Ghana - Interim Poverty Reduction Strategy Paper and assessment

21034 INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION REPUBLIC OF GHANA Assessment of the Interim Poverty Reduction Strategy Paper Prepared by the Staffs of the International Development Association and the International Monetary Fund Approved by G. E. Gondwe and John Hicklin (IMF) and Callisto Madavo and Kemal Dervis (IDA) I. The Interim Poverty Reduction Strategy Paper (Interim PRSP) prepared by the. Ghanaian Government consists of the paper entitled Development Strategy for Poverty Reduction.' Ghana has had a focus on poverty reduction as the core of its development strategy for some time. However, this approach galvanized in 1995 when the first version of Ghana-Vision 2020 was launched and institutional arrangements for promoting and analyzing poverty reduction began to be put in place. This built on an established tradition of trying to measure poverty accurately, with now four Ghana Living Standards Surveys (GLSS) having been completed. The Poverty Reduction Strategy 2. The strategy appears appropriate to Ghana's circumstances. It balances growth and macroeconomic stability with human development and empowerment in a way that should continue to have a positive impact on reducing Ghana's level of poverty in the coming years. It correctly identifies the main sources of poverty, and its strongest feature is the way that poverty is taken into account when designing all aspects of the development strategy. We note in particular that all sectoral strategies and programs are expected to be judged explicitly by the extent to which they contribute to poverty reduction. In support of that objective, previous work on the incidence of public expenditures will be updated and additional analysis is planned. Appropriate emphasis is given to reducing inflation, which is damaging to the poor, and to redirecting existing programs to make them more pro-poor. It recognizes the need for a sharp reduction in the fiscal deficit to lower real interest rates, thereby addressing a critical obstacle to higher levels of private investment and growth. The program also clearly identifies areas in which poverty-reduction strategies can be growth-inducing, such as for example in education, health and agriculture. One objective of the strategy would l An earlier version of the paper was distributed as Part I of the Bank's Country Assistance Strategy for Ghana and was discussed in a Committee of the Whole meeting in March. The main revision is the replacement of Section C of that report with paras. 21-24 of the interim- PRSP now that the macroeconomic framework is finalized. In addition, a policy matrix has been completed and is part of the interim-PRSP. ALlE COPY  -2 - be to expand the share of these activities in overall expenditures. It is encouraging to note the importance that the Government attaches to governance issues, especially anti-corruption and decentralization. Preparing the fuDl Poverty Reduction Strategy Paper (PRSP) Poverty Data and Monitoring 3. The interim PRSP is based on extremely good and current poverty data. However, there was a gap of 7 years from the previous Ghana Living Standards Survey (GLSS), with only the Core Welfare Indicators Questionnaire (CWIQ) in the meantime. The Government has established the target of carrying out the GLSS every four years, with a CWIQ in the intervening period. In addition to these surveys, the PRSP will be informed by a series of Demographic and Health Surveys and the results of the recent census. The Government has laid the foundations for monitoring progress in reducing poverty and improving the living standards of the poor by selecting a set of key indicators and setting specific targets for improvements over the next 5 years, which are in line with the International Development Goals. Additional regional targets may also need to be considered in view of the large disparities seen in the poverty data. 4. The full PRSP should include a section that assesses the quality and timeliness of Ghanaian statistics, as these are crucial to formulate and monitor poverty policies and their outcomes. In particular, this section could make a strong case for strengthening the statistical capacity in relevant macroeconomic areas such as national income accounts and trade data. The Government should identify the need for improvements, priorities and plans for statistical development, resource implications, and the role of donor agency support. Poverty Diagnosis and Strategy 5. Analysis of the household survey data shows a sharp difference between farmers engaged in cash crop production, mainly