Ghana - Primary School Development Project

Docunent of The World Bank FOM OFCIAL USE ONLY Rlepit N. P-6045-Gfl MEKORANDUM MMD RECOlMENDATICN OF TOE PRESI:DENT OF THIE ITERN ONAL ASSOCION TO TM EXECUTIVE DIREClXRS ON A PROPOSED CREDIT IN TME AM EQUIVALENT TO SDR 46.9 MILLION TO THE REPUBLIC OF GHANA FOR A PRIMARY SCHOOL DEVELOIPENT PROJECT MAY 17, 1993 iFS--.-t ; \.:- - :8 )- '''l' -!: , I - . This docment has a restricted diribution and may be used by recipients only In the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CCBRY BOU-VALET (March 1993) Currency Unit = Cedis US$1.00 3 610 Cedis ARQSXM AM ARDBEYMU ADB Africa Development Bank CAS Couty Assistance Strategy CDC Commenwealth Development Corporaden Co Consultative Group CIDA Canadian Intrational Development Agency CPPR Country Porfolio Performance Review ECOWAS Economic Comm ty of West African States EdSAC I Education Sector Adjustment Credit I (Cr. 1744-OH) EdSAC II Educadon Sector Adjustment Credit 11 (Cr. 2140-GH) EPC Enviromental Planning Council ERP Economic Recovery Program ERR Economic Rate of Retum FS" Enhanced Strucural Adustment Facility ESW Economic and Sector Work GDP Gross Domestic Product GNAT Ghana Nadonal Association of Teachers ICB International Competitive Bidding IDA International Development Association IFC Intemational Finance Corporation IL0 International Labour Organization IMP Internatonal Monetary Fund K*W Kredianstalt fuer Wiederaufbau NEAP Natonal Environment Action Plan ODA Overseas Development Adminon OPEC Organization of Petroleum Exporting Countries OPIC Overseas Private Investment Corporation SAP Strucural Adjustment Facility SDR Special Drawing Rights SPA Special Program of Assistance UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for International Development VAT Value Added Tax HCALZAR SCHOOLYER January 1 - Decmiber 31 Septmber - June (asic and Tertary) Jamnary - December (Senior Secondary) SlRUCTURE OF EDUCATION INGHN Years 1- 6 Primy 7- 9 Junior Secondary 10- 12 Senior Secondary 13 -16 University  FOR OFFICIAL USE ONLY REPU3BLIC E GgANA PiUMA}t SCHOO I EVEOPM[ENT PROJECT M=DI AND Egg=aC SUIA Borrnwg: Republic of Ghana Benefies: Ministry of Education, and about 2,000 communities throughout the country Credit Amount: SDR 46.9 million (US$65.1 million eq lent) erms: Standard, with 40 years maurty Financing la: Local Fore!gn Total - US$ Mllon IDA 40.5 24.6 65.1 Government of Ghana/ Community Participation .2 La 8> Total Project Cost 48.7 24.6 73.3 Economig Rate of tun. Not applicable Staff AppDraisal BoRorI: Report No. 11760-GH MOap: IBRD 24783 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA POR AMIY SCHOOL DEVELOPMENT PROJECT 1. I submit for your approval the following report and recommendation on a proposed development credit to the Republic of 3hana for SDR 46.9 million (US$65.1 million equivalent). The proposed credit would be on standard IDA terms, with a maturity of 40 years, and fmance a primary school development project. Part I of the document discusses Ghana's development problems and prospects, the key priorities of the ecoromic refom. program at the macroeconomic and sector levels, and the Bank Group's assistance strategy. Part E of the document describes the proposed Credit. I. COUNTRY POLICIES AND BANK GROUP ASSISTANCE STRATEGY 2. This section describes Ghana's policies and development objectives and the Bank's Country Assistance Strategy (CAS). It first summarizes recent developments and Ghana's central development issues. A discussion of the staus of the policy dialogue and the Bank's country assistance strategy follow. The section concludes with a summary asstssment and criteria for evaluating progress in key areas. A. Trends In PoIldes and Performance 1. Background 3. Ghaia's per capita income is US$400 and its population of 15 million people is growing at 2.6 percent per annum. The county is well endowed with a broad range of naural resources, including arable land, forests, and sizable mineral deposits of gold, diamonds, bauxite, and manganese, as well as a considerable potent for hydroelectric power. The economy has traditionally depended on primary production and exports. Most of the Ghanaian labor force is employed in agriculture. Agricultural production-primarily small scale-is concentrated in staple food crops and cocoa; Ghana ranks among the world's largest producers and exporters of the latter. The service sector is the second largest employer-over 25 percent of the labor force-accounting for over 40 percent of real GDP, largely trade and public sector services. The industrW sector accounts for about 15 percent of CDP and employment; it is relatively diverse and well developed by Sub-Saharan African standards. 