Ghana - Structural Adjustment Institutional Support Project

Dccuiuat Of The World 13 FOR COICIAL USE ONLY Report No. 6693-GH STAFF APPRAISAL REPORT REPUBLIC OF GHANA STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT March 20, 1987 Western Africa Projects Department Public Sector Management Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  GHANA STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT CURRENCY EQUIVALENTS Currency Unit Calendar 1985 From January 1986 From September 1986 US$1 054.054 090.0 0128-155 1/ Cedi (0) 1 US$o.0185 US$0.oll US$0.0073-0.0066 FISCAL YEAR JANUARY 1 - DECEMBER 31 ABBREVIATIONS COS Committee of Secretaries CPMU Central Project Monitoring Unit DMFAS Debt Management and Financial Analysis Systems EFF Extended Fund Facility ELU Economic Liaison Unit EPU Economic Policy Unit ERP Economic Recovery Program GIMPA Ghana Institute of Management and Public Administration GLSS Ghana Living Standards Measurement Survey GOG Government of Ghana GSS Ghana S-atistical Service IERD International Economic Relations Division IPAD Investment and Project Analysis Division LSMS World Bank's Living Standard Measurement Study MFEP Ministry of Finance and Economic Planning NRS National Revenue Secretariat ODA Overseas Development Administratior. OHCS Office of the Head of the Civil Service PIP Public Investment Program PMU Project Management Unit PNDC Provisional National Defense Council PPF Project Preparation Facility PRD Planning and Research Division SAF Structural Adjustment Facility SAP Team Structural Adjustment Program Team UNDP United Nations Development Program 1/ A dual exchange rate system was established on September 19, 1986 when a foreign exchange auction was instituted for specified transactions. The 090 rate applied to the first window (cocoa and residual oil exports, petroleum and essential drugs imports, and central government debt service contracted before January 1, 1986); the rate on the second window wat established at the weekly auction. The two rates were unified with effect from February 20, 1987; all transactions are now valued at the rate emerging in the weekly auction. In the week ending February 27, 1987, the marginal rate at the auction was 0155=US$1.00.  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Page Credit and Project Summary i-iiJ I - BACKGROUND Introduction ..1 Overview of the Economy ................................. 1 II - PUBLIC SECTOR MANAGEMENT: CONSTRAINTS AND REFORMS Reform of Economic Management Institutions .............. 2 Reform of the Civil Service ............................. 4 Bank Support for Public Sector Management ............... 7 III - THE PROJECT Project Objectives ..................... 8 Project Components ...................................... 9 A. Economic Policy and Management ................ ....... 9 B. Public Service Productivity ......................... 13 C. Structural Adjustment Studies and Advisory Services ......................... 14 D. Poverty Monitoring ..................... 17 IV - PROJECT COSTS, FINAN'CING AND PROCUREMENT Project Cost ............................... 17 Financing Plan ................................ 19 Procurement ............................... 19 Disbursement ............................... 20 V - PROJECT IMPLEMENTATION ............................... 21 VI - BENEFITS AND RISKS ............................... 23 VII - AGREEMENTS .............. 23 This report was based on the findings of a World Bank mission consisting of Messrs. G. Lamb, L. de Merode, Ms. B. Nunberg (Bank) and J.C. Boss6 (consultant) which visited Ghana during October 1986 to appraise the Project. The report was subsequently revised and finalized by Ms. J. Albert (consultant). Ms. M. Kalina provided secretarial support. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ANNEXES Annex I Implementation Schedule Annex II Work Programs Annex ITT Project Cost Tables Table 1: Summary cost table Table 2: Project cost by component and year Table 3: Project cost by summary account and year Annex IV Agreed Terms of Reference for ODA Assistance to Government Annex V UNDP/World Bank Assessment of Social Dimensions of Structural Adjustment in Sub-Saharan Africa Project Summary Annex VI Procurement Plan  GHANA STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT Credit Summary Borrower: The Republic of Ghana Credit Amount: SDR 8.6 million (US$10.8 million equivalent) Terms: Standard IDA terms Cofinancing: ODA(UK) (US$1.1 million) Proiect Description: It would include: (a) establishment of a policy advisory staff under the Secretary of Ministry of Finance and Economic Planning (MFEP); (b) creation of a unit within the office serving the Head of state and the Government (the "Castle") charged with processing of economic policy decisions and aid agreements; (c) expansion of MFEP's capacity to undertake public investment programming, budgeting, expenditure forecasting and control, revenue collection, debt management and aid coordination; (d) execution of a staffing and functional review of the civil service and a related salary policy review, and establishment of a sound administration and personnel management system; (e) design of a coherent redeployment program and support for redeployment and training activities; (f) provision of studies and advisory services in support of critical structural adjustment program tasks carried out where possible by mobilizing skilled Ghanaians from outside the public service; and (g) implementation of a living standards measurement survey. Overall guidance to project management would be provided by the Government's Structural Adjustment Program Team. A project director responsible for day-to-day project operations has been appointed to head the newly-formed Project Management Unit. UNDP co-financing for the economic planning and training components is under discussion. The seven-year project would finance both local and international consultants, in-country and overseas training, office equipment (mostly computers), vehicles and operating maintenance costs oif vehicles and equipment. ODA will co-finance the civil service and training components. 