cocoa, who have gained from lower export taxation, and food subsistence farmers, who have not gained much from the moderate growth of the economy in the 1990s. In the staffs' view, the interim PRSP rightly places a strong emphasis on improving the effectiveness of key services to food crop farmers, particularly extension services and feeder roads, as well as on the continued liberalization of cocoa external marketing. Improvements in these areas are needed in order to improve agricultural productivity and incomes for the rural poor. Analysis shows that higher productivity is attainable with proven technologies, even in the relatively resource-poor Northern region and that transport costs need to be lowered so that food crop farmers would be more competitive in local and regional markets. 6. The full PRSP should go one step further and identify the costs of the key elements of the proposed strategy and their allocation among sectors, geographic areas and the poor. Interventions also will need to be designed to address the needs of women farmers and the female self-employed. The full PRSP should confirm that the targets mentioned above are  -3 - attainable with the resources available in the context of the macroeconomic framework and describe the specific measures which would be taken to meet the goals. In particular, it should address the question of whether to adjust targets or mobilize additional resources, after the Government obtains a more accurate costing of programs and reassesses the external environment. It should also explain how the participatory approach will be used to help prioritize government activities, as well as how the priorities chosen will be translated into action through the budgetary process and the medium-term expenditure framework. 7. Increasing economic growth in a context of macroeconomic stability is key if Ghana is to make better progress in reducing poverty. In that regard, the full PRSP will need to describe how the constraints to private investment (i.e. high interest rates, crowding out by public sector borrowing, and slow progress on privatization) would be addressed. In the full PRSP, the Govemment could also explain Ghana's general stance on regional economic integration. Donor Support 8. The Bank, the Fund, and other development partners have an important role to play in preparation of the full Poverty Reduction Strategy Paper within the Comprehensive Development Framework. They have been consulted through different fora and working groups. The interim poverty reduction strategy, when presented at the last Consultative Group meeting in November received warm support by the donor community. Support will be needed to conclude the participatory consultation, to develop sectoral plans, and for improving monitoring tools (including a more frequent GLSS already mentioned). 9-. For example, the Bank is supporting further diagnosis of poverty and the extent to which public expenditures are reaching the poor. This includes detailed tracking of expenditures in health and education, the sources of rural nonfarm household income, poverty dynamics and other topics which would deepen the understanding of the causes of poverty in Ghana and help to identify the types of policies and programs which have the greatest potential to alleviate poverty. Other donors, including the United Kingdom and Denmark are planning support in this area. Bank assistance will also support the participation of a variety of civil society groups in the discussion of poverty diagnosis and the strategy for reducing poverty in the country. The Fund is providing assistance on expenditure controls and budgetary processes to ensure that the available resources are used in a manner that fully reflects budgetary priorities and are transparently reported. Weaknesses and Risks 10. While the strategy as a whole is considered sound, there are a number of elements where staff have concerns, and which are the topic of ongoing dialogue with the authorities. These include the following: * Macroeconomicframework Large changes in the prices of cocoa, gold and oil, and fiscal pressures in an election year, make macroeconomic instability a major risk to the  -4- poverty strategy. The government program rightly emphasizes the contribution of private investment to achieving high growth, but the progress in implementing the structural reforms necessary to improve the private investment climate, such as the reorientation of govermnent activities toward core functions and the privatization of public enterprises, has often proved to be disappointing. This raises the risk of delays in the implementation of policies