Ghana - Structural Adjustment Technical Assistance Project

 Document of @coPY] The World Bank FOR OFFICIAL USE ONLY DRAFf CONFIDENTIAL. Report No. P-4415-GH .REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO GHANA STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE PROJECT NOVEMBER 24, 1986 This document has a restricted 1istribution :md may be used by recipients only in the performance or their official duties. Its rontents may not otherwise be disclosed without World Bank authorization. .. STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE PROJECT Credit Summary Borrower: The Republic of Ghana Credit Amount: SDR 6.59 million <US$7.84 equivalent! Terms: Standard Credit Description: The main objectives of the project are: (i) to strengthen the capacity of core agencies, especially the Ministry of Finance and Economic Planning, to formulate economic policies and to perform economic management tasks critical to the structural adjustment program; (iil to support the Government's program to rationalize civil service management and redeploy ·:;ur·plus staff over 1987-89; and (iiil to mobilize skilled Ghanaians to work on priority tasks of the ERP. The 3-year project would finance (i) economic advisers to the PNDC Secretary for Finance and Economic Planning; (iii improvement of public investment programming, budgeting, expenditure forecasting and control, revenue collection, debt management and aid coordination; (iiil design and implementation of a sta;~ing and functional review of the civil service, and strengthening of salary policy and administration .and personnel mana;::~ement; 11vl organizational arrangements and incentives to mobilize consultants and others for the public service; (vi improved Government processing of economic policy decisions and aid agreements; and (vi.) -3.n initial living ·:;tandards survey and ongoing survey capacity to enable a rapid Government response to changes in welfare in the recovery process. Credit Benefits and Risks: The project is critical to the successful implementation of important parts of the structural adjustment program, and addresses specific weaknesses recognized by the Bank, the Government and other donors. The project would substantially strengthen Ghana's public sector management capacity, and focus it on sustaining the reform process. The project will reinforce the Government's own commitment and actions already taken and, together with a forthcoming public enterprise reform project, forms the basis for a coherent public sector management reform programs. Risks include: (i) the political sensitivity of redeployment; (iil uncertainties arising from a possible decision to hive off the planning division from MFEP; (iii l the dependence of both the SAL program and its public sector reform elements on the few officials and leaders constituting the core economic team; and \despite project support designed to address these problems) (ivl whether the Government can succeed in attracting enough competent and motivated people into public service jobs and create functioning systems and administrative services. The first and third risks are being mitigated by deliberately broadening discussion of the project's objectives within and outside Government, and by explicit connection between the project and the SAC. The second is a politically difficult issue but the Government has recognized the possibility of disruption to effective economic management, and agrees that the priority is to rebuild effective skills and systems before undertaking organizational charges. The salary problem is being addressed under the structural adjustment program's conditions as well as through the project. The administrative constraints on the project's implementation are being addressed by having strong project management arrangements, and by Government's appointment of senior officials to be responsible for each major component. Estuated Pro)ec~ :osts Local Fore1gn Total Fore1gn Exchange ! ------ IUSS '000 l -------------------- 1. Skllls:local 2,24b 250 2,4~6 10 : for•1qn 26~ 2,418 2,687 90 2. Truning 521 674 1,3~5 60 3. Office Equ1p1ent 174 b98 872 80 4. Ci vii ¥ork• 65 65 130 50 5. ~eh1cle• 228 913 I, 142 80 b. Sup pi i es 102 102 203 50 TOTAL BASE COSTS 3,b06 5,319 8, 925 bO ' ~nee conttngencxes 937 b91 1,629 42 8. PhvSl cal cent 1ngencas ISO 163 313 52 Re1oourseoent of PPF 0 104 104 100 ' rom 4,693 6, 278 10,971 57 F~nanClog Sources: IDA: 7. 83~ ODA: 2,300 UNDP: 432 USA!D: 400 TJtal !0, 971 Estuated DlSburseoents ----------USS ~iII ion IIDA FYl ---------- 1987 t9B8 tm Annual 1,307 2,613 J, 91~ Cuoulative 1,307 3,919 7,839 Econooic rate ~f return: Not applicaUe  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF GHANA FOR A TECHNICAL ASSISTANCE PROJECT 1. submit the following report and recommendation on a proposed Development Credit of SDR 6.59 million <US$7.84 million equivalent! to the Republic of Ghana for a technical assistance project to support the Government's structural adjustment program. Co-financing will be provided in an amount of about USS2.3 million by the United Kingdom, US$0.43 million by UNDP and US$0.4 million by USAID. An accompanying report deals with the proposed Structural Adjustment Credit and associated Special African Facility Credit. 2. Part I of this report reviews the characteristics and recent performance of Ghana's economy and outlines the main adjustment issues. It is identical to Part I of the President's Report on the Structural Adjustment Credit. Part II describes other Bank Group operations in Ghana. Part III analyzes issues in public sector management, while Part IV describes the proposed operation. PART I - THE ECONOMY 3. A report entitled Ghana: Towards Structural Adjustment (5854-GHl was distributed to the Executive Directors on October 7, 1985. An economic mission visited Ghana in November 1986 to prepare a short updating economic report, focussing on aid requirements in the medium term, for the forth- coming Ghana Consultative Group meeting to be held in Paris in February 1987. Updated country data appear in Annex I. A. Introduction 4. Ghana lies on the Gulf of Guinea on the west coast of Africa, a few degrees north of the equator. Preliminary data based on the 1984 census shows a papulation of 12.2 million, of which over 70 percent is concen- trated in the southern half of the country, where much of its economic and natural resource base is located. Ghana once enjoyed a fairly high standard of living compared with most other West African nations. However, poor economic policies~ combined with external shocks such as the draught and the oil price increases have contributed in the 1970s and early 1980s to a declining gross domestic product. With a high population growth rate (a natural rate of increase of about 3%1, there has been a substantial erosion of real per capita income to lts present level of about $350 119841. As a result, almost half the population is estimated to live in absolute poverty. The country's basic needs indicators, once the best in Africa, are now no better than those of other sub-Saharan African countries with comparable per capita incomes. Modern health services are available to only about a third of the people, and less than half have access to safe ' - 2 - water. Although the education system is well established and primary schooling has been free since 1962, there has been a substantial decline in standards, and 50% of adult men and 70% of adult women have had no formal education. 5. Since April 1983, when the Government of Ghana announced a major Economic Recovery Program <ERPl, there has been a substantial improvement in both policies and economic management. There has also been an impressive recovery of the economy, with considerable progress in the realization of the Government's stabilization and adjustment objectives. The Government recognizes that to sustain these initial gains will require substantial further adjustment over the remaining years of this decade, if not longer. The structural adjustment program described in this report represents the first stage of this longer term adjustment process. While the success of the substantial adjustment efforts to date bade well for the outcome of the further measures, the task ahead is long and difficult, and the outcome is contingent on political will, competent economic management, and a favorable external environment, including sizable concessional aid flows. B. Structure of the Economy 6. Ghana is comparatively well endowed with natural and human resources. The country has a good supply of land suitable for growing a variety of tree crops, most importantly cocoa, cereals, and starchy staples, and considerable fi~hina and forestry resources. The economy is based primarily on small-scale agricultural production, chiefly of cocoa and staple foods (maize, rice, millet, yam, cassava, and plantains). Agriculture accounts for half the GOP, and 70% of the population derives its income from agriculture or related activities. Productivity is typically low, due to inadequate support services, lack of fertilizers and other inputs, and poor transport facilities. Mining and forestry have been important sectors since the nineteenth century. The country has valuable mineral deposits, particularly gold, but also diamonds, bauxite, manganese and offshore oil. Domestic production of crude oil still accounts for a small share of the country's petroleum requirements, which are met largely through the import of crude oil which is refined domestically and used chiefly as fuel for transport. The Akosombo Dam on the Volta River, built in the mid 1960s, is capable of meeting the country's foreseeable needs for hydroelectric power, and there is further potential for hydro-power generation. 7. Since its Independence in 1957, manufacturing output increased substantially due to government policies which encouraged import substitu- tion behind high protective walls. As a result, Ghana's industrial capacity is relatively large, diverse and long established compared to most other African countries, and accounts for 13 percent of GDP. However, it is largely underutilized for lack of sufficient domestic and imported raw materials, and poor management, particularly in the public sector, and a substantial share of it is unlikely to be able to compete effectively with imported goods. The services sector, which accounts for 37 percent of GDP is dominated by wholesale and retail trade. The country's transport  - ' - ~ infrastructure was once relatively well developed, with railways in the more populous south and a reasonable road network throughout. However, years of neglect of maintenance have substantially eroded the value of this investment. B. Until the mid-1970s, Ghana had one of the most developed and effective education systems in Western Africa, with enrollment increasing substantially at primary and secondary levels following the introduction in 1962 of compulsory and free universal education from the age of six. On top of this substantial base lay a sizable educated intelligentsia which was larger in relation to the size of the population than in other sub-Saharan African countries. However, with reduced expenditures on education (matching the decline in the rest of the economy!, there has been a marked deterioration in the system. While primary enrollment has been maintained at about 73X, there is a high drop out rate, and access to secondary and tertiary education is highly limited. Erosion of teachers incomes has led to a substantial exodus of trained teachers from the system. This exodus is part of a larger brain drain that has eroded the country's educated manpower base. C. Economic Performance between 1970-1982 9. Throughout the 1970s, Ghana's economy was poorly managed. Large budget deficits, driven partly by the need to support a sprawling, in- efficient public sector, led to a marked acceleration in domestic infla- tion. Given the reluctance to move the exchange rate, the fixed nominal rate became grossly overvalued, shifting relative incentives away from exports into import trade, and more specifically from cocoa, Ghana's main export, into subsistence food production. The resulting deterioration in export performance, combined with a growing disenchantment on the part of aid donors with Ghana's performance, caused a perpetual foreign exchange crisis that pushed successive Governments into increasingly restrictive import regimes, which in turn starved the economy of the main fuel for its growth. The erosion of the tax base due to declining exports and imports, and the related drop in economic activity forced severe cutbacks in Government operations and maintenance and capital expenditures. There was a marked deterioration in what was once a fairly well-developed economic and social infrastructure. This, in turn, further reduced the country's productive capacity. 10. A tendency to respond to shortages with controls and rationing worsened the problem by eroding the incentives to produce and save, dimin- ishing the capacity of public sector entities to maintain the level and quality of services, and creating a vast parallel black market with its related corruption, smuggling and tax evasion. Declining real wages, political instability, and reduced economic opportunities, led talented and skilled Ghanaians to leave the country, depriving it of scarce managerial administrative, and technical resources. 