestic arrears clearance. 51 After domestic arrears clearance. 61 Includingofficial grants.  Annex 16 Page 1o f 1 GHANA POVERTY REDUCTION SUPPORT CREDIT Timetable ofKey Processing Events Time taken to prepare the Credit 4 months Project Prepared by World BarWGovemment Concept Review Meeting March2003 ROC Meeting April 2003 OC Meeting April 2003 Appraisal April 2003 Negotiations May 2003 BoardPresentation June 2003 Effectiveness July 2003 Project Completion June 2004