at the cost of lower growth rates and less effective poverty-reduction policies. While the staffs of the Bank and the Fund believe that the proposed poverty reduction strategy is compatible with the presented macroeconomic framework, a full determination would only be possible after a more detailed costing of the main elements of the poverty reduction strategy. The analysis would need to take full account of opportunities to improve management and the efficiency of expenditures. The recent balance of payments problems seemed to have resulted in a resurgence in the use of administrative measures in foreign exchange markets as well as protectionist policies. If not actively resisted by government, this backtracking of past liberalization steps could become a serious obstacle to growth and poverty reduction. * Privatzation. Privatization is crucial to increase prospects of private investment, economic activity, employment, and poverty reduction. The quality and quantity of key services (power and water, for example) are deteriorating in part because of continued inefficient state ownership. This leads to gaps in the supporting infrastructure needed to promote higher economic growth and the budget transfers needed for some enterprises reduce the room for other expenditures. However, doubts remain about the commitment to speedy and transparent processes of divestment. In particular, the staffs of the Bank and the Fund hope to help the Government highlight the clear links between poverty reduction and privatization, and to ensure that more open, transparent processes of privatization are adopted. The staffs of the Bank and the Fund urge the Government to use divestiture proceeds (which are potentially substantial) to reduce domestic debt and interest payments, thereby freeing up resources for core programs in the budget and for private investors. * Education Capacity. The interim PRSP lays appropriate emphasis on education as key to poverty reduction. There is no disagreement on the core strategies, nor on the resource allocation. The issue is the effectiveness of expenditures, deriving from weak sector management. This is agreed by both sides and we are working together to address it. But this weakness remains a risk for the strategy, given the centrality of the issue. * DecentralizationL The pace of decentralization has been slow to date, and the Governnent is perhaps over-cautious in the speed at which it wishes to move. This will continue to be part of the policy dialogue, but also calls for a major effort in capacity- building. Weak capacity, especially in financial management, is Government's greatest fear with respect to decentralization, a concern that the Bank and the Fund share. However, this issue, important as it is, cannot be used to delay the process. Decentralization will be a key topic for the full PRSP, since the quality of social service delivery is directly dependent on its successful implementation and local government  capacities. The staffs of the Bank and the Fund will continue to urge the Government to improve capacity while moving ahead in a determined fashion toward decentralization. * Roads. This is a sector where achievements have been made with respect to funding, management and maintenance. Two key issues remain. First, there is an overhang of payment arrears from earlier roads contracts, which is symptomatic of a weakness in expenditure controls that needs to be addressed urgently. Second, there is a program of roads expansion that appears beyond current financial capacity. Therefore, it will be vital to ensure that a priority program of road construction and maintenance is prepared at a level well below that proposed in the interim strategy document, both to avoid a recurrence of arrears, and to ensure that the construction program can be carried out effectively and rapidly, without the stop-start patterns that have often been observed in the past. This would ensure that scarce budget resources do not have to be used to cover high financial charges on arrears instead of investment, which is needed to reduce the isolation of poor communities. This will be the key issue addressed in the Bank's proposed new Roads Sector Program. Participatory Process and Next steps 11. The Government has started to prepare Ghana-Vision 2020: SecondStep. The National Development Planning Commission (NDPC) has assembled eight cross-sectoral planning groups from a wide span of Ghanaian society including religious and traditional institutions, the private sector, community organizations, NGOs, and central and local government. These groups will establish the policy focus, goals and