11. To add to all its difficulties, Ghana was subjected in the early 1980s to three other problems. First, a prolonged and severe drought  - 4 - created the worst food shortages since Independence. Second, the external terms of trade sharply deteriorated following the increase in petroleum prices, and a softening in prices of Ghana's major exports (cocoa and gold). Third, the sudden return of over one million Ghanaians from Nigeria severely strained the food and employment situation. The cumulative effect of the downward economic spiral and these most recent "shocks" to the system can be seen in the trends in key economic indicators between 1970 and 1982: per capita real income declined by 30 percent; import volumes fell by a third; real export earnings fell 52 percent; domestic savings and investment declined from 12 and 14 percent of GDP, respectively, in 1970 to almost insignificant levels; inflation averaged 44 percent per annum over the period. D. The Economic Recovery Program 1984-86 12. A Provisional National Defense Council (PNDCl was constituted when Flight Lieutenant J. J. Rawlings took power on December 31, 1981. To address the general erosion of the country's economic and social founda- tions, the PNDC introduced an economic recovery program which was developed in close consultation with the IMF and the World Bank. The program, which was formally presented at the November 1983 Paris meeting of the Ghana Consultative Group--the first such meeting in 13 years--laid down a frame- work of policies and programs for the 1984-86 period. The IMF has provided support for the program, equivalent to 292 percent of quota, with two successive Standby Arrangements totalling SDR 419 million covering the period July 1983-December 1985, and a further SDR 179 million in purchases from the Compensatory Financing Facility on account of shortfalls in merchandise exports and an excess of cereal imports. The government met all the required performance criteria under the two programs and has successfully completed all purchases. A third Standby Arrangement for SDR 81.8 million was approved by the IMF Board on October 15, 1986. IDA has supported the program with an Export Rehabilitation Credit and two Import Reconstruction Credits, in all totalling some SDR 187 million. Total assistance from members and observers of the Consultative Group, including IDA, has risen sharply, with commitments in 1984 totalling $416 million, and in 1985 totalling $495 million. Indications provided at the 1985 CG imply new 1986 commitments of $519 million. 13. The Economic Recovery Program's major objectives have been (a) the realignment of relative prices in favor of exports and the productive sectors, and away from rent seeking activities; (b) the restoration of fiscal and monetary discipline, (cl the initiation of efforts to rehabili- tate the country's productive base and economic and social infrastructure, and (d) a restoration of incentives and the establishment of a proper climate for private savings and investment. The main actions taken to date under the program are summarized below: (i) Exchange rate policy: The government has committed itself to a flexible and realistic exchange rate policy. Over a three year period, the cedi has been depreciated, through frequent and large discretionary changes, from Cedi 2.75 =US$1.00 to Cedi 90 = US$1.00, a depreciation in  - 5 - nominal terms (expressed in the local currency) of over 3400 percent, and 1000 percent in real terms. The most recent adjustment was in January 1986, when the currency was depreciated a further 50 percent from Cedi 60 = US$1.00. (iil Administered prices have been adjusted to reduce domestic price distortions arising partly or wholly from the overvalued exchange rate. Cocoa producer prices have been raised seven-fold from Cedi 12,000 per metric ton in 1982/83 to Cedi 85,500 per metric ton in 1986/87. Cotton and tobacco producer prices were raised by 100 and 50 per cent respectively in June 1985. Other administered prices have been adjusted promptly following exchange rate changes. Petroleum prices, in particular, have been raised steadily, and following the fall in crude oil prices, have not been adjusted downwards correspondingly. (iii) Price controls are being dismantled to allow market forces to determine price levels. The list of essential goods subject to statutory price and distribution controls was reduced from 23 to 17 in December 1984. and was cut further to only eight in July 1985, while distribution controls were lifted. The remaining controls take the form of flexible price caps which allow the full cost plus a profit margin to be passed on to the consumer. The prices of controlled items are now jointly determined by the Prices and Incomes Board <PIBI and producers and traders under guidelines established by a tripartite committee of government, employers and trade unions. Prices of non-controlled items are subject to official surveillance under a reference price system. However, in practice there is increasingly little surveillance and producers and traders are free to set prices. (ivl Public sector wages and salaries have been raised substantially in an effort to prevent a severe erosion in real incomes of civil servants, and also to partially restore differentials between the highest and lowest paid civil servants - a source of considerable disincentive for senior civil servants. Nevertheless real public sector wages are still only 34% of their 1975 level. (vi Interest rates have been increased sharply in an effort to achieve positive real interest rates. As a result, 12 month time deposits have more than doubled since October 1983 to the present level of 20%, while the maximum lending rate has risen nine percentage points to 231, and preferential rates to agriculture and exports have been eliminated. The government remains committed to a flexible interest rate policy that would maintain the positive real interest rates. (vii Fiscal and monetary policy has been substantially tightened since 1983 with credit ceilings developed by the government under an IMF program strictly observed. There has also been a significant improvement in the structure of the budget. An impressive recovery in the ratio of revenues to GDP, both as a result of the beneficial impact on revenues of a vigorous exchange rate policy and through improved tax administration and new . - 6 - revenue aeasures, has been accompanied by a restructuring of expenditure programs in favor of essential rehabilitation expenditures. (viii Sector specific programs have been developed to rehabilitate key export industries (cocoa, gold, timber) and supporting infrastructure <power, transport, telecommunications and water supply) needed to ensure an adequate supply response. More recently, new sector programs have been developed for agriculture, industry, health and education. These various sector programs have been integrated into a rolling medium-term development program. (viii) Private Sector Environment: A determined effort has been made to improve the climate for private investment. The private sector has been brought into the higher levels of economic policy formulation. Two private sector representatives have been appointed to the National Economic Commission. Furthermore, a number of decisions that affect the sector are now brought before a tripartite committee of government, trade unions and employers. With the reconstitution of the Workers' Defense Committees into Committees for the Defense of the Revolution with a revised mandate to improve productivity, there has been a marked improvement in industrial relations. A new Investment Code has been approved which is designed to encourage domestic and foreign private investment and establish a framework of rules to protect investors. The Government recognizes, however, that more needs to be done to restore private sector confidence. E. The Economy's Response 14. The initial response of the economy to the policy reforms was temporarily crippled by the severe drought in 1983, infrastructure bottle- necks, and lags in aid inflows. Nevertheless the government persisted with, and broadened the reform program. This has paid rich dividends 1n terms of substantial gains in output, i~proved fiscal performance, a deceleration in inflation and enh~nced aid commitments in support of the program. After a decline in real output in 1983, economic performance impr.::1ved sharply in 1984, benefitting to a large degree from the return to normal rainfall and improved policies. Recently revised estimates show GDP growth close to 11%, led by the sharp recovery 1n agriculture, where output of foodcrops more than doubled for several crops from the low 1983 base. However, cocoa production rose by only 8 per cent from the historical low of the previous crop year. Manufacturing output and wholesale and retail trade increased in line with overa11 growth, reflecting higher import levels, increased availability of agricultural raw materials and the restoration of power supplies. Preliminary estimates for 1985 indicate a growth in GOP of about 6X~ led by the expansion in mining, manufacturing and electricity output. Mineral production rose sharply, with bauxite output nearly tripling, and diamonds doubling, and manganese, like bauxite, benefitting from the substantial improvements in the operations of the railways and ports during 1985. Agricultural growth is slower; however, cocoa has recovered strongly in 1985/86 to 210,000 tons, up 20% compared to 1984/85 thanks to improved weather and the sharp increase in nominal producer prices. Indications for 1986 suggest another year of growth  - 7 - above sz~ Thus for three successive years, Ghana's economy has experienced strong per capita growth after over a decade of declining output. 15. The government's fiscal position also improved markedly through 1985. Revenues as a share of GOP rose from 5 percent in 1983 to 11 percent. This increase reflects the impact of the exchange rate depreciation on the tax base, and on the profits of the export sectors, particularly cocoa. Direct taxes and non-tax revenues have also risen sharply, reflecting improved tax administration, additional resource mobilization measures and the improved economic performance. On the expenditure side, recurrent expenditures have risen as a result of the decision to reverse partially the erosion of real public sector wages and salaries, but have been sufficiently contained to permit a small surplus on the current account. Capital expenditures have been stepped up to address infrastructure bottlenecks and to inject capital in high priority under- capitalized state enterprises. Capital expenditures have risen from miniscule levels to nearly 3 percent of 1985 GOP. Despite this increase, the overall deficit has been contained at levels well below those prevailing in the 1970s and early 1980s. At the same time, dependence on inflationary bank financing has been virtually eliminated. In FY86, both revenues and expenditures are expected to be substantially higher. Revenue growth is largely on account of the windfall profit on petroleum products fallowing the fall in world oil prices and higher cocoa tax revenues. Expenditure growth largely reflected the further significant increase in wages and salaries 1100 percent over 19851 and civil service allowances, aimed partly at restoring relativities in civil service pay from 2 to 1 to 6 to 1. Capital expenditure has been raised further to some 5 percent of GDP. However, because of a decline in non-concessional foreign financing, the overall deficit was virtually eliminated. 16. Money supply expansion was severely curbed in 1983 and 1984 to ensure the attainment of the government's stabilization goals! with broad money growing each year at around 42 percent. Money supply growth accelerated in 1985 to nearly 60 percent! due largely to a 68 percent expansion in net domestic assets, or over twice the level of expansion in 1984. This expansion reflected the decline in velocity of circulation (and the increase in monetization from very low levels} following the gradual return of confidence that has begun and the decline in inflation. Much of the credit expansion went towards the private sector and to finance a larger and higher value cocoa crop, with credit to government remaining within the limits specified under the Fund program. During 1986, a sharp deceleration in money supply growth is planned, to a 19 percent annual rate. Most of this adjustment is anticipated in the second half of 1986, following slippages in the first half which led to a substantial expansion in credit to both government and the private sector. Inflation decelerated sharply in 1984 and 1985 despite the very large exchange rate movement, from an annual average increase of 123 percent in 1983 to 40 percent in 1984 and 10 percent in 1985. This is explained largely by the substantial drop in food prices over the very high levels attained in 1983 and early 1984. Non-food prices rose at an average annual rate of 31 percent in 1985, as against a 68 percent increase in 1983. These orders of increases  - 8 - suggest that most non-food commodities in the econo~y were already reflect- ing their scarcity values. The rate of inflation is accelerating, and on a point to point basis, stood at an annual rate of 23 percent in May, 1986, as against 6 percent in December 1984. Much of this acceleration is explained by the seasonal acceleration in food prices in the last quarter of 1985 and first quarter of 1986, which was much less pronounced in the corresponding period of 1984-85. 