2. Past Performnnce 4. Before the Economic Recovery Program (ER?) was adopted in 1983, Ghana's economy had virtually collapsed. Basic institutions and infrastructure had ceased to function and the incentive system was badly distorted. Measures necessary to restore growth involved not just policy change, but substanial physical reconstruction and institutional rehabilitation. The crisis offered one advantage, however. It limited internal resistance to policy reform. Interest groups had little justification for mainting the status quo. Rent-seekers could no longer find rents. A broad consensus for change prevailed. But other conditions were less propitious. In 1983, Ghana suffered one of the most devastating droughts in decades. At the same time, almost 1 million Ghanaiaus who had been working in Nigeria were sent home. Lat, in 1986, the world price of cocoa began a sharp descent, and depressed  -2 - Ghana's export earnings in spite of increasing export volumes. Meanwhile, import prices rose steadily, after a respite in 1985 and 1986 associated with the oil market slump. 5. Stabation and Liberalization. Ghm's reform efforts Initially focused on stabilization and liberalization. Fiscal discipline has been sustained ;or nearly a decade. Revenue collections rose dramatically between 1984 and 1987. These resources enabled the Government to rebuild the country's social and physical infrastructcre without enlarging the fiscal deficit. the improved fiscal balance, in turn, allowed a greater degree of monetary restraint. As a result, the rate of inflation was brought down from 66 percent to 26 percent per annum. Meanwhile, the extesive price control system has been dimand ed and interest rates have ben liberalized. Overvalurfion of the cedi has been eliminated. Quantitative restrictions and foreign exchange controls have been phased out. Trade taxes have been progressively reduced. 6. Results of the ERP. Growth has been restored to an average of around 5 percent per annum (Table 1). In the preceding decade, Ghanaian standards of living had fallen by a third; the period since 1983 has seen steady real growth of more than two percent a year on a per capita basis, with the benefits of growth widely distributed. Farmers and rural workers have gained from improved producer prices for cocoa and a liberalization in the trading system for other cash crops. Real food prices (cereals and roots) have fallen gradually. Government expenditures on social programs rose significantly during the mid-1980s before leveling off in the late 1980s, and social iadicators have improved across the board. E=~~~~~~~~~~~~~~~~~~_ 7. U #n*shdAgenda. Substnt progress notwitstanding, Gbaa faces an unfinibhed agenda of economic reform, which amus be addressed if Ghana is to transcend the S percent growdh twrshold. The agenda micludes publk sectr managment and civil saece rom, divst9 'of pubc enterprises; and thie enabling enviroruent for the private sector. Though some rtecmnsand decompression of salary  -3 - scales have occurred, Ghana's civil service, in relative terms, remains one of the largest in Africa; even so, It lacks adequate supervisory oversight to ensure satisfactory performance. Meanwhile, after 10 years of adjustment, Ghana still has more public enterprises than any other African country, except Tzania. These public enterprises hold most of the assets in the manufacturing sector, and have privileged access to financial assistance, special tax treatments and, in many cases, a monopoiistic positiou. Nor has the climate for the private sector become sufficienty favorable, although many liberalizat:n measures were adopted. Private investors, both foreign and domestic, must navigate non-transparent approval processes. They also face problems in acquiring, titling, and swinug laAd. These contribute to the lingering perception by the private sector that the Govermment is ambivalent toward private secter interests. 3. Recent Developments and Outlook a. Economic S. In 1992, a new constitution was promulgated, and presidential and parliamentary elections were held. President Rawlings was returned to power with a strong rural-based majority, reflectg in part the broad-based support for the ERP; the National Assembly has begun to play its legislative role in the new constitutional set-up. But the political transition carried a large price tag. Tn the last quarter of 1992, shortly before the elections, civil servants demanded-and obtained-a large increase in wages. Substantial increases in payments also accrued on employment-related benefits for workers of public enterprises. As a result the fiscal deficit rose to around 6 percent of GDP in that year, and money supply rose by more than 50 percert. Ihe current account deficit widened sharply to 8.6 percent of GDP. 9. 