Ghana - Public Financial Management Technical Assistance Project

Report No. PIC4904 Project Name Ghana-Public Financial Management... Technical Assistance Project Region Africa Sector Economic Management Project ID GHPE45588 Borrower The Republic of Ghana Implementing Agency Ministry of Finance Mr. Joseph Adda, Project Manager Public Financial Management Reform Programme (PUFMARP) Ministry of Finance Accra, Ghana Tel: 233-21-668-016 Fax: 233-21-663-854 Date Prepared October 1995 Project Appraisal Date June 1996 Project Board Date November 1996 1. Background. Under its Economic Recovery Program (ERP), the Government of Ghana (GoG) implemented various measures to strengthen financial management. Although these reforms have been useful in the light of the disarray in public finances at the start of the ERP, they have been of a piece-meal nature. As a result, the overall ability of the Government to manage its financial accounts, particularly in the area of expenditure management, remains weak. The 1993 Public Expenditure Review (PER) highlighted several problems including weak budget preparation, lack of a uniform and adequate accounting system, weak expenditure monitoring and control mechanisms, and general lack of ownership and accountability by the Ministries, Departments, and Agencies (MDAs). 2. Subsequently, the GoG, with inputs from the Canadian International Development Agency (CIDA), the Overseas Development Administration (ODA), and the World Bank, developed a medium-term strategy to reform the public financial management system, called the Public Financial Management Reform Program (PUFMARP). This strategy seeks to develop an integrated financial management system in the public domain. This is an inter-related set of sub-systems which plans, processes and reports upon financial resources, covers a broad spectrum of financial management areas--budgeting, accounting, revenue management, cash management, debt management, auditing, and financial reporting--and is computer-based. The principal factor which "integrates" the system is a common, single, reliable database to, and from which, all financial data flows and which is shared by all the financial users. This strategy has since been adopted by the Cabinet and forms the basis for planned measures (tranche conditions) supported by CIDA's Support for Public Expenditure Reform (SPER) and the World Bank's Private Sector Adjustment Credit (PSAC). The implementation of this  strategy will be supported by technical assistance from ODA, CIDA, and the European Union (EU). This project represents the Bank's contribution to supporting this effort. 3. Project Objective and Description. The fundamental objective of the project is to enhance the efficiency, accountability, and transparency of the financial management functions of the Government. To that end, the project will support the implementation of the GoG's Public Financial Management Reform Program over a period of four years. But the project will feature two critical aspects that distinguish it from past attempts at dealing with financial management issues. First, it acknowledges the complexity of public financial management and recognizes that a piece-meal approach will fail in achieving adequate financial management. Second, the project will follow an integrated approach to public financial management which explicitly recognizes the need to efficiently tie in various financial components into a coherent and unified system. 4. The Project will support the development of eight critical components or sub-systems--(i) the budget preparation sub-system: this supports the preparation of the budget according to the Government's priorities and ensures the production of an effective and viable financial plan for the Government; (ii) the budget execution and fiscal reporting sub-system: this provides for the effective control and monitoring of Government expenditures; (iii) the accounting sub-system: this permits the classification, recording, and analyses of all financial transactions in a timely, reliable, and standard manner across Government; (iv) the cash management sub-system: this covers the management of the cash assets of the Government through projections and monitoring of cash flows, receipt and control of revenues, and the processing of disbursements thereby ensuring adequate liquidity for the Government; (v) the debt management sub-system: this allows for the management of the acquisition, servicing, and retirement of public debt, both external and internal; (vi) the revenue sub-system: this requires the timely and complete recording of Government account receivables; (vii) the procurement sub-system: this enables the procurement of goods and services in a transparent and timely manner taking into consideration price competition, quality control, and administrative expense; and (viii) the auditing sub- system: this ensures fair, objective, and reliable external reviews of Government performance. 