17. As far the balance of payments, the recovery of exports and imparts has been slow, and considerably below initial expectations. Although the nominal value of exports rose by 8 percent in 1984 and 11 percent in 1985, it remained below even the low 1982 value, having drastically declined in 1983. The belated recovery in export volumes in 1985 was partially offset by lower unit values for both cocoa and gold. The slow export recovery reflected severe infrastructure constraints, structural bottlenecks, and the continuing (albeit diminishing) inadequacy of incentives. With aid disbursements also at relatively law levels, the capacity to import has remained heavily constrained and, as in the case of exports, the nominal value of imports remains below those prevailing in the early 1980s. Nevertheless, non-oil imports have grown by 15 percent between 1983 and 1985. Preliminary indications for the 1986 outcome suggest a 14 percent growth in exports, due to higher cocoa and timber volumes. Non-oil imparts are expected to grow by a further 33 percent in 1986, reflecting higher aid-financed imports. However, overall import growth will be much smaller because of the decline in crude oil prices. The current account deficit is estimated at $350 million or 8 percent of 1986 GDP. The deficit has been financed largely by concessianal aid disbursements and IMF. 18. Debt service burden: Ghana's medium and long term external public debt outstanding and disbursed at end 1985 amounted to US$1.5 billion, about 24 percent of GDP. Bilateral creditors account for two-fifths of the total; multilateral sources for aver one half. (Bank and IDA loans comprise )) percent of the total debtl, and suppliers credits for the remaining 10 percent. Despite the predominance of soft loans, Ghana's debt service burden in the coming years is likely to be very heavy, for several reasons: first, amortization of previously rescheduled debt began in 1983; second, there is a relatively large amount of short term debt, including S148 million of payments arrears as of August 1986; third, medium term ail credits account for a substantial part of the payments burden over the next two or three years. Finally, use of Fund credit from the Standby Arrangements and other Fund facilities as of September 1, 1986 totalled SDR 597 million 1292 percent of quota). The debt service ratio has risen sharply from 14 percent in 1982 to 27 percent in 1985. Inclusive of IMF repurchases and anticipated settlement of payment arrears on an agreed schedule, the debt service ratio rase to 50 percent in 1985 and 51 percent percent in 1986.  - 9 - F. Remaining Adjustment Tasks in the Short to Medium Term 19. As is clear from the above, the Economic Recovery Program 11984-86) has been successful in effecting a substantial adjustment effort over a very short period. While this progress is commendable, the government recognizes that if the momentum of this adjustment process is nat to slacken, further actions are needed to (a) strengthen and broaden the policy framework underlying the reform program, (b) remove bottlenecks to the implementation of the program, and (c) increase the effectiveness of the utilization of resources, particularly in the public sector. At the last meeting of the Consultative Group for Ghana held in Paris in November 1985, the Government of Ghana presented to donors a "Policy Framework" for the 1986-88 period, containing a macro-economic framework, and a set of objectives and policies at the macro and sectoral levels. In the discussions that followed, donors and the Ghanaian authorities agreed on the following broad areas where further policy adjustments were called for: (i) further progress, in collaboration with the IMF, on the exchange rate, with its major implications for production incentives and resource allocation; Ciil selective trade liberalization, to improve incentives and reduce the bias against exports; ( ... \ 'l l l, continued progress on agricultural pricing, particularly in the cocoa sector; livl measures to improve domestic resource mobilization, and thus raise the level of domestic savings from their present low levels; (vi measures to improve external debt management and reduce the debt service burden over the medium term; lvil initiation of a medium-term rolling public expenditure program, aimed at a rationalization of wages and salaries, reduced overstaffing of the civil service, a more efficient utilization of resources and increased resource flows towards the rehabilitation of key economic and social infrastructure; !viii reducing the burden on the budget and the economy of an over-extended parastatal sector; (viii) improving the management of key public sector institutions responsible for implementation of the adjustment program; and, (ixl further improvement in the climate for the private sector. These priorities have influenced the design of the government's Structural Adjustment Program described in a separate President's REport and with main targets summarized in paragraph 30.  - 10 - G. Longer Term Challenges 20. Despite the overriding need to concentrate attention and resources on achieving a structural adjustment of the economy over the next few years, longer term development issues will also need to be addressed during this period. (a) Poverty: Although Ghana once enjoyed a fairly high standard of living compared with most other West African nations, almost half the population of about 12 million is now estimated to live in absolute poverty. Efforts to alleviate poverty will be facilitated by the restoration of economic growth which is the key objective of the structural adjustment program, and by targeted anti-poverty programs, but a longer-term program is needed to examine ways to raise incomes and the access to social services among the poor. (b) Rapid population growth: Ghana's demographic statistics are discouraging. With crude birth and death rates of 49 and 10 per thousand respectively, population growth would be massive were it not for extensive emigration to neighbouring countries and further afield. The Government's population policy remains the most comprehensive in sub-Saharan Africa, but the family planning program established country wide in the 1970s has almost collapsed in recent years (10% coverage). Revival and expansion of this program is vital. (c) Meeting the food deficit: Based on past trends, Ghana is likely to face a substantial and increasing food deficit by the year 2000. To meet these deficits without recourse to substantial levels of food imports, would require foodcrop output growth between 4 and 5% per annum; these levels exceed the most favorable rate achieved by Ghana in the past (1961-1971 of 3.9/.l. The required output growth, net of wheat (which could be imported) would be attainable, however, if Ghana could recapture the amount of acreage under cultivation during the 1960s and subsequently last in the 1970s. Growing land constraints due to increasing papulation density and the fragility of land make this difficult 1 and require that output gains through increased area under cultivation will need to be supplemented by substantial yield increases. Yields of principal annual crops in Ghana are far below their potential. This requires an investment in productivity enhancing technologies in the food crop sector such as the use of fertilizer, agro-chemicals, higher yielding seed varieties and improved farming systems. Agricultural research will need to be strengthened and extension and adaptive research systems revitalized to improve delivery. (d) Food security has a high priority in Ghana particularly after the experience of the drought in 1982 and 1983. Food storage is being constructed with donor assistance, but the Government has  - 11 - no clear strategy. Food grain stocks should be located primarily in the north where a program is justified because of lower incomes and the remoteness of the area. The Government needs to work out a plan for improving food security in the most economi- cal way and to examine alternative mechanisms to buffer stocks. (e) The environmental consequences of rapid population growth and the need to expand food production need to be carefully studied. Much of the expansion in population and food production is likely to be concentrated in the southern half of the country where the country's tropical forests are located. Rapid deforestation to accommodate agriculture and meet the demand for the country's timber exports could have severe agroecological repercussions which are not fully understood. The replacement of forests by food crops is likely to result in declining soil fertility, due to soil erosion and loss of organic matter, particularly in the case of short fallow slash-and-burn cultivation. Intercropping of annuals with tree crops reduces this risk, and will need to be promoted. (f) Diversification of exoorts away from cocoa remains a major goal. While the thrust of medium term adjustment policies will be to restore cocoa production to its full potential, other sources of foreign exchange earnings will need strong stimulation such as other tree and exportable crops, and increased earnings from timber, minerals, agro-industries, manufactures, tourism and workers' remittances. lgl Better regional balance: A shift in the emphasis of policies and expenditures towards the much neglected, drier and poorer northern savannah zones, with development of both infrastructure (roads, power, water) and agriculture (foodcrops, cotton and tobacco). !hi Manpower and institutional development: Reversing the neglect of Ghana's once well-developed manpower and institutional base must be one of the highest priorities. Long-term manpower planning and development and parallel institutional reforms, particularly in the public sector, will need to be instituted soon. PART II BANK OPERATIONS IN GHANA 21. Until March 1983, when lending was resumed after a hiatus of 18 month, the Bank Group's assistance to Ghana was project oriented with a strong emphasis on export promotion and rehabilitation of basic infrastructure. Since 1962, when the Bank Group financed its first operation in Ghana, the Bank has made 10 loans totalling US$189.7 million and 35 credits totalling US$673.2 million (including three African Facility Credits for US$62 million. In addition, Ghana participated in a Bank-financed regional clinker project covering three countries \Togo, Ivory Coast and Ghana). An IFC investment of US$55.0 million in Ashanti  - 12 - Goldfields Corporation in Ghana was approved in June 1984. Annex II contains a summary statement of Bank loans and IDA credits as of June 30, 1986. 22. The acuteness of the economic crisis of the past several years and the magnitude of structural distortions led the Government to develop a program of far-reaching economic reform which was announced in April 1983, and these factors have resulted in a major shift in Bank Group strategy, which now has the following major objectives: (a) to assist the Government, supported where appropriate through technical assistance and program lending, to improve incentives for production, to increase the efficiency of economic management and restore in the medium term a sound financial basis for growth; (b) to promote the long-term growth and development of the economy by underpinning structural adjustment lending with infrastructure rehabilitation and sector adjustment operations within a framework of appropriate sectoral policies, the latter encompassing industry, agriculture, education, and public enterprise; (c) to improve our knowledge of the country's incentive structure, expenditure policies, and institutional processes so as to improve our contribution to the further development of the Economic Recovery Program and so that our recommendations are consistent wi~~ the country's implementation capacity; and \d) to contribute to improved aid effectiveness in Ghana by acting as the focal point for aid coordination between donors and Ghana as the Government strengthens its own planning and aid coordination ability. 23. While the proposed structural adjustment lending and associated technical assistance project are conceived as the first set in a series of such operations to support changes in incentive policy and improvements in economic management, over the medium-term IDA lending will also include sector operations and complementary, mainly infrastructural, project lending which will be increasingly policy oriented, focusing on sectoral strategies, investment programs, public sector reforms and institutional improvements. Finally, as described below, the on-going project portfolio also supports the development of sound economic growth in the productive sectors as well as the rehabilitation of infrastructure. 