1993 Budget. The Government's 1993 budget introduced signficant corrective measures aimed at restoring macroeconomic stability. Taxes on petroleum products were raised substantially, and furfther increases are likely. New initiatives were launched to improve revenue collections and accelerate the divestiture of major public enterprises. Public sector wages and salaries are expected to be kept at current levels. The improved fiscal position wfll permit the Government to make repayments to the banking system, thereby improving the availability of credit for private investment. Though effective implementation of all these measures would return Ghana to a sustainable fiscal position, there remains considerable uncertainty about the projected revenue and expenditure outturn for 1993. A close watch will be necessary. 10. Recen Developmens. During the first quarter of 1993, consumer prices rose by 13 percent and the cedi depreciated by 15 percent. The exchange rate appears to have stabilized since then. The outturn on government revenue appears promising. Petroleum tax revenues have risen in line with incrtases in tax rates, and collections for indirect taxes were higher than the corresponding period in 1992. Expenditure restraint has been sustained. 11. Otlook. Though growth performance is likely to remain weak in 1993, it is expected to pick up once macroeconomic stability is convincingly restored. Our forecast of the most likely scenario- which is based on good policy and implementation performance-is shown in Table 1. Overall GDP growth is projected to recover to 5.1 percent in 1994, rising to an average of 6 percent during 1996-2000. Growth in the medium term will come primaily from agriculture (where the growth potential clearly exists), mining, and services. Industra growth will follow with a time lag, but the basis of industrial growth-education, infrastructure, telecommunications, support for development of markets, and import of technology-must be laid now.  -4- b. Environmental 12. The major environmental issues in Ghana are soil degradation, deforestation, and the impact on health from mining activities, water contamination, and inadequate sanitation. In the 1980s, 25,000 hectares of forest were lost each year, and indications are that the rate is accelerating. In rural areas, less than 40 percent of the population has access to safe ddnking water and only 15 percent have adequate sanitation. Mineral production has polluted the air with corrosive and poisonous gases; the discharge of heavy metals and cyanide are polluting water with a potentially serious impact on human health. Government policies and programs to address these issues will be vital for reducing health risks and for ensuring the sustainability of overall development. Such government interventions, by preventing the erosion of fragile but important income sources, can also contribute to poverty reduction. The Government can sk:ft some of the associated investment and conservation costs to private beneficiaries; commercial mining and forestry concessions should reflect the arsociated environmental costs to the country. Subsidies for the use uf fossil fuels, chemicals, and logging, therefore, must be carefully reviewed for their impact on the environment. Meanwhile, clarification of ownership and management rights can improve land use. The provision of clean water and improved sanitation, and the control of toxic chemicals used in mining will greatly reduce health risks in both urban and rural ar3as. cv Social 13. During the economic decline of the 1970s and early 1980s, social ind:^ators deteriorated markedly. They improved during the ERP. But a substantial further improvement is an essential precondition for accelerated growth. Ghana's population growth rate is about 2.6 percent per year, and over half the population is under 15 years of age. Life expectancy is SS years (compared with 51 for Sub-Saharan Africa) and the infant mortality rate is 85 per thousand live births (compared with 107 for Sub-Saharan Africa). The adult illiteracy rate is 40 percent (compared with 50 percent for Sub-Saharan Africa) and the prinary school enrollment ratio has increased to 82 percent in 1990/91 (the ratio for Sub- Saharan Africa as a whole is 69 percent) (Table 2). While these indicators compare favorably with the rest of Sub-Saharan Africa's, they are behind the levels attained in East Asia when those countries began to grow rapidly. 