Ghana - Poverty Reduction Support Credit Project

PID THE WORLD BANK GROUP AWorl1d Froo of Poverty InfoShop Report No AB55 Initial Project Information Document (PID) Project Name GHANA-PRSC I Region Africa Regional Office Sector Other social services (40%); Sub-national government administration (30%); Central government administration (30%) Project ID P076808 Supplemental Project Borrower(s) MINISTRY OF FINANCE & ECONOMIC PLANNING Implementing Agency MINISTRY OF FINANCE AND ECONOMIC PLANNING Address Address Contact Person Michael Ayesu Tel 233-21-662299/686179 Fax 233-21-663854mayesu@africaexpress.com Email Environment Category C Date PID Prepared April 29, 2003 Auth Appr/Negs Date April 28, 2003 Bank Approval Date June 17, 2003 1. Country and Sector Background Ghana has made considerable progress on laying the foundations for sustainable growth and poverty reduction. 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. In parallel with reforms, important political reforms were also adopted, moving the country to a firmly democratic form of Government. However, progress has been periodically interrupted by episodes of weak macroeconomic management associated with the electoral cycle, occurring in 1992, 1996 and 2000. Sustained implementation of sound financial policies during 2001 resulted in significant progress on macroeconomic stabilization. The inflation rate was brought down from a peak of 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. During 2002, program implementation was mixed. Preliminary estimates indicate that real GDP growth accelerated to about 4.5 percent, as a result of improved terms of trade and an increase in credit to the private sector. Further progress was achieved in reducing inflation to about 15 percent, at end-2002, and  2 PID building up foreign reserves to about 2 months. In terms of structural reforms, progress was made in the areas of tax administration, financial sector reform, move towards full cost recovery for utilities, and in governance. However, performance was undermined by fiscal and quasi-fiscal slippages associated with weaknesses in public expenditure management, specially in the management of the wage bill, payment of late 2001 unbudgeted expenditures and delays in the divestiture program. Later in 2002 and early 2003, the Government redoubled its reform efforts. 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, bringing retail prices to near import parity levels. 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 the internal audit functions. 2. Objectives The proposed PRSC-1 will support the policies and reforms aimed at improving the living conditions of the population by promoting growth, incomes and employment, accelerating human resource development and strengthening governance and public sector management as spelled out in Ghana's Poverty Reduction Strategy (GPRS). The PRSC-1 would lay the ground for helping the country to implement its GPRS in a comprehensive manner. It is envisaged that there will be two further PRSCs in FY04 and FY05. 3. Rationale for Bank's Involvement The Bank supported Ghana during the GPRS preparation and is well positioned to play a major role within the donor community in supporting its implementation. The proposed PRSC is expected to support progress towards the MDGs and achievement of the country's poverty reduction goals spelled out in the GPRS which are anticipated from the growth and service delivery outcomes of the implementation of the program supported by the credit. In addition, it will help maintain macroeconomic stability by contributing to the closing of the external financing gap and enable the Government to generate the funds required to execute GPRS policies and programs. 4. Description The dialogue between Bank staff and the Ghanaian authorities on a program that could be supported by the Bank with a possible PRSC sought to blend ideas from the JSA with those in the GPRS. The result is the program submitted by the Ghanaian authorities to the Bank for support with the PRSC-1, which has been articulated under three components: (i) promoting growth, incomes and employment; (ii) improving service delivery for human development; and (iii) improving governance and public sector management. In the area okrowth, incomes and employmen,t 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 high, and limiting scope in the budget for financing services that are supportive of development); and (ii) a  3 PID high-cost business environment (unreliable and "high-price" supply of critical inputs, especially energy, and high transaction costs). The second front is that of removing key constraints on progress in rural development. In the area ofervice delivery for human developmenthe program focuses on: (i) expanding access to education and health services, with particular attention to the needs of underserved areas and populations; and (ii) improving the efficiency and equity of financing. By focusing on these under the PRSC-1, the authorities count on using to advantage the spotlight on poverty in the GPRS to deal with the issues of unequal regional and gender outcomes in health and education, and sustainable and equitable financing of these critical services. This makes the PRSC-1 bring additional value in areas where support is being provided by sector projects. In the area, ofgovernance and public sector managemergtthe program focuses on: (i) strengthening the institutions of participative democracy and accountable rule; and (ii) improving the efficiency of the public services and the quality of 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 and consensus building. 5. Financing Total (US$m) BORROWER $0.00 IBRD IDA $75.00 Total Project Cost $75.00 6. Implementation The Government has full ownership of the proposed PRSC-1, given that: (i) it is fully aligned with the GPRS; and (ii) top Government officials were actively involved in its preparation. The reform program funded by this credit will be implemented by the Ministry of Finance and Economic Planning. 7. Sustainability One of the key objectives of providing support through the PRSC-1 to Ghana is to shift from project support, which uses project specific implementation mechanisms, to support the budget, which uses government's mechanisms. Moreover, the PRSC will be IDA's instrument to assist Ghana through a multi-donor budget support (MDBS) framework agreed, in March 2003, between the Government of Ghana and participating development partners. The Government program supported by the PRSC-1 will cover selectively the agenda identified in the GPRS and focus on (i) selected cross cutting issues that hamper progress in different sectors; and (ii) addressing a subset of priorities within and between sectors, which are considered to generate sustained growth and poverty reduction. 8. Lessons learned from past operations in the country/sector  4 PID Bank support to adjustment has been under a series of Economic Reform Support Operations: ERSO I, II, and III. Implementation of these quick disbursing operations allows to draw five main lessons: (i) need of flexibility to respond to evolving situations; (ii) importance of Government commitment to the reform process; (iii) need of selectivity and realism, given that the reform agenda is vast and available capacity is limited; (iv) importance of donor coordination to align assistance to the country's priority objectives. 9. Environment Aspects (including any public consultation) Issues : The Government of Ghana is aware of the importance for poverty reduction to off ensuring environmental sustainability. The cross-sectoral nature of 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. It has consequently launched a Strategic Environmental Assessment (SEA) exercise in February 2003 which focused on the review and appraisal of sectoral policies using sustainability criteria related to three types of effects: economic growth, environment and natural resources, and social and cultural conditions. 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. In 1994, the former Environmental Protection Council (EPC) was transformed into an Environmental Protection Agency (EPA) to provide support for appropriate environmental management. 10. List of factual technical documents: N/A 11. Contact Point: Task Manager Marcelo R. Andrade The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone (202) 473-8378 Fax: (202) 473-8136 12. For information on other project related documents contact The InfoShop The World Bank 1818 H Street, NW Washington, D C. 20433 Telephone (202) 458-5454 Fax: (202) 522-1500 Web http:/l www.worldbank org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.  5 PID Tables, Charts, Graphs: Processed by the InfoShop week ending 04/29/2003 For a list of World Bank news releases on projects and reports, click here S EARCH - * IEUACK STE MAP .. H i Z