24. In response to the Government's announcement of a major economic reform program in April 1983, the Bank approved a series of program credits designed to provide critically needed imports~ particularly to export sectors and supporting economic infrastructure such as transportation. These included two credits for export rehabilitation and related technical assistance. The credits also laid the base for policy reforms in critical  - 13 - areas such as cocoa producer prices, price and distribution controls, and public expenditures; and for institutional improvements in areas such as cocoa marketing, timber exports and quality control, management of gold mining and part organization and management. 25. Energy has been a major focus of Bank Group lending to Ghana 120.8 percent of commitments!. Projects financed in this sector include three hydro power generation and three power distribution project. More recently IDA has financed rehabilitation of the power distribution system and has negotiated a project to extend the power grid to the northern region of the country. A project aimed at strengthening Ghana's technical capacity to accelerate petroleum exploration was approved in May 1983. Another project provides technical assistance and financing of immediate requirements for rehabilitation of Ghana's sole refinery. These power projects provide for substantial institution-building in power (especially the distribution utility ECGI, energy sector planning and petroleum subsector management. The second most important sector in the Bank Group's program in Ghana is transportation !19.7 percent of commitments! with four road projects and a railway rehabilitation project. The two Reconstruction Import Credits and Export Rehabilitation Project also provided emergency imports to the road transport and port subsectors. The Accra District Rehabilitation Project supports the transport subsector in the Accra area as well as the strengthening of the administrative and financial basis of the Accra City Council and the improvement of a poorer section of the city. The Ports Rehabilitation Project will improve Ghana's two major ports to remove major bottlenecks for exports. The projects provide for institution building in highway subsector organization, planning and maintenance, railway management and ports (as already mentioned). A transport rehabilitation project being prepared will continue institutional support to the sector. 26. In agriculture (15.4 percent of commitments), the main thrust of the Bank Group's operations has been to assist the country in achieving greater self-sufficiency in agricultural production, particularly food and raw materials for agro-industries, and rehabilitating the cocoa subsector. An agriculture sector rehabilitation project under preparation will focus on sector policy coordination, sector planning, strengthening the Ministry of Agriculture, pricing policy fer crops other than cocoa, reform of state-owned agricultural enterprises, privatization and strengthening of support services and food security issues. A Cocoa III project also is being prepared, the main components of which are research, input supply, and disease control; but it would also support the actions on the cocoa producer price and institutional reforms which are being addressed in the SAC. In the field of water supply, three projects have increased and improved water supply in the Accra-Tema metropolitan area and adjacent rural areas, with the most recent one helping to carry out emergency repairs and maintenance on main water pipelines. Two credits have financed investments in manufacturing and agro-industry undertaken by small and medium-sized enterprises. The recent Industrial Sector Adjustment Credit aims to improve capacity utilization through provision of imported inputs and sectorwide adjustment measures, including trade liberalization which  - 14 - will be tarried through in the SAL, and to strengthen sector planning and the Ministry of Industry, Science and Technology. While most Bank Group lending has focused on financing supporting economic infrastructure and rehabilitation, there is recognition of the need to support the social sectors. A credit to meet urgent rehabilitation needs in health and education is ongoing and a project to support the Government's education reform is under consideration by the Executive Directors. Each of these involves actions to strengthen sector planning and the sector Ministries concerned. In addition, a project to support the Government's state-owned enterprise reform program, following through on the actions in the SAL, is under preparation. 27. The Bank Group is thus pursuing a two-fold strategy for strengthening public sector management in Ghana. At the macro level, it is focusing on the core economic and financial management functions and some wider issues of public sector (especially civil service) management through the proposed technical assistance project. At the sector level, it is pursuing the strengthening of sector policy formulation, planning, coordination and management. Both areas of action are being pursued with UNDP, which in a series of parallel or co-financed projects is proposing to assist with the proposed technical assistance project and is undertaking a series of sector planning projects, all in close consultation with the Bank. 28. The country's past economic difficulties have adversely affected a number of Bank Group-financed projects. Dwindling Government revenues have denied projects needed local financing, and the lack of foreign exchange has resulted in a severe shortage of imported materials and spare parts required for completed projects. The mass exodus of qualified Ghanaians to neighboring countries, and demoralization, absenteeism and low productivity among the remaining work force have also adversely affected project performance. The unusually adverse conditions surrounding Bank Group-financed projects and their generally poor performance have been described in greater detail in the Project Performance Audit Reports. Because of delays experienced in the implementation of a number of Bank Group-financed projects in Ghana, disbursement performance is behind appraisal estimates. Annual gross disbursements over the four-year period FY81-84 averaged about 20 percent of outstanding loan/credit commitments. Through periodic implementation reviews, the Government and the Bank have made efforts to improve the disbursement record and performance in FY85-86 was substantially better. A Central Project Monitoring Unit established within the Ministry of Finance and Economic Planning in October 1985, has proved to be very effective. 29. Given the need to focus Ghana's public expenditures on high priority rehabilitation and maintenance and on adequate provision for nan-salary recurrent costs, improved aid coordination is now assuming increased importance. In this connection, the Bank has chaired the Ghana Consultative Group meetings annually since 1983, organized an industrial sector aid coordination meeting in May 1986, and co-sponsored with UNICEF a similar meeting for the social sectors for interested donors later in  - 15 - September 1986. During the first half of 1987 aid coordination sessions are planned for telecommunications, water supply, transport and agriculture. PART III PUBLIC SECTOR MANAGEMENT CONSTRAINTS AND REFORMS 30. The Government is consolidating and extending the reforms instituted under the ERP by undertaking a structural adjustment program with support from IDA. The basic objective of the program is to lay a firm foundation for the development of a "buoyant, self-reliant and increasingly integrated economy." To attain this objective will require an incentive framework that stimulates growth and encourages savings and investment, and economic management that improves resource use particularly in the public sector, and directs resources to key areas of adjustment, while ensuring fiscal and monetary stability. Within this broad overall objective, the Government is setting itself the following more specific goals for the 1986-88 period: sustain economic growth at around 5.0-5.5% per annum; increase the level of investment from about 10% of GDP in 1985 to 19% of 1988 GOP at current market prices, and to shift its composition to lay the foundation for sustained long term growth; increase the national savings rate from the present 5% of GDP to 9% of 1988 GDP; improve the viability of the balance of payments; and improve the management of resources within the public sector. These objectives are to be attained in the context of macro- economic stability, implying the continuation of the present regime of strict fiscal and monetary discipline. 31. The implementation of this program poses a severe challenge to the public sector, whi~h is already contending with a large number of institutional difficulties. The Government has therefore been developing a program of public sector management reforms, concentrating initially on urgent problems of economic management and civil service reform. 32. A principal difficulty facing the country is the loss of many skilled and experienced Ghanaians, who left during the long period of economic decline and political uncertainty. The public sector was especially severely affected as inflation accelerated, budgetary constraints tightened and salaries particularly for skilled and professional civil servants suffered large real declines. The resulting understaffing at upper levels coincided with continued unproductive expansion in general public sector employment, and morale and effectiveness dwindled as systems and equipment broke down and elementary supplies became unavailable. 33. While there have been considerable improvements in salaries and working conditions under the ERP, constraints remain severe. The key economic policy and management functions are seriously understaffed and have inadequate organization, systems and equipment. The Ministry of Finance and Economic Planning <MFEPl plays a central role in the ERP, but many of its key functions are performed by a mere handful of overworked officials, and its five divisions operate without adequate information, co-ordination or professional staff. The Planning and Research Division,  - 16 - for example, is critical to the public investment program and to macroeconomic policy analysis, but has nine professionals against a complement of thirty. Comparable deficiencies have plagued other economic management tasks notably budgeting (where the budget has been chronically late and inaccurate as a real guide to spending in recent years), debt management, co-ordination of external aid flows and implementation and monitoring of externally aided projects. 34. At the policy level, the small core of ministerial-level decision-makers has not had sufficient analytical support and expert in-house advice a deficiency which becomes more pressing as the reform process broadens. Adjustment also increases the importance of effective policy co-ordination, which has suffered from the lack of a properly staffed and equipped "Cabinet office" within the Castle to service the economic policy decisions of the Committee of Secretaries and the Provisional National Defense Council. 35. The Government is proposing to improve policy review and management in MFEP with an economic policy unit reporting to the Secretary, and to strengthen economic liaison staff, systems and procedures in the Castle. Economic management will be strengthened by a phased program to re-organize, staff, train and equip the MFEP divisions responsible for the budget, public investment, aid co-ordination and the monitoring of project implementation, and by the installation of a computerized debt management system. Reforms are also underway in the organization and management of the National Revenue Secretariat, and tax collections have recently improved markedly. 36. During the last fifteen years of steady economic decline, the conditions of employment and the productive capacity of the Ghanaian civil service have deteriorated dramatically. Between 1975 and 1982, civil service employment grew by 166 percent, at about 14 percent per year or five times faster than the growth of the overall labor force. The wage bill was kept in check by letting wages fall, with the sharpest decline at higher ski!l levels. By 1984 real waqes for top civil servants were one-sixteenth of their 1977 level. The result of these policies was overstaffing at lower civil service levels and the proliferation of vacant posts at higher levels. The Office of the Controller and Accountant General, for example, had vacancies at the end of 1985 in over a quarter of its 3600 professional positions. Sixty-nine percent of senior accountant posts were vacant, along with all fifty positions for chief accounting officers. The planning section of the Ghana Highway Authority had only one of its eight high-level positions filled in 1984. In an attempt to mitigate the depletion of higher civil service ranks, Government increasingly employed non-wage benefits such as housing for upper level personnel, but such remuneration packages compared badly with private and parastatal sectors to which many managerial personnel were lost. Many skilled Ghanaians were also drawn from Government posts by the international market. For civil servants who remained, other sources of income have become a necessity, leading to chronic absenteeism, low morale and generally low productivity. Thus, what was once among the premier civil  - 17 - services in Africa is today in serious disarray. To correct these deficiencies, Government needs to increase inter-skill wage differentials, to shed surplus employees, and to re-establish morale and discipline. 