14. Poverty Assessment. In part reflecting the evolution of the social indicators, a major finding of the FY93 Poverty Assessment was that Ghana has made considerable progress in reducing poverty under the ERP. Over this period, Ghana focused on improving the economy-wide structure of incentives, on liberalizing sectoral policies including agriculture, and on providing inrastructure and basic social services. The assessment also found thkt poverty in Ghana remains predominantly rural. Some 43 percent of rural inhabitants and 36 percent of all Ghanaians are poor, deriving around 90 percent of their income from self employment. There are also considerable regional variations. Most of the poor live in the Savannah, the Volta basin, and mid-coast zones; these areas account for 64 percent of the nation's poor but only 32 percent of the nation's population. Thus labor-using growth in rural areas can contribute significantly to increasing opportunities for the poor and to reducing poverty. If accelerated growth is achieved and distributed proportionately-orbetter-to the poor, then a sustained and significant reduction in povert can likewise be achieved. 15. Women In Ghana. Ghanaian women have been, and continue to be, active participants in the country's labor force, particularly in agriculture, trade, and small scale ma urg. However, the potential contribution of women to the economy is constrained by a lack of education (school enrollment ratios and literacy rates for females are lower than for males, particularly in the North) and by legal, cultal and social barriers that limit their access to land, credit, farming inputs, technology, and support services. While some women have managed to participate in the formal economy and in high income  '2.5~~~~~~~5 :,~~~~~~~~~1? 19t 9=1018 9019 eolleing watert aIndfelwo and hedodn8f1 rdc,inaddnt hi oshl t.4wer j slrtylne I 4t9 1. Iheacut Ghnaeiaconm is hihyepsdtopiefu.nsi 3ol alct.Cre Ghn eprt bu- 5preto D.Piaygosbscal oosgl n me-con o 9perent o totaleprs).2lhnasnntai.oa eprs aerepn.drpil 3o h EPQ utfo a er owbase iIthey stlcosiueatnfrcinotoaexot.Gaaialohvlydpdntn fuel~~~~~~ imors fo7hc rc lci aeamjripc nGaasetra em ftas inut for rwehaiitto and tpr povnrtnlione tne atsoftened the ipac~th of owdersoert sitsin te It erso atirides. most ontune tof spreinad loghasoursn oen loewe ouaut phyesicvel dem,andn activte suak Gaa'sne colletingni wat ers tandS fpe:cwtood anDP hecomardtngaerg of far prduercinadto tor tu-Sheira househol 16. Thebt Ghanaian eonaetomytndn is hihyrxosed to$ pricflucuaion. ine wrdeb/D mrketiis. Currently 90aoud5 percent o titl exort. Ghanavsrnontraditionalfexportsshavetresponde rapesidyat therms, buteromin fuel himporet, frwihpiefutation haveo a major breprs;thdbtevimpct rton Ghias poexterna toermsn tof tade.n Figurefn 1 y shw1o9 infcn9yGaahsbe5afce.ydciin omdt rcs,epcal ic  -6- Figure 1: Fordpn Aid and Terms-of-Trade Deteioration (In US$ Million) 800 600 - Net aid flow 400 42~~~~~~~~~~~~~~~~~~~~Tnao -trad _ 20 Net old after -200 - tonnsftde ls \ -400. 1984 1985 1986 1987 1988 1989 1990 1991 1992 19. Regional Integradon. As a member of ECOWAS Ghana fully supports renewed efforts to advance regional integration. Official trade between Ghana and neighboring countries is low but unrecorded trade, particularly in consumer goods and agricultural commodities, is flourishing. In effect there is greater regional integration than is reflected in official trade statistics. C. Country Assistance Strategy 1. Country Objectives 20. Ghana's adjustment program is one of the most successful in Sub-Saharan Africa, but its growth rate has not been able to get beyond the 5 percent range. This has permitted per capita income to rise by about 2 percent per annum, which is barely enough to make a dent in Ghana's poverty. The Government is committed to accelerated growth and poverty reduction-and to the policy program needed to achieve it. This entails keeping the macroeconomic situation under control, establishing a favorable environment for vigorous private sector participation throughout the economy, and investing in the development of human resources and infrastructure. For accelerated growth and poverty reduction to be sustainable, sound environmental policies are essential. A noteworthy feature of this agenda is that it involves virtually no trade-offs among the major objectives. Taken separately, growth is a key to poverty reduction, and enhanced primary education is a critical ingredient of both growth and poverty reduction; taicen together, growth and poverty redaction each benefit from gains on the other. In a similar manner, resolving environmental issues in the Ghanaian context tends to promote the sustainability of growth and poverty reduction simultanously.  - 7- 2. IDA Objectives and Strategy 21. The thrust of the Bank's Country Assistance Strategy in Ghana is to help the Government to achieve these objectives, through the policy dialogue, economic and sector work (ESW), new lending operations, portfolio management, and donor coordination. 22. Policy Dillogue. Over the past decade, there has been a marked tumaround In the Bank's relationship with Ghana. Since the ERP started in 1983, the Bank Group has been the most important lender to Ghana. This positioned the Bank as an advisor on macroeconomic and sectoral policy formulation in lending-rfilated areas. But the Government increasingly sought the Bank's advice on economic and sectoral issues where we were not directly involved, or where our financial assistance was not being sought. In recent years, the dialogue has concentrated on mncroeconomic issues, structural reforms in education and agriculture, the fmancial st_,{' - and deregulation of private business activity. For the coming period, the policy dialogue will focus on: maintaining macroeconomic stability; promoting human resources development and poverty reduction; building capacity, in particular, of the public sector to undertake more efte.ctive planning, financing, and implementation of policy reforms and development projects; increasing the role of the private sector; and improving naural resource and en uironmental management. 23. Economic and Sector Work. ESW underpins the policy dialogue. It focuses on di*,nosing development problems and identifying constraints that can be relaxed through public policies and/or investments. A major study, Ghana 2000 and Beyond, prepared last year in collaboration with the Government, outlined Ghana's options for managing the transition from adjustment to accelerated growth (Box 1). Further ESW will be directed toward sharpening our understanding of, and identifying creative solutions tor, the constraints to long-term growth and poverty reduction. The FY94-96 ESW program covers: reviewing public expenditures; assessing institutional capacity; extending and deepening the poverty assessment; preparing a country economic memorandum; updating our urban development strategy; conducting a financial sector review; undertaking a growth and environmental study in the Western Region (see below) and prepanng a rural water supply analysis; taking stock of the industrial sector; and reviewing public sector management. 24. nding. Lending is an important vehicle for the policy dialogue. Over the FY94-96 period, we T 3: $ha_ of At anticipate annual lending levels in the neighborhood of I .; US$260-270 million per annum. We intend to rely U;rid Share increasingly on sector investment credits to support fY62 '" 0 sectoral policies and institutional development. Jr3 47 , Adjustment loans, including hybrids, will continue to be :3 . used to support policy and institutional reforms, but - their importance is being phased down; the share of __ ; -E. ______._' adjustment lending over the next three years is projected to decline to less than 20 percent of new commitments C(able 3). These adjustment operations would support policy reforms in private sector development (including privatization), the financial sector, and public sector management. Meanwhile, the investment lending program is dominated by project loans for infrastructure and sector loans for private sector development. Agricultural marketing and rural development are emphasized, with the objective of increasing productivity and diversification. Education, health, and natural resources management are also significant. If the implementation of the economic reform remains on track and the country is hurt by a severe exogenous shock, creating a balance of payments need, the Bank would consider raising the share of adjustment lending above 20 percent. Any  .o1 .'n A4istun t" A2lsie Griitb .hw '''. :.' . MB,.e. ' ',y.,..:; 0haea 2OcVJ sad Bey`nd a report p~a, onl ihte(ommr dniidatowI he e 2~~~~~~~~~ ',,,, oi l j"cl f; ,. ''' . 'o ,u .WWI