Ghana Receives Second Tranche of Economic Governance and Poverty Reduction Credit

June 24, 2010

ACCRA, June 24, 2010 - -The Board of Executive Directors of the World Bank approved on June 25, 2010 the release of the second and last tranche (US$143 million) of the Economic Governance and Poverty Reduction Credit (EGPRC). A first tranche of U$150 million had been disbursed a year earlier in July 2009 after the Board approved the two tranche facility, aimed to support Ghana’s efforts, in the midst of the global financial crisis, to restore budgetary discipline and (ii) tackle long-standing public sector and energy issues, while (iii) protecting the poor.

Over the past year, the economy has shown strong signs of stabilization, while weathering, to a large extent, the impact of the global financial crisis. Both the fiscal and current account deficits have been significantly reduced, aided by a number of exogenous factors including gains in hydroelectric power generation due to good rains, low oil prices, high cocoa and gold prices, and good cocoa harvest. Government’s significant fiscal stabilization efforts and achievements also deserve special mention.

Out of the six prior actions agreed for the second tranche to be released, five were fully met by the Government. In recommending the release, the World Bank Ghana Office agreed with the Government’s request to waive the sixth one related to Cabinet approval of the Ghana Petroleum Regulatory Authority and Oil and Gas Fiscal Regime legislations.

According to Ishac Diwan, World Bank Country Director for Ghana: According to Ishac Diwan, World Bank Country Director for Ghana: “Ongoing debates on these matters have shown significant divergences of views which will need to be reconciled to establish a nationally owned legal framework to govern the oil and gas industry in decades to come. One important thing happened a few weeks ago, which is the Government’s signing up to make oil and gas part of the Extractive Industries Transparency Initiative (EITI).  This, together with progress in adopting the Freedom of Information Bill, is very good news because increased transparency empowers civil society to participate in the shaping of important decisions and results in better public policy. We, therefore, wish to encourage the government to endeavor to always keep the people well informed all the time.”

Details on Second Tranche Release Actions/Triggers

Action #1: The Government has taken contingency fiscal measures, once the public wage rate increase for 2009 has been established, to correct any deviations with respect to the fiscal deficit and the share of pro-poor expenditures targets set forth in the Recipient’s 2009 budget. The action is considered fully met.

Action #2: The Government has submitted to Parliament a freedom of information bill and, if approved, has adopted a related implementation plan including a budget. The Freedom of Information Bill was submitted in January 2010 to Parliament. The action is considered fully met.

Action #3: The Government has appointed a Minister of State in charge of public sector reform, and eliminated ghost workers from payroll in the Ghana Education Service, initiated employment audits in all remaining MDAs, and classified at least half of the total number of subvented agencies in preparation for their rationalization, divestiture or commercialization. The action is considered fully met.

Action #4: The Government has completed, through its Ministry of Energy, consultations with stakeholders on an electricity sector financial recovery plan and, through its Cabinet, approved the said plan. The action is considered fully met.

Action #6: The Government has revised the classification of pro-poor public expenditures based on an assessment of their effective impact on poverty, for use in the Recipient’s 2010 budget. The action is considered fully met.

Action #5: The Government has completed consultations with stakeholders on draft legislation concerning the proposed Ghana Petroleum Regulatory Authority and the oil and gas fiscal regime, and Cabinet has approved such draft legislation, taking into account the results of the consultations. Initial stakeholders’ consultations held on the oil and gas regulatory framework raised fundamental issues of ownership, participation and control, roles, responsibilities and accountability, legitimacy and capacity of institutions that underpin effective performance of such a green field sector in the Ghanaian economy. It became apparent that the consultations will take more time than initially anticipated.

It is suggested in particular that more time and attention should be devoted to reaching a consensus on (i) the key features of the proposed new Ghana Petroleum Regulatory Authority, including the scope of responsibility of the regulator (one mega regulator for all utilities, or several small specialized regulators); (ii) the local content aspects (how ambitious should the law be); and (iii) the specifics of the oil revenue management proposals (in particular, the size of the proposed heritage and stabilization funds).

As a result, the initial plans to have one omnibus law as envisaged at the time of signing the EGPRC have evolved, and instead, a decision was made to sequence the effort into three legal building blocks: (i) amend the existing petroleum exploration and production legislation (Provisional National Defense Council, PNDC Law 84); (ii) pass the oil revenue management bill; and (iii) pass legislation to establish the new Petroleum Regulatory Authority. Cabinet approved on March 11, 2010 the revisions to the PNDC Law 84, and submitted them to the Attorney General for final drafting before submission to the Parliament. Following public consultations held country-wide in February and March 2010, Cabinet adoption of the Ghana Petroleum Revenue Management Bill - the new oil and gas fiscal regime - is scheduled for June/July 2010. Cabinet adoption of the Petroleum Regulatory Authority Bill is expected to follow in September 2010. The Government decision to eventually partition the regulatory framework into various legal building blocks to give greater space for consultations among the various stakeholders can be considered legitimate and justified given the sensitive political economy of resource management in Ghana. The change in the envisaged schedule to fully meet the prior action requires a waiver.

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