37. In an effort to address some of the above problems, Government has announced a program of redeployment of public sector workers in the 1986-1988 period at an annual rate of 5 percent of the work force. This involves identifying almost 15,000 governmen\ workers for redeployment each year over the next three years and developing a fiscally responsible compensation package for the workers affected, probably including training, credit and advisory services as well as monetary compensation. 38. The Government plans to carry out the redeployment through a careful review of pr-esent patterns of staffing in relation to the functions essential for the public service to perform, so as to reform public employment on a rational basis. To reap long-term benefits from this exercise, however, the management of the civil service itself has to be strengthened. The Office of the Head of the Civil Service <OHCSl should be the key agency in civil service reform, but is itself severely constrained by management problems which require immediate attention. OHCS's capacity to obtain and use up-to-date information about the numbers, functions, and qualifications of Ghanaian civil servants for effective personnel management is extremely inadequate. OHCS does not have accurate figures on the overall size of the civil service, the numbers of staff classified by department, job category, age or length of service, nor of vacancies classified by Ministry. Some of this information has been gathered in a recent civil service census (see below), but OHCS as yet has little basis for making appropriate iecisions about recruitment, training, promotion, retrenchment or redeployment, or to perform manpower planning and determine appropriate staffing levels. The Government intends to extend its earlier public administration reform effort (the PARDIC exercise) and the planned staffing and functional review by rebuilding civil service management capacity in OHCS, instituting stronger personnel management and payroll administration and a system of regular staff inspection and organizational scrutiny. 39. Although salary decompression in the public service has begun and is moving in the right direction, far the next few years the Government will continue to face problems in attracting and retaining skilled and committed professionals, at precisely the time when the recovery demands many more such people for a w1de range of high priority public service tasks. The Government intends to establish a skills mobilization scheme to ensure an adequate supply of qualified and motivated managerial and technical personnel over this critical period. This scheme will provide special incentives to attract Ghanaians from the local private sector, from parastatals, and from international employment, far assignments in Government. The scheme would also provide premia to a small number of civil servants engaged in work on high priority economic recovery tasks.  - 18 - PART IV - THE PROJECT 40. The project originated from a Government request for assistance for public sector management reform in the context of designing the structural adjustment program. A preliminary mission in November 1985 agreed a broad program of action with Government. The project was prepared by two preparation missions, in February/March and July 1986, and appraised in November 1986. A Project Preparation Facility of US$750,000 was approved in June 1986. Project Objectives 41. The project will support the government's reform of public sector management under the Structural Adjustment Program, as outlined above. It will do so by financing Ghanaian and international expertise, systems, equipment and training to strengthen policy and manaqement capacities of the care agencies in charge of the Recovery Program. Project finance will be provided an the basis of tasks, action plans and work programs of critical importance to economic recovery and structural adjustment, rather than as general support for the institutions concerned. Specifically, project assistance will be directed to: (a) strengthenin•J economic policy analysis, formulation and coordination in the Ministry of Finance and Economic Planning and the Castle; (b) improvement of economic management, especially public investment programming, expenditure control, revenue mobilization, debt management and aid coordination; (rl improving civil service productivity through redeployment of surplus staff, establishment of a sound management and personnel system in the public service, and an incentive-oriented public service salary policy; and (d) establishment of a scheme to mobilize and finance skilled Ghanaians for work on priority economic recovery tasks. Project Components A. Economic Policy and Management 42. The project will support the establishment of an economic policy unit in the MFEP as the nucleus for rebuilding the Ministry's capacity to analyze policy issues, review economic trends and performance and, through the Secretary, advise Government on appropriate economic policies. The unit will be composed of three advisers--for macroeconomic, monetary and financial and fiscal policies--supported by an adviser on economic projections, and a systems manager responsible for developing and integrating MFEP's disparate economic data bases. Terms of reference for these experts have been established, and a work program for the unit will  - 19 - be drawn'up by mid-1987, by which time it is planned the experts will be in post. Recruitment will be from both Ghanaian and international sources: a search is currently underway. The experts will report to the Secretary for Finance and Planning, and provide support and advice to the heads of the Ministry's five functional divisions. The project will finance the hiring of four advisers for up to three years, plus office equipment and vehicles. 43. Economic Policy Coordination. While MFEP bears primary responsibility for formulating and advising Government on economic policy, the Government has recognized the need for better coordination at the levels of the higher decisions making bodies, the Committee of Secretaries ICOSI (the "Cabinet") and the Provisional National Defense Council <PNDCI, and for resolution of serious shortcomings in the flow of decisions and documentation within Government. A small economic liaison staff is being established in the office of the Chairman of the COS, which will report to the Member/ Secretary, COS !the "Secretary to the Cabinet"). This unit's senior officers (seconded from MFEP to ensure continuity and close working relationships) will have three major responsibilities: {a) to prepare, circulate and maintain agenda and documentation for economic policy decisions by COS and PNDC, and to ensure prompt notification to relevant ministries of decisions and implementation responsibilities; (b) to expedite processing of aid agreements by the government agencies concerned, and to speed up the approval process at the highest level of Government; and (cl to advise Government on improvements to procedures for clearance and approval of economic agreements and decisions. A work plan, reporting relationships and terms of reference have been established. The project will finance equipment and supplies to support the work of the economic liaison unit, principally micro-computers for report production, scheduling, tracking and record keeping of economic decisions, and high capacity photocopying equipment for COS and PNDC meetings and for circulation of decisions. 44. Public Investment Planning. Under a PPF, the project has financed consultants to assist in the production of the public investment program IPIPI for 1986-88, by a PIP Task Force which the Government established in June 1986. the project will now support the rebuilding of the two divisions of MFEP which will progressively assume full responsibility for drawing up a rolling three year puo11C investment program on an annual basis--the Investment and Project Analysis Division, and the Planning and Research Division. Plans to reorganize and strengthen the staffing of these two divisions have been drawn up, and broad allocations of responsibilities established. IPA w111 be primarily responsible for appraisal of maJor projects and for reviewing project proposals and sector investment plans for inclusion in the PIP, while Planning and Research will be responsible for drawing up a balanced overall public investment program consistent with resource availability, macroeconomic objectives and Government sectoral investment priorities. The project will finance international consultants to help develop the public investment work program and appropriate procedures and to provide on-the-job training in the new systems; Ghanaian consultants or seconded staff to assist 1987-89 PIP preparation while staff of the two divisions is being brought up to  - 20 - full strength; essential vehicles and office equipment; and short-term staff training in Ghana and abroad in project appraisal and investment programming techniques. 45. Budgeting and Expenditure Control. The Government is undertaking a restructuring and strengthening of the Budget Division of MFEP, with the objectives of improving expenditure forecasting and control and establishing closer integration of the public investment program and the budget. The reorganization and staffing plan, which will take account of recommendations of a recent IMF fiscal mission whose report is currently being finalized, will be drawn up before Board presentation. The plan will include a work program to implement the restructuring and operational reforms, the main elements of which will be put in place by June 1987. The project PPF has already supported the work of a task force developing budgetary expenditure norms for priority sectors, to meet the structural adjustment program's objective of increased and more reliable levels of funding for non-personnel expenditure. The PPF has also financed an internationally recruited senior budget adviser to assist in the preparation of the 1987 budget. The project will finance the appointment of the budget adviser far a further two years, to help formulate the Division's reorganization plan, develop expenditure forecasting, budget monitoring and financial reporting systems, and to advise on changes in the functional classification and codification of the budget and thereby improve its utility for macroeconomic policy decisions and its links with Government accounting respectively. A project-financed study (terms of reference to be supplied by negotiations) will review the operations of the Controller and Accountant-General's Department in relation to the budget, and will assess proposals for further computerization of Government accounting. The project will make a contingent provision for computerization, subject to review and approval by IDA following the study. The project will also finance training for budget staff, and the purchase of equipment and vehicles essential to the work program of the Budget Division. 46. Aid Management. The Ministry of Finance will integrate the monitoring of aid disbursements and project performance into the work of the Ministry's International Economic Relations Division !IERDl over a three-year period. IERD will gradually absorb the systems and functions set up by the Central Project Monitoring Unit !CPMU) ~ which was established as an independent entity in 1985. The work program to accomplish this provides for continued existence of CPMU as a special unit of MFEP, reporting to the Deputy Secretary in charge of planning and international economic relations, but with its information system and management being progressively linked to that of IERD. The project will finance the continued employment of CPMU staff seconded from other Ghanaian institutions (hitherto in part financed under RIC-IIl while additional staff will be appointed by IERD to work within CPMU and acquire experience alongside the existing seconded personnel. The project will also provide for office renovation and equipment <CPMU has until now been temporarily accommodated in the World Bank Resident Mission!, training for new staff, and internal operational travel expenses.  - 21 - 47. Debt Management. To reorganize and strengthen its institutional arrangements for external debt management, the Government has selected the Debt Management and Financial Analysis Systems !DMFASI developed by UNCTAD, and has in principle assigned primary responsibility to the International Economic Relations Division of MFEP. The project will finance the installation of DMFAS over a period of approximately eight months from December 1986. The DMFAS system provides a package of pre-installation training in debt reporting, installation of a program specifically tailored to Ghana's requirements, plus associated hardware, and supervised implementation and training. The detailed work program to implement this component will be drawn up before Board presentation by a Government working group representing the agencies involved (principally MFEP, the Bank of Ghana and the Controller and Accountant-General's Department) in conjunction with the first UNCTAD field mission. It will pay particular attention to reporting relationships and allocation of responsibilities among the various Government agencies concerned with debt reporting and management. The project will provide the services of a resident adviser for a further six months beyond installation of OMFAS to ensure full institutional integration and additional training, and to advise on linking the debt system's output to macroeconomic analysis and to IERO's aid information system. 