0  - ii - Estimated Costs (US$ '000) Local Foreign Total A. Economic Policy and Management Economic Policy Unit 164.8 1,651.2 1,816.0 Economic Liaison Unit 77.2 137.6 214.8 Public In.vestment Planning 318.8 697.2 1,016.0 Budget and Expenditure Control 37.7 441.9 479.6 Aid Management 47.2 100.8 148.0 Debt Management. 25.0 169.1 194.0 Revenue Mobilization 310.2 876.5 1,186.7 Training 127.8 156.2 284.0 B. Public Sector Productivity Civil Service Management 98.9 622.6 721.5 Redeploy. & Staffing Review 180.1 1,099.7 1,279.8 Salary Policy 17.5 125.5 143.0 C. SAC Studies & Advisory Services 1,336.5 728.5 2,065.0 D. Poverty Monitoring 699.4 695.7 1,395.1 E. Project Management 204.7 547.2 751.8 Baseline Costs 3,645.5 8,049.6 11,695.1 Contingencies 1,603.0 859.1 2,452.1 Total Project Costs !,248.5 8,908.6 14,157.1 Financing Sources: Local Foreign Total IDA 3.0 7.8 10.8 Government 2.2 -- 2.2 ODA (UK) -- 1.1 1.1 Total 5.2 8.9 14.1 Estimated Disbursement: US$ million (IDA FY) 1987 1988 1989 1990 1991 1992 1993 Annual 0.6 1.7 2.6 2.6 2.4 0.6 0.3 Cumulative 0.6 2.3 4.9 7.5 9.9 10.5 10.8  - ili - Project Benefits and Risks: The project would support a far reaching and politically difficult public sector reform program. In addition to the SAL-related benefits, overall efficiency of the ministries and agencies dealing with economic and public sector management would increase. Improved working conditions, logistical support, higher salaries (from reallocation of budgetary savings from redeployment), and training opportunities would permit Government to attract and keep more qualified civil servants in the medium term. There are three risks which the TA project shares with the Structural Adjustment Program: (a) dependence on a small number of Government officials, who constitute the core economic team; (b) the proposed split of MFEP into two distinct ministries, which might adversely affect implementation, especially if the resource allocation function (public investment program and budgeting) were divided; and (c) political difficulties in carrying out the civil service redeployment program. Government management weakness would be mitigated by streamlining project organization and encouraging the hiring of Ghanaian and/or external consultants. On (b) Government has assured-IDA that it will be consulted on any proposed major changes in the organizational structure and functions of MFEP. To overcome resistance to civil service reform, Government, with IDA support, is exploring other sources of external assistance to help ease redeployed workers' transition into other productive employment. Economic Rate of Return: Not applicable Staff Appraisal Report: No. 6693-GH  GHANA STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT STAFF APPRAISAL REPORT I - BACKGROUND Introduction 1. 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 October 1985 agreed upon a broad program of action with Government. The project was prepared by the Government with the assistance of two preparation missions, in February/March and July 1986, and appraised in October 1986. The main actions on public sector management and civil service reform were agreed during the Structural Adjustment Program appraisal in July 1986 and are incorporated in the Structural Adjustment Program President's Report. Effectiveness of the Structural Adjustment Credit agreements is a condition of effectiveness of the proposed project (para 51). A Project Preparation Facility (PPF) of US$750,000 was approved in June 1986. PPF funding was used to help prepare the 1986-88 Public Investment Program, the budget and external debt management components and to begin inicial survey work on poverty monitoring. Overview of the Economy 2. Ghana lies on the Gulf of Guinea on the west coast of Africa. Over 70 percent of the 12.42 million inhabitants (1984 census) live in the southern half of the country, where the econortic base is stronger. Within West Africa, Ghana once enjoyed a fairly high standard of living. However, poor economic policies, the drought, and the oil price increases contributed to a declining GDP in the 1970s and early 1980s. Poor economic growth and a high annual population growth rate of three percent have caused a substantial drop in real per capita income to a 1985 level of about US$390. 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 in 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 water. Although the education system is well established, 50 percent of adult men and 70 percent of adult women have received no formal education. 3. Throughout the 1970s, GhAna's economy was poorly managed. Large budget deficits, driven by the need to support a sprawling, inefficient public sector, fuelled money supply expansion and fed inflation. Between 1970 and 1982, the real exchange rate appreciated by 625 per cent, resulting in a deterioration in export performance. Aid levels fell due to  - 2 - poor policies. Thus, import capacity was heavily constrained. Controls and rationing caused further distortions. As a result, investment, savings and output levels declined, per capita income fell and inflation averaged 44 per cent over the 1970-82 period. In the early 1980s, Ghana's problems were exacerbated by a severe drought, a deterioration in the terms of trade, and the need to absorb a million returnees from Nigeria. 4. Since April 1983, when the Government announced a major Economic Recovery Program (ERP), there has been a marked improvement in economic policies and an impressive recovery of the economy. The Government recognizes that to sustain these initial gains, substantial further adjustment over the remaining years of this decade, if not longer, will be required. The structural adjustment program represents the first stage of this longer term adjustment process. The initial response of the economy to the significant adjustment efforts to date bodes well for the outcome of the further measures planned. Nonetheless, the path ahead is long and difficult, and success is contingent on political w