WASHINGTON, January 20, 2011 - The World Bank board today approved a US$215 million Poverty Reduction Support Credit (PRSC) to the Government of Ghana. The goal of the credit is to support the government’s efforts to consolidate ongoing fiscal stabilization and promote the development objectives set in the Ghana Shared Growth and Development Agenda (GSGDA) – Ghana’s national medium term development policy framework for 2010-2013.
Over the last decade Ghana has received a total of six Poverty Reduction Support Credits from the World Bank, averaging US$100million per year in budget support between 2003 and 2008, to support implementation of the Ghana Poverty Reduction Strategy (GPRS I and II). After the fiscal crisis of 2008, an agreement was reached to increase budget support in a countercyclical manner to help Ghana reduce its macro-imbalances in a way that does not hurt growth, the process of job creation, and the poor. Accordingly, a record total support of US$300 million was delivered in 2009, and US$215 million now. It is expected that this particular support will continue to fall in the future as the macro-imbalances continue to be reduced, and that Bank’s efforts will shift back towards support for job creation.
“Our PRSCs have played an important role in supporting the gradual stabilization of the economy – the reduction of inflation and the prime rate – in ways that preserve growth and job creation,” said Sebastien Dessus, World Bank Lead Economist for Ghana. “Indeed, growth has continued during 2009 and 2010 and has remained well above 5% per year, which is a remarkable record for an economy undergoing deficit reduction”.
The GSGDA has supported government actions to tackle some of the key structural factors behind macro-instability, including long-standing public sector and energy issues, while protecting the poor and preparing for the oil era through effective sector management and regulation.
The specific reforms which government had undertaken to implement, within its medium term development framework, included : (i) establishment of a process for an efficient cash management system for Government of Ghana consolidated funds; (ii) establishment of a process of compiling claims and outstanding payments system; (iii) preparation of a harmonized chart of accounts for budgeting, accounting and reporting for all its MDAs; (iv) completion of a definitive roll of Subvented Agencies; (v) implementation of recommendations of the electricity financial recovery plan for the Volta River Authority (VRA), the Northern Electricity Department of the VRA, Electricity Company of Ghana and Ghana Grid Company (power utility companies); (vi) assignment of institutional responsibilities, budget, detail objectives, action plan and timeline for the adoption and use of a common targeting mechanism for the Livelihood Empowerment Against Poverty (LEAP); (vii) submission of a Petroleum Revenue Management Bill to the Cabinet based on broad consultations with stakeholders; (viii) submission to Cabinet for decision a revised Extractive Industries Transparency Initiative (EITI) institutional framework to include the oil and gas sectors.
The above commitments were all met during the past year.
The current facility also outlines the government commitments, again drawn from its own medium term plan, that would need to be met to allow for the next disbursement of the budget support operation (PRSC8), foreseen to happen in about a year. These relate to the main challenges facing Ghana’s macroeconomic objectives, and include the improvement of the quality of government spending, job creation constraints, the burden of arrears on job creation, and the poor performance of state-owned enterprises.
The specific commitments include:
Action #1:The Government, through the Ministry of Finance & Economic Planning, and the Controller & Accountant General’s Department, reinstates and enforces commitment controls for all MDAs, such that, no new arrears over their budget accrue through uncontrolled spending on Item 3 and 4.
Action #2: The Government, through the Ministry of Finance & Economic Planning, develops and submits to Cabinet for decision the second Financial Sector Strategic Plan, FINSEP II.
Action #3: The Government, through the Ministry of Finance & Economic Planning, and the Public Sector Reform Secretariat, develops and submits to Cabinet for decision and announcement the action plan on Subvented Agency reform (i.e. decisions on those for closure, withdrawal of subvention, those on reduced subvention and timelines for implementation).
Action #4: The Government, through the Ministries of Local Government & Rural Development, and Finance & Economic Planning, finalizes the Comprehensive Decentralization Policy following all consultations, and submits the Policy and Implementation Plan to Cabinet for approval.
Action #5: The Public Utilities Regulatory Authority establishes and implements an electricity automatic tariff adjustment mechanism.
Action #6: The Government, through the Ministries of Energy, and Finance & Economic Planning, submits to Cabinet for decision an action plan regarding the restoration of Tema Oil Refinery financial sustainability
Action #7: The Government, through the Ministry of Employment and Social Welfare, pre-tests and validates the Common Targeting mechanism, in collaboration with Ministries of Agriculture, Health, Education, Local Government & Rural Development.
Action #8: The Government, through the Ministry of Energy, submits to Cabinet for decision a policy proposal establishing a petroleum regulatory authority
“To