48. Revenue Mobilization. The organization of government revenue collection has been substantially overhauled within the last two years. The National Revenue Secretariat, set up in 1985 under a Cabinet-level Secretary, has taken over the revenue functions (taxation and customs) from MFEP. The Government intends to strengthen and continue to reform the taxation system during the structural adjustment period, and is strengthening management, personnel and administrative arrangements to improve collections and fairness in the tax system. A Ghanaian consultancy firm and the IMF have assisted the Secretary in evaluating the organization and staffing of tax administration, and a staff rationalization, recruitment and training program is getting underway. At the same time, the Government is taking steps to improve the information base for both income tax and customs and excise, and to evaluate and adapt its installed computer faciiities so as to increase the timeliness and accuracy of assessments and revenue collections. The project will provide assistance for this program of revenue mobilization. It will provide short-term advisers to assist the Secretary for Revenue in the assessment of the taxation and customs information systems; microcomputers and transport facilities to permit direct data entry in regional tax offices and major customs posts, and transmission to the central systems; and training in Ghana and abroad in systems analysis and programming for selected NRS staff. The project will also provide contingency funding for mainframe upgrading and re-programming and associated Consultancy services, to be determined in detail, designed and implemented following the assessment referred to above, and after review and approval by IDA.  - 22 - B. Public Service Productivity 49. Redeployment. Despite the political sensitivity of this issue, the Government is committed under ERP to reduce overstaffing in the approximately 318,000-strong public service {including the Civil Service, the special services such as the Education Service, and the Organizations under Subvention) by 15,000 per year aver three years, beginning in 1986. In 1986, the reduction will be obtained through a combination of a hiring freeze, natural attrition, voluntary retirements, the elimination of fictitious or multiple payroll entries, and layoffs. In addition to utilizing the recent census of the public services to remove "ghosts" from the payroll, the Government is currently designing a fiscally responsible package of measures to provide incentives for voluntary retirement, and to ease the resettlement in the private sector of laid off employees. This would include cash and deferred payments, an expansion of vocational training opportunities, resettlement on unused land with good agricultural potential, and possibly other measures. Careful design of the program is essential to minimize political risks and remain within the overall fiscal strategy. At negotiations therefore, agreement will have to be reached on: a timetable of implementation of redeployment; identification of specific employment reductions in terms of numbers and categories; detailed measures to bring about redeployment, including the precise compensation package and resettlement schemes for each category; and on the necessary provisions under the 1987 budget. 50. The 1987 and 1988 redeployment exercises will essentially consist of additional voluntary retirements, payroll audits, and layoffs. Layoffs would only be carried out after rigorous justification through a systematic review of staffing levels in the Public Service in relation to essential functions. This staffing and functional review, which is expected to start in early 1987 and take about a year, will be carried out by OHCS with local and expatriate technical assistance. ODA !UKI will finance expatriate assistance requirements amounting to about three staff-years, including about six months for local training, while other resources required (local consultancies and secondment staff, micro-computers, vehicles, additional local training! will be financed under the Credit. Terms of reference for the review nave been prepared and mobilization is scheduled by February 1987. 51. Civil Service t·1anagement. The census of the public services, once validated, and the staffing and functional review will provide, respectively, an accurate baseline estimate of the numbers and deployment of civil servants, and an indication of under or overstaffing by agency and skill, neither of which is available today. As a matter of priority, these capabilities must be maintained and institutionalized. To this end, OHCS's capacities and resources will be examined in detail in early 1987 and an institutional development program drawn up for the medium-term, backed with overseas technical assistance funded by ODA <UKI and other resources provided under the Credit. Areas singled out for assistance are the staff inspection function, to relate staffing levels to functions on an ongoing  - 23 - basis, and personnel management information systems. Particular attention will also be given to dovetailing the administration of personnel with that of the payroll, which is the responsibility of the Accountant-General, so as to reinforce internal checks on the payroll. The terms of reference for the preparation of the institutional development program have been agreed. While the Credit tentatively allocates US$--- for this component, detailed allocation of this amount will be done by agreement between IDA and the Government on the basis of the institutional development program when it becomes available towards March 1987. 52. Salary Policy Formulation. A Salary Rationalization Committee and a National Incomes Policy Committee both have been actively involved for some time in the development of an appropriate salary policy for the public services. The Government plans to reinforce capacities in this area and strengthen coordination by unifying the work. Salary policy aims for the following objectives: Iii to reverse the erosion of real compensation which nas taken place since the seventies; (iii to increase inter-skill differentials so as to allow the administration to stem the brain drain towards ather sectors and overseas, and attract qualified manpower wherever necessary to fill skill gaps; (iii) to provide equal pay for comparable work within the public services, and (ivl to better relate compensation to merit and performance. Fiscal constraints, however, limit the pace at which this can be accomplished. Under the Government's fiscal policy, the share of wage expenditures in the budget is ta be limited to the current level of 6.8% of GDP; any real growth in remuneration levels must therefore stem from real growth in GDP and reductions in employment levels. Funding for surveys and studies would be provided under the Credit, to assist in laying the analytical foundations for salary policy formulation along the above lines, in particular to guide future salary adjustment decisions. ai_ negotiations, agreement would be reached on the contents and timing of this war· k. 53. Skill Mobilization. The implementation of the ERP will markedly increase the demand for skilled personnel to carry out key government functions. In part, the severe shortages of qualified high level civil servants can be addressed over the medium and longer term by salary adjustments and measures to improve civil service management. More immediately, the project would assist Government in the creation of an integrated skills mobilization scheme consisting of two programs: an organized pool of Ghanaian consultants and personnel available for secondment from elsewhere in the public sector: and supplemental remuneration to a small number of civil servants engaged in crucial economic recovery work. The project would finance both for three years. 54. The primary objective of the Consultancy program is to make it possible to attract qualified Ghanaians to serve in Government by offering adequate financial incentives for long and short term assignments. Approximately 40 man-years of consultancies would be financed over the life of the project. Guidelines for appropriate fees have been designed to attract Ghanaians now working in the domestic private and/or the parastatal sectors, taking into consideration the length of assignment, seniority  - 24 - levels, market rates, and civil service and parastatal comparators. Ghanaians currently working and residing abroad would be encouraged to participate and would receive a resettlement allowance as an additional incentive. The contractual arrangements would be administered by the Management Development and Productivity Institute IMDPil which has long experience in Consultancy management and government contracting. In collaboration with ISSER (Institute for Social Science and Economic Research!, MDPI would maintain an up-to-date consultancy roster and manage the detailed contracting. MDPI's overhead costs would be paid by the project. The actual short-listing and selection of consultants would be the joint responsibility of the individual recruiting government agency and the project TA Project Unit. The PSMU will oversee the scheme, and will regularly review all tasks and contracts. This program is intended as a three years transitional mechanism to draw qualified personnel back into government while upper-level civil service salaries are being raised to adequate levels. It is therefore anticipated that, at program end, many of the consultants could be retained by Government on regular civil service terms, while others would remain available to Government as part of the national consultancy industry. 55. As a complement to the consultancy program, the scheme would also establish a three year transitional mechanism to provide adequate remuneration for selected civil servants working on priority structural adjustment tasks. Their salaries would be enhanced with premia until civil service wages reach adequate levels conforming to agreed guidelines and which would be paid as honoraria for participation in ongoing task forces; fees for contributing members of regular working committees; or in compensation for specific task assignments or series of assignments considered crucial to the ERP. Limitations would be placed on the number of premia for any individual. 56. Trainino Strategy for the Public Sector. Appropriate levels and types of training will make a critical contribution to sustaining the recovery and re-building Ghana's public institutions. Some immediate skill require~ents will be addressed by short-term training in connEction with specific project components. Beyond these urgent requirements, it will be necessary for the Government to examine its medium term training needs for core oublic sector activities and to devise a coherent strategy for meeting these needs, The proposed project would provide 16 man months of foreign and local consultancies for the preparation of a public sector training plan. The study would analyze current and projected training requirements for central government, assess the capacity of local institutions and resources to carry out required training, propose and justify a practical strategy for public sector training in Ghana and recommend specific steps to be taken to implement that strategy. OHCS would be responsible for this activity. C. Poverty Monitoring TO BE COMPLETED  - 25 - D. Project Features and Operation Project Cost and Financing Plan 57. Total project costs are estimated at US$10.97 million (cedis 1,645 million equivalent!, with a foreign exchange component of 57%. The estimate excludes taxes which are borne by the Government. Project base costs include both long and short-term overseas technical assistance (3011, a skills mobilization scheme to encourage local technical assistance <2B%l, training Cl6II, office equipment consisting mostly of computers 110%1, vehicles (13%1 and a small amount for supplies 12%1 and civil works 11%1. Physical contingencies include 10% for local TA, equipment and supplies and 2% for civil works; no physical contingencies were applied to foreign TA, training and vehicles since quantities of these are well established. Price contingencies accounting for 18% of base costs were calculated using projected world and local inflation rates. Approximately US$.104 million will be used to repay the PPF advance. The proposed IDA contribution of US$ 7.839 million would cover approximately USS5 million of foreign costs and US$2.839 million of the local costs, UNDP would finance some technical assistance and the training plan development while USAID would cover the local currency costs of the living standards measurement survey. Incremental budgetary expenditures for salaries operation and maintenance for items purchased under the project will be minor. These recurrent costs, however will be provided for in the budget. Implementation Arrangements 58. Responsibility for overall management of the Structural Adjustment Program lies with the S.A.P. Project Team headed by the Chairman of the Committee of Secretaries. It oversees preparation of the Program, monitors and evaluates progress on ongoing reforms as well as their impact on the economy, initiates preparatory steps for further adjustment measures, and liaises with the World Bank for periodic progress reviews. It also provides a channel to the Committee of Secretaries and the PNDC, the ultimate decision-making body. 59. Specific responsibility for the S.A.P. 