objectives and strategies, informed by a series of meetings with stakeholders. A national forum would be held to review the programs developed in order to prepare a single national policy framework document. Government ministries and district assemblies will then prepare individual development plans in line with this framework. The full PRSP will be a product of this process. This is a sound and broad approach to participation, one that draws on Ghana's experience with previous national fora as well as with preparation of the first phase of Ghana-Vision 2020. The full PRSP will also need to detail the mechanisms the Government will put in place to ensure a participatory monitoring system with key stakeholders. The timetable is realistic. Assessment 12. Overall, the staffs of the Bank and the Fund consider that the interim PRSP prepared by the Government of Ghana provides a sound basis for the development of a fully participatory PRSP and for Bank and Fund concessional assistance. The staffs recommend that the respective Executive Directors of the Bank and the Fund reach the same conclusion.  -6 - Ghana: Key Events, March 2000-A pril 2001 Event Board Date CAS: COW Discussion of Development Strategy for March 2000 Poverty Reduction and Board of the CAS BanktIMF Joint Financial Sector Assessment Julv 2000 Board Discussions of the I-PRSP and JSA and IMF Board August 2000 Discussion for PRGF Agricultural Services APL August 2000 Second Tranche of ERSO II (including possible supplement) August/September 2000 Poverty Diagnosis/Strategy Workshops in Ghana September 2000 Potential for Growth of Non-traditional Exports - Economic December 2000 Report o Presentation of PRSP to the Boards of RAF and World Banik April 2001  F REPUBLIC OF GHANA INTERIM POVERTY REDUCTION STRATEGY PAPER 2000 - 2002 Ministry of Finance Government of Ghana Accra, June 2000   DEVELOPMENT STRATEGY FOR POVERTY REDUCTION A. GHANA'S DEVELOPMENT STRATEGY AND PRIORITIES ............................................... 1 STRATEGIC PoLvCY FRAMEWORK .............................................. I PoLnCAL DEVELOPMENTS .............................................. 2 B. POVERTY TRENDS IN GHANA IN THE 1990S ..................................... 2 POVERTY BY REGION ..................................... 4 POVERTY BY MAIN ECONOMIC ACTMTY .................................... 4 POVERTY MEASURING AND MONITORING .................................... 6 C MEDIUM-TERM MACROECONOMIC FRAMEWORK ............. ........... . _ D. STRATEGIES FOR POVERTY REDUCTION. --.............-... 10 THE COMPREHENSIVE DEVELOPMENT FRAMEWORK (CDF) .......... I I E. POVERTY REDUCTION AGENDA FOR 2000-2002 .... 11 (I) SOCIAL SECTOR POLICIES AND EXPENDITURES .14 Social Sector Expenditure. 14 Educ. ..ion..5 Health..16 Water.1..7 (U) THE ACCELERATED AGRICULTURE GROWTH AND DEVELOPMENT STRATEGY .18 () COCOA SECTOR STRATEGY .19 (IV) IMPROVING INFRASTRUCTURE UNKAGES .19 (V) ENVIRONMENT .20 (VI) PRIVATE SECTOR AND ENTERPRENEURIAL DEVELOPMENT .20 (VII) GOVERNANCE, FINANCIAL MANAGEMENT AND ANTI-CORRUPTION PROGRAMMES .21 Main Challenges.21 Anti-Corruption . 23 Public Financial Management Reform Programme (PUFMARP). .23 Decent o.a..isa. . .24 F. NEXT STEPS ........................ . ___ _... .25 CONSULTATIVE PROCESS FOR THE PREPARATION OF GHANA - VISION 2020 .25 NATIONAL ECONOMIC FoRum .26 PREPARATION OF THE POVERTY REDUCTION STRATEGY PAPER .26   LIST OF ABBREVIATIONS AND ACRONYMS ADR - Altemative Dispute Resolution AgSSIP - Agricultural Services Sector Investment Program BOG - Bank of Ghana BPEMS - Budget and Public Expenditure Management System CCA - Common Country Assessment CDF - Comprehensive Development Framework CG - Consultative Group CHRAJ - Commission on Human Rights and Administrative Justice CPRP - Country Poverty Reduction Programme CSOs - Civil Society Organisations CSPGs - Cross-Sectoral Planning Groups CWIQ - Core Welfare Indicators Questionnaire CWSA - Community Water and Sanitation Agency DACF - District Assemblies Common Fund DAs - District Assemblies DPCUs - District Planning Co-ordinating Units ESOP - Employee Share Ownership Programme GDHS - Ghana Demographic and Health Survey GDP - Gross Domestic Product GER - Gross Enrolment Ratio GIPC - Ghana Investment Promotion Centre GLSS - Ghana Living Standard Survey GOG - Govemment -of Ghana GSS - Ghana Statistical Service GWCL - Ghana Water Company Limited IMCPR - Inter-Ministerial Committee on Poverty Reduction IMF - Intemational Monetary Fund JSS - Junior Secondary School LBCs - Ucensed Buying Companies MDAs - Ministries Departments and Agencies MOE - Ministry of Education MOFA - Ministry of Food and Agriculture MTADP - Medium Term Agricultural Development Programme MTEF - Medium Term Expenditure Framework NCTE - National Council on Tertiary Education NDPC - National Development Planning commission NGOs - Non-Govemmental Organisations NIC - National Insurance Commission NIRP - National Institutional Renewal Programme NPRP - National Poverty Reduction Programme PIMES - Participatory Impact Monitoring and Evaluation System PMM - Poverty Monitoring and Measurement PPA - Participatory Poverty Assessment PPMEDs - Policy, Planning, Monitoring and Evaluation Divisions PRSP - Poverty Reduction Strategy Paper PRU - Poverty Reduction Unit PUFMARP - Public Financial Management Reform Programme PURC - Public Utilities Regulatory Commission PUSERMOS- Public Sector Reinvention and Modemisation Strategy REPOs - Repurchase Agreements  SAP - Structural Adjustment Programme SFO - Serious Fraud Office SIF - Social Investment Fund SOEs - State Owned Enterprises SRC - Securities Regulatory Commission SSS - Senior Secondary School TCOP - Technical Committee on Poverty UN - United Nations UNDAF - United Nations Development Assistance Framework VAT - Value Added Tax VIP - Village Infrastructure Programme  A. Ghana's Development Strategy and Priorities Strategic Policy Framework 1. The overriding aim of the GoG's economic development programme is the reduction of poverty and general improvement in the welfare of Ghanaians. Developed in 1995, the strategy for poverty reduction lays emphasis on economic growth, integrated rural development, the expansion of employment opportunities, and improved access by the rural and urban poor to basic public services such as education, health care, water and sanitation, and family planning services. Principal objectives of the strategy include attaining: * a reduction in the incidence of poverty in both rural and urban areas; * strengthened capabilities of the poor and vulnerable to earn income; * reduced gender and geographical and socio-economic disparities; and * a healthier, better educated and more productive population. | E S:1 | g g l.l , | ~~~~~~~~~~~~~~~~~d' "1- cdunfry st andlmncoMpaf T with b d ispmentevoeti 5ac:6tcascflev2pi E . n~*~nmenf annuo em~ i~i6j,'~e an v e /'a f a b o uf2g bJne-JsncunY ; >*''= 22-nse to 'ote fhan.lburtf imes: fie 199- :'W'-t; 2. Principal elements of the strategy to achieve these objectives include: *accelerating economic growth through the balanced implementation of sound fiscal, monetary, and other macroeconomic policies; *strengthening the agricultural sector to make it more productive through the use of more modem farming methods and markening practices; I  * broadening and deepening the maufacturing and services sectors in order to create new business opportunities as well as increase urban and rural emp nent opportunities; * incre.sing investme in human resources through improving the quality of and access to nutrition, t.acation, health, water and sanitation services; * encouraging the development of an indigenous entrepreneurial class through improving access to training, financial services, credit and local and foreign markets; and * reducing the isolation of poor communities through strengthening economic infrastructure such as roads and communications networks. Political Developments 3. Ghana continues to have a high degree of political consensus on the broad direction of economic policy. In fact, consensus building on key policy issues on education, the economy and health, among others, by all stakeholders has been promoted by the Govemment, since 1996. Almost all the political parties are committed to implementing reforms that will accelerate growth and reduce poverty. The fundamental differences lie only in what policy options should be chosen in attaining the growth and development goals outlined in the Ghana - Vision 2020 document. 4. Ghana's democratic process has been deepened since the last presidential and parliamentary elections in 1996. On the whole, Ghana has what it takes to make the democratic process more effective and efficient. The next elections are scheduled for December 2000 and all the political parties in the country are working towards full participation in the process. The voters register will be re-opened in April and all eligible voters are to be given photo voter identity cards. There is an active and unfettered media and the independence of the judiciary has not only been guaranteed by the constitution, but also remains a facet of Ghana's political order. B. Poverty Trends in Ghana in the 1990s 5. The overall trend in poverty during the 1990s has been broadly favourable in Ghana. Taking the upper poverty line of