5. Some elements of an integrated financial management system already exist in Ghana or are being implemented--such as the customs system, the debt management system, and the Integrated Personnel and Payroll Database (IPPD)--but may still need to be reinforced. The precise nature, scope, or design of the new systems is being worked out. However, work has been more advanced on defining the critical elements of the budget and accounting systems. Early work is being supported partly through the ongoing Economic Management Support Project (EMS) and partly through a Project Preparation Facility (PPF). The Project recognizes that even though various components of the PUFMARP can proceed apace, it -2 -  is essential that the design of each element of the system be compatible to, and coherent with, the overall strategy and with each of the other elements of the system. 6. The Government's emphasis in the reform program is, in the first instance, on the design of the flows of information and the nature of the controls that need to be instituted; it is only then that the system requirements--hardware and software--to support the informational requirements will be developed. With respect to the latter, emphasis will be on simple design, due regard to local capabilities, a predominant emphasis on training, and ways to ensure project sustainability. 7. Project Financing. The initial estimate for the Project is $31 million over 4 years. The Government is expected to contribute about $3 million, IDA $21 million, and the cofinanciers $7 million. The Project is expected to be cofinanced by ODA and EU. 8. Project Implementation. The overall implementation of PUFMARP, including those components supported by this Project, will be managed by a PUFMARP Implementation Team. This Team is composed of three groups of people: three contractual full-time staff with special skills required for PUFMARP implementation-the PUFMARP Manager, the Finance Manager, and the Information Technology Manager; Government staff from the Ministry of Finance and relevant ministries and agencies; and consultants designing and implementing the various components. This Team will be supervised by a multi- sectoral Steering Committee led by a Deputy Minister of Finance. 9. Lessons Learned from Past Technical Assistance Operations in Ghana. There are several lessons of experience from those codified in the Technical Assistance Handbook, as well as those provided by the 1994 Performance Audit Report of an earlier Bank technical assistance operation (Structural Adjustment Institutional Support Project and the ongoing Economic Management Support Project) in Ghana. These emphasize: (a) project ownership on the borrower's side; (b) in-depth country knowledge on the Bank side; (c) having a long-term strategic approach and not allowing short-term agendas drive the project; (d) coordinating multi-donor aid; and (e) having identifiable and, if possible, measurable indicators of both inputs and outputs. These lessons are being internalized in the preparation of this Project. In particular, the PUFMARP is fully owned by the Government and is the outcome of the Government's own PERs. The Bank Task Team combines members with requisite country- specific knowledge and proven expertise in public financial management and information technology. The Bank is coordinating its efforts with the cofinancing agencies. 10. Lessons Learned from Similar Operations in Other Countries. Experience in supporting public financial management reforms in other countries emphasize: (a) sponsorship, ownership, and understanding of the project at the highest levels of Government; (b) awareness of the large scope of the program at various levels of Government; (c) good project management; (d) interagency coordination; (e) training and support; and (f) appropriate -3 -  management of the changes brought about by the reforms. Some of these lessons are already being applied in the course of the preparation of the project, others will be followed at the appropriate time. The PUFMARP was discussed and approved by the Cabinet. Subsequently, it was launched by the Minister of Finance in July 1995. A series of workshops is being held to develop awareness of the program at various levels of the Government and within groups from civil society and elicit their inputs into the process. In the interest of good project management, Ghanaian contractual staff for project implementation were recruited through an international search. Inter-agency coordination is being facilitated through the inter-sectoral Steering Committee and by the staff of the Controller and Accountant-General who are placed in some of the major spending ministries. Adequate training and support will be ensured as will be the change management. The latter will be particularly necessary since the reforms will span at least two budget cycles. 11. Project Objective Category. The Project will promote efficient fiscal management. This will be achieved through better monitoring and control of public expenditures, improved allocation of resources consistent with national priorities, enhanced transparency, and accountability in the use of public resources. The Project does not have any adverse environmental impact and is in Environmental Category C. 12. Project Sustainability. The sustainability of the Government's PUFMARP, and consequently of the project, will depend on the incentives that will be cultivated within the various levels of Government for staff to properly use and adopt the redesigned system. On a more technical level, project sustainability will be undermined if adequate local support is unavailable to maintain the system hardware and software. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 458-5454 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending April 4, 1997 - 4 -