's public sector management agenda, including implementation of the project would belong to the Public Sector Management Unit IPSMUl, e committee operating under the S.A.P. Project Team. Membership of PSMU would include representatives of the various agenc1es responsible for project components. PSMU would have a suitably senior full-time coordinator. PSMU would (il determine priorities for project implementation and the detailed allocation of Credit resources (iii approve detailed action plans for the components, (iiil ensure coordination of project activities, including the establishment of implementation arrangements for components involving several agencies (e.g. salary policy!, (ivl ensure the proper integration of project activities into the Government's institutions and programs, and <vi generally monitor project implementation.  - 26 - 60. The Credit would fund a TA Project Unit to serve as a full-time secretariat to PSMU and to ensure day to day project administration. The various agencies would remain responsible for implementation of project components, but the Unit would either relieve them of project-related administrative tasks, or assume functions falling between existing agencies pending their integration within existing institutions. The Unit would therefore be dissolved at project completion. 61. The Unit's principal functions would consist of: (il overseeing procurement procedures, administering Credit disbursements, and keeping Credit accounts (iii serving as monitoring unit, liaison and expediter between the various implementation agencies, between the latter and PSMU and with the Association, and (iiil provide various services to implementing agencies, such as helping: locate local expertise; standardize and administer contracts for overseas technical assistance, locate sources of assistance, ensure efficient working arrangements conducive to effective performance of services and transfer of know-how; provide consistency in procurement of goods and equipment (e.g. for micro-computers) and generate savings by bulking purchases whenever convenient; and finally ensure consistency and secure economies of scale in training activities. The full-time staff of the Unit would consist of a Project Coordinator, an administrator, an accountant, two secretaries and a chauffeur/messenger, all Ghanaians. In addition, the Unit will secure local legal and training assistance on a retainer basis. 62. Prior to negotiations, the coordinator of PSMU and the Project Coordinator the latter already designated would have to have been nominated. During negotiations, agreement will need to be reached on the detailed terms of reference already drafted of the PSMU and the Unit, and on their specific composition. 63. Annual Action Plan and Reporting. The project would be implemented on the basis of annual work programs prepared by each participating agency and approved by the task force and IDA. These programs would serve as a planning, implementation and monitoring tool and would provide the necessary flexibility to ensure adjustment of project activities to current circumstances. Each annual work program would include: (il an evaluation of the previous year's performance; !iii a statement of specific quantified objectives to be pursued and a description of the activ1ties to be undertaken to achieve those objectives; (iiil detailed investment and operating budgets; (ivl staffing and training plans; !vi financing plan which indicates the source of funds for each activity; (vii procurement plans for (TAl purchases and works scheduled in the annual work program, including type of bidding and timetables. Draft work plans would be submitted to IDA for review by ______ of each year. The TA Project Unit would prepare annual reports describing progress in achieving work program targets. These reports would also include expenditure statements for IDA review based on project accounts. Each participating agency would prepare a project completion report; the technical assistance unit would compile these and submit one project report to IDA no later than 6 months after the Credit closing date.  - 27 - 64. Procurement. Procurement of goods and services would be carried out following procedures consistent with Association Guidelines. The Association would review and approve the terms of reference, selection procedures, qualifications and fee ranges for all foreign and local technical assistance. With the exception of local contracts for fees of less than $2,000 per month, the Association would also approve final technical assistance contracts. For contracts involving local consultants at fees under the threshold, the Association would approve the first ten such final contracts, but would delegate approval of subsequent contracts. Equipment, vehicles, office supplies and the limited amount of works funded under the Credit would be procured after local competitive bidding for contracts of $50,000 and more, and otherwise through international and local shopping including quotations from at least three suppliers, using the services of the Crown Agents as procurement agent. 65. Disbursements. The procAeds of the Credit would be disbursed against: 100 percent of the total cost of consultants, local or foreign; 100 percent of the total cost of training equipment and materials, office equipment and supplies, vehicles and travel; 100 percent of works and repayment of the PPF. A Special Account of up to US$100,000 would be established in IUS Dollars) in the !Ghana Commercial Bank, London) and maintained by the Project Unit to cover project expenditures. The account would be replenished by IDA on the basis of eligible aggregated withdrawal requests at least US$20,000 equival~nt. Expenditures for l~ss than US$5,000 would be documented through statements of expenditure with the underlying documentation held available locally for inspection by IDA supervision missions. All other expenditures would be fully documented for prior approval by IDA. 66. Accounts and Audit. The Project Unit would maintain separate accounts for all expenditures funded under the Credit. The project Accounts would be audited annually by independent auditors satisfactory to IDA, including an audit of statement of expenditure. The audit reports, of such scope and in such detail as IDA shall reasonably request, would be submitted to IDA no less than six months following the end of the Gov9rnment's fiscal year. The ProJect Unit would submit quarterly progress reports to the Government and IDA on project implementation and expenditures, and a final evaluation report on project implementation experience and project outcome within six months of the Credit closing E. Benefits and Risks 67. The project 1s critical to the successful implementation of important parts of the structural adjustment program~ and addresses specific weakness recognized by the Bank, the Government and other donors. The project would substantially strengthen Ghana's public sector management capacity, and focus it on sustaining the reform process. The project will reinforce the Government's own commitment and actions already taken and, together with a forthcoming public enterprise reform project, forms the basis for a coherent public sector management reform programs. Risks  - 28 - include: (a) the political sensitivity of redeployment; lbl uncertainties arising from a possible decision to hive off the planning division from MFEP; (c) the dependence of bath the SAL program and its public sector reform elements an the few officials and leaders constituting the care economic team; and (despite project support designed to address these problems) (d) whether the Government can succeed in attracting enough competent and motivated people into public service jobs and create functioning systems and administrative services. The first and third risks are being mitigated by deliberately broadening discussion of the project's objectives within and outside Government, and by explicit connection between the project and the SAC. The second is a politically difficult issue but the Government has recognized the possibility of disruption to effective economic management, and agrees that the priority is to rebuild effective skills and systems before undertaking organizational charges. The salary problem is being addressed under the structural adjustment program's conditions as well as through the project. The administrative constraints on the project's implementation are being addressed by having strong project management arrangements, and by Government's appointment of senior officials to be responsible for each major component. PART V RECOMMENDATION 68. am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. J..q u'. recommend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments November 2l+ ~ 1986 ~Jashington, D.C.  ANNEX I page 1 of 2 ECONOMIC INDICATORS GNP PER CAPITA IN 1984: . US$350 !/ GROSS NATIONAL PRODUC'! IN 1984 !/ ANNUAL RATE OF GROWTH (% Constant Prices) Cedis Mil. _,_ 1979-84 GDP at Market Prices 279,000 100.0 -2.0 Gross Domestic Investment 16,661 6.0 -5.9 Gross National Saving 8,860 3.2 -14.7 Current Account Balance 7,801 2.8 Export of Goods, NFS 18,767 6.7 -10.4 Import of Goods, NFS 21,027 7.5 -8.7 OUTPUT AND LABOR FORCE Output in 1984 Labor Force, 1983 Cedis Mil. Mil. _%_ Agriculture 141.,904 51.3 2.584 57.2 Industry 23,434 8.5 0.691 15.3 Services 111,150 !Qd hill 1hl GDP at Factor Cost 276,488 100.0 4.517 100.0 GOVERNMENT FINANCE 1984 1985 Cedis Mil. % of GDP 'l/ Cedis Mil % of GDP '];/ Total Revenue and Grants 22,641 8.1 40,311 11.5 -Total Expenditure and Net Lending 27,485 9.9 47,891 13.6 Overall Deficit (-) -4,844 -1.7 -7,580 -2.1 MONEY, CREDIT AND PRICES 1977 ~ 1979 1980 1981 1982 !ill 1984 1985 Money and Quasi-money 3,044 5,131 5,942 7,949 12,029 14,837 20,497 28,552 44,987 Bank Credit to Government 3,203 5,636 4,903 6,518 10,649 11,057 21,059 22,819 24,825 Bank Credit to Private Sector 560 739 796 940 1,342 1,558 2,841 6,104 10,517 (Percentages or Index Numbers) Money and Quasi-money as % of GDP 27.3 24.4 21.1 19.4 15.7 16.7 10.7 10.2 12.8 General Price Index (1977 ..100) 100.0 173.1 267.3 401.2 868.6 1062.4 2357.4 3,304.2 3,647.2 11 Staff Estimates. 11 Ratios are calculated on a recently revised GDP series.  ANNEX I page 2 of 2 ECONOMIC INDICATORS BALANCE OF PAYMEN'IS MERCHANDISE EXPORTS (AVERAGE 1981-85) ~ .!ru!l _,_ (US$ Million) US$ Million Trade Balance -102 -112 Cocoa Beans & Products 382 64.5 Exports f.o.b. 566 633 Gold 114 19.3 Imports c. i. f. 668 745 Residual Oil 31 5.3 Timber 23 3.9 Invisibles (Net) -113 .:122 Electricity 18 3.1 Services -186 -250 Manganese 7 1.2 Transfers 73 60 Diamond 5 0.8 All Other Goods ...11: _!.:1 Current Balance -215 -302 Total 591 100.0 Capital Accounts Grants 141 87 Official Capital (Net) 88 33 EXTERNAL DEBT 1 DECEMBER 1985 Private Capital (Net) -12 6 Capital n.e.s. 11 -12 125 US$ BU. Overa 11 Balance :111 -51 Total Outstanding and Disbursed M&LT 1.5 Net IMF 214 124 Arrears Payments -61 -57 Gross International Reserves (End of Period) ll 393 525 DEBT SERVICE RATIO FOR 1985 ~~ _,_ February 1973 - June 18, 1978 Total Outstanding and US$1 .. f/.1.15 Disbursed M&LT 11 50.9 Total Outstanding and Since Aug. 26, 1978, US$1 .. ,. 2.75 Disbursed inc. payment arrears 59.4 Since April 21, 1983, US$1 .. f/.24.69 Since Oct. 10, 1983, US$1 • Q!30.00 IBRDIIDA LENDING (June 30, 1986) Since March 25, 1984, US$1 = Q!35.00 Since August 25, 1984, US$1 .. f/.38.50 IBRD IDA Since December 3, 1984,US$1 = f/.50.00 Since April 19, 1985, US$1 f/.53.00 Outstanding & Disbursed 118.01 316.79 Since Au~~st 12, 1985, US$1 .. f/.57.00 Undisbursed 0.00 384.08 Since Oct. 7, 1985, US$1 • f/.60.00 Outstanding, incl. Since Jan. 11, 1986 US$1 • f/.90.00 Undisbursed 117.63 716.06 ±I Provisional estimates. 11 Includes errors and omissions. ll Series being revised because of incorrect classification of reserve assets; figure includes gold at national valuation. ~I As % of exports of goods and non-factor services (excl~de~sh~t-term and IMF debt). 11 Includes IMF. August l5, 1986  .ANNEX II . . . THE STATUS OF BANK GROUP OPERATIONS IN GHANA !/ STATEMENT OF BANK LOANS AND IDA CREDITS (As of June 30, 1986) Loan or Amount (US$Million)~/ Credit Fiscal Less Cancellation Undis- ~ Year Borrower Pupose Bank IDA Ten loans and thirteen credits fully disbursed 189.7 107.4 901-GH 1979 Republic of Ghana Second NIB 19.0 .4 1009-GH 1980 Republic of Ghana Volta Region Ag.Dev. 29.5 19.6 1029-GH 1980 Republic of Ghana Third Highway 25.0 .6 1170-GH 1981 Republic of Ghana Railway 29.0 6.4 1327-GH 1983 Republic of Ghana Reconstruction CIMAO 9.3 10.1 1342-GH 1983 Republic of Ghana Water Supply 13.0. 4.6 1373-GH 1983 Republic of Ghana Energy Project 11.0 8.4 1393-GH 1983 Republic of Ghana Reconstruction Import Cr. 40.0 5.9 !~35-GH 1984 Republic of Ghana Export Rehabilitation 40.1 24.7 F009-GH 1984 Republic of Ghana Export Rehabilitation 35.9 24.8 1436-GH 1984 Republic of Ghana Export Rehabilitation Technical Assistance 17.1 10.4' 1446-GH 1984 Republic of Ghana Petroleum Refinery Rehab. and Technical Assistance 6.9 5.8 1498-GH 1984 Republic of Ghana Second Oil Palm 25.0 23.3 1564-GH 1985 Republic of Ghana Accra District Rehab. 22.0 22.5 1573-GH 1985 Republic of Ghana Second Reconstruction Imports Credit 60.0 38.8 A003-GH 1985 Republic of Ghana Second Reconstruction Imports Credit 27.0 30.7 1601-GH 1985 Republic of Ghana Road Rehabilitation and Maintenance 40.0 43.7 A001-GH 1985 Republic of Ghana Road Rehabilitation and Maintenance 10.0 11.9 1628-GH 1986 Republic of Ghana Power System Rehabilitation 28.0 30.1 1653-GH 1986 Republic of Ghana Health and Education Rehabilitation 15.0 14...1 1672-GH 1986 Republic of Ghana Industrial Sector Adjustment Credit 28.5 26.5 A013-GH 1986 Republic of Ghana Industrial Sector Adjustment Credit 25.0 20.8 1674-GH 1986 Republic of Ghana Ports Rehabilitation ~/ ..li:.i ~ Total 189.7 688.2 408.6 of which has been paid ..l.L.l 5.0 Total now outstanding 118.0 6'83:"2 Amount sold 0.4 of which has been repaid 0.4 __Q,& Total now held by Bank & IDA 117.6 §.§ld Total undisbursed __Q,& !±M.:1 !/ The status of the projects listed in this part is described in a separate report on all Bank/IDA·f~nanced projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. ~/ Prior to exchange adjustments. 11 Calculated at the exchange rate applicable on June 30, 1986. ~/ Not yet effective as at June 30, 1986.  Anne:< I I I STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE CREDIT Supplementary Project Data Sheet Section I - Timetable of Key Events A. Time taken by the Country to Prepare Project: 8 months B. Appraisal Mission Departure: October 27, 1986 c. Completion of Negotiations: December 19, 1986 D. Planned Date of Effectiveness: March, 1987 Section II - Special Bank Implementing Action None Section III - Special Conditions A. Condition of negotiation of this credit would be: '. i \1 ' establishment of Government public sector management unit which will oversee the reform program which the credit supports, and nomination of its chairman and other key personnel, and I .. ' ,1 1 I establishment of the technical assistance project unit, and confirmation of the appointment of its director. B. Conditions of effectiveness would be: Iii assignment of staff to the economic liaison unit (iii finalization of staffing plans for Planning and Research and Investment and Project Analysis Divisions of MFEP (iiilagreement on satisfactory Budget Division restructuring plan (ivl submission of detailed work program for installation of debt management system (v) start staffing and functional review (vii agreement on work program of studies for salary policy formula- tion lviilfinalization of training strategy study's terms of reference and identification of consultants.  STRUCTURAL ADJUST~ENT TECHNICAL ASSISTANCE PROJECT STRUCTURAL ADJUST~ENT OBJECTIVES AND ACTIVITIES: ASSISTANCE FOR~ TECHNICAL ASSITANCE PROJET STRUCTURAL ADJUST~ENT PROGRA~ TECHNICAL ASSISTANCE PROJECT OBJECTIVES ACTIONS/ACTIVITIES MAIN AGENCIES CONCERNED H~PUT ~ ACTIONS 1. FRAMEWORK Develop •aero-economic Annual revision of ~FEP (Planning ~ Research Establish Econoaic Policy fraeework incorporating major macro-economic fraaework. Division) Unit; re-build Planning and policy assueptions. Research Division 2. BUDGET GENERAL Have budget in place at establishment of budget I'!FEP (Budget Division) Appoint budget adviser; beginning of financial year. control system review budgeting and accounting framework; establishment of detailed ~FEP (Budget Division) re-organize and stre~~~~en budget preparation process 3:-;dget Division 3. RECURRENT EXPENDITURE I1prove effectiveness of Develop norms for allocation ~~E?, spending Ministries Expenditure norms designed provision of Gcvt. services of rec•·~~~~.:: :;;~2i\dltures in for big spending sectors; by correct:ng imbalances ~;Ey sectors support Budget Division ~e(ween wages and salaries reorganization and a~a other expenditure. Determine phased program to MFEP, spending Ministries establishment of forecasting attain full provision of and reporting systems. items 2-5 (relating to target outputs as specified tr functional review!. 4. CAPITAL EXPENDITURE Raise level of public sector Estimat1on of EIRR/cost MFEP (JPAi Clar1fy public investment development expenditure. effectiveness for agreed process and work programs; ma]or proJects \1ore than $5 strengthen staff and systems iii ll ion .I. 1n IPA Improve average rate of Agree criteria for Inclusion Support budget and public return on public sector cf projects in core progra• investment procedural and investment. to be p~otected aga1nst staffing improvements expenditure cuts. Improve Econom1c Policy Establl sh a small staH in Office of Chairman of Provide logistical support Coordination the Castle to expedite policy Co~mittee of Secretaries, for economic liaison unit in decisions. PNDC Secretariat Castle Establish economic policy MFEP F:nance Unit staff and unit in MFEP. Clarify equipment organizational and reporting arrangements and appoint key staff.  STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE PROJECT STRUCTURAL ADJUSTMENT OBJECTIVES AND ACTIVITIES: ASSISTANCE FORM TECHNICAL ASSITANCE PROJET STRUCTURAL ADJUSTMENT PROGRAM TECHNICAL ASSISTANCE PROJECT OBJECTIVES ACTIONS/ACTIVITIES MAIN AGENCIES CONCERNED INPUT & ACTIONS STRENGTHEN KEY ECONOMIC MANAGEMENT FUNCTIONS: A. Public Expenditure Implement reorganization and MFEP (P&R + !PAl Finance program Management staff strengthening program for public investment planning Appoint advisor for Budget MFEP (Budget Division) Finance re-organization and Division to strengthen expertise expenditure control and forecasting. Restructure budget aanagemnt and expenditure control procedure. B. Management of External Define aid coordination MFEP \lERD, CPMU, !PAl Finance staff and facilities Resources responsibilities &staffing for transition requiresents of IERD, IPA, CP~U, and integrate CPMU into MFEP. Appoint aid liaison staff Office of CCOS Part of economic l:aison unit w1thin CCOS Secretar1at 1n Castle; proJect financing overhead Allocate responsibilit:es for MFEP/BOG/Ai} Carry out institutional debt management and debt assessment; finance DMFAS infor~at1on system among Bank system plus additional advice of Ghana, MFEP and Accountant and train:ng General.  STRUCTURAL ADJUST"ENT TECHNICAL ASSISTANCE PROJECT STRUCTURAL ADJUST"ENT OBJECTIVES AND ACTIVITIES: ASSISTANCE FOR" TECHNICAL ASSITANCE PROJET • STRUCTURAL ADJUST"ENT PROGRA" TECHNICAL ASSISTANCE PROJECT OBJECTIVES ACTIONS/ACTIVITIES MAIN AGENCIES CONCERNED INPUT ~ ACTIONS IMPROVE PUBLIC SERVICE PRODUCTIVITY A. Rationalize Civil Service Wage bill assumptions OHCS/MFEP/Ministry of Labour • Finance studies and surveys salaries; improve incentives limiting total Civil Service Social Welfare in fraaework of salary policy wages and salaries to 74 of formulation exercise 6DP to be built into 1986-88 Public Expenditure Program. Design of skill mobilization OHCSiMDPI Finance skills schete scheme to staff functions critical to Recovery Program B. Redeployment of surplus Establishment of a fiscally OHCS/MFEP/Ministry of Labour & personnel responsible compensation Social Welfare scheme for redeployed workers. Implementation of 1986 OHCS redeployment. Set up staffing &functional OHCS Finance review and associated review of Civil Service and training and staff inspection subvention agencies. syste~ development Achievement of redeploy~ent OHCS Finance follow-up to staffing targets for 1987 and 1988 on review basis of staffing review results. C. Management of Public Appointment of committee/ Structural Adjustment Project Sector Reform Program subcommittee to manage public Team sector reform. Appoint~ent of full-ti•e Structural AdJustment ProJect Establish and finance T.A. manager/coordinator for Team Project Director and Project activities to be financed by Unit Structural Adjustment TA Credit.  Annex V • GHANA PUBLIC SECTOR ~NASEKENT PROJECT PROJECT COSTS wss '000) Skills Training Offic! Civil Local For!ign local Ov!rS!as Equipa!nt llorks V!hicles Supplies TOTAL ===================================================================================== A. Econ01ic Policy and "anageaent ---------------------------------- 1. Econoaic policy unit n.a. 576 0 0 29 0 98 0 703 2. Econ01ic liaison Unit n.a. 0 0 0 81 0 140 0 221 3. "FEP Staff Developaent n.a. 0 162 171 0 0 0 0 333 4. Public investaent planning n.a. 432 0 0 47 0 123 0 601 5. Budgetting/expenditure control n.a. 288 0 0 30 0 123 0 441 6. Revenue 10bilization :NRS n.a. 144 290 150 0 74 0 658 7. Aid unagetent n.a. 0 0 0 6 90 0 16 112 8. Debt unage.ent n.a. 120 0 8 45 0 0 0 172 subtotal 1,560 162 469 387 90 557 16 3,241 B. Public Sector Productivity ---------------------------------- n.a. 9. Civil Service "ngt.(OHCSl n.a. 432 89 493 130 40 123 12 1,318 10. Redeployaent/staffing review n.a. 390 11 78 100 0 79 44 701 11. Salary policy n.a. 107 83 11 0 0 72 24 297 12. Skills "obilization 2, 171 0 0 0 25 0 0 0 2,196 13. Training Plan Developaent 35 48 0 0 0 0 0 0 83 subtotal 2,206 977 183 582 255 40 274 79 4,595 c. Poverty "onitoring 250 150 0 0 150 0 280 70 900 E. Project "anageaent 40 0 0 0 80 0 32 38 189 Base Costs 2,496 2,687 345 1,050 872 130 1,142 203 8,925 6. Physical/Price Contingencies 1, 942 H. Reiaburseaent of PPF 0 104 0 0 0 0 0 0 104 Total 2,496 2,791 345 1,050 872 130 1,142 203 10,971  ANNEX VI, Page 1 of 3 GHANA STRUCTURAL ADJUST"ENT TECHNICAL ASSISTANCE PROJECT :component Year and Quarter Activity 1987 1988 1989 Tasks 2 3 4 ~ L 3 4 2 3 4 :---------------------------------------------:--- ---:--- ---:--- :A. Econoaic Policy and Manage1ent :--------------------------------- 1. Econo1ic policy unit establish, equip, recruit lttltttt - operational .lllllit:ttlltltllltllll:tttlttliltltttl: 2. Economic liaison unit assign staff and equip :. establish procedures :ttttlll. - operational : lllltltttllltt:tttttttllltttlt:ttlltttttttttll: 3. MFEP staff development :tttltlllllltltt:ttttllllllllllt: 4. Public investment planning - staffing plans finalized for P~RD :t and IPA - develop public investment work :tttltiltltt. program, responsibilities, procedures -mobilize consultants far above :ttl. mobilize consultants for 87-89 PIP:ttlttt - iaplement P~RD, IPA staffing plan :ttllllllttltttl: -implement PIP work program .ltttttitttt:ttttttlttittlttitttlttllttttttt: 5. Budgeting and expenditure control - finalize Budget Division :t restructuring plan - iaplement restructuring and tttllt. recruit new staff study of accounting - extend budget adviser appointed budget system reforms :* **** .tttlttttttt:ttttttlttttlltl: 6. Revenue mobilization - mobilize computing advisers :lt - install micro-computers at ports, .tlttlti. regional tax offices -assess and decide tax and customs .ttl. information system changes - implement reforms and mainframe :ttttttttttt. upgrading program tttt:ttlittlittttttt: WAPPS 24-Nov-8b  ANNEX VI, Page 2 of 3 SHANA STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE PROJECT IMPLEMENTATION SCHEDULE :Coeponent Year and Quarter Activity 1987 1988 1989 Tasks 2 3 4 ~ L 7 ~ 4 2 3 4 :---------------------------------------------:--- ---:--- ---:--- ---: 7. Aid Management - einor works :tat. - appointment of new CPMU staff by :ttl. IERD -extend and eeploy seconded tttttttttttttt:aattttttttttttt:ttttttttttttttt: personnel for CPMU - coaplete integration of CPMU into .ttt: IERD 8. Debt Management detailed work program :t phased installation of DMFAS tlttttttt full iapleaentation with advisory assistance :B. Public Service Productivity :------------------------------ 1. Staffing and functional review first round redeployment :t ············••:•• - mobilization of consultants t interim report .t second round redeployaent final report t - third round redeployment :. 2. Strengthening of civil service managea: - mobilization of ~onsultants - 1nstitutional audit of OHCS and tt. preparation of institutional develop1ent program - impletentation .ttttttttttt:ttttttttttitttt:ttttttttttttttt: 3. Salary Policy Foraulation - agreement on studies and surveys :t work progra• - iMplementation tttttttttttttt:ttttttttttttttt:ttttttttttttttt: WAPPS 24-Nov-86  ANNEX VI, Page 3 of 3 GHANA ' STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE PROJECT :coeponent Year and Quarter Activity 1987 1988 1989 Tasks 2 3 4 2 3 4 2 3 4 :---------------------------------------------:--- 4. Skills aobilization scheae - expansion ~ consolidation of :utuu. ISSER roster; outreach prograa - establishaent of rules, :uuut. guidelines for selection, contracting of consultants + oversight - selection, recruitaent, .ttttttt:ttttttttttltttt:tttttlttttttttt: deployaent of consultants - aid-tera, final reviews t 5. Training plan - preparation of TOR - identification of consultants - iapleaentation .Ut. dissemination &follow-up .tu. :c. Poverty Monitoring :--------------------- - planning, pretesting, analysis of : lUUUUU. .2uuu: questionnaire - training of senior staff, : UUUt. supervisors and interviewers - survey ltttttttt:ttttttltttt.2lt:ttttttt. -data analysis .ltttttt. .2tttttt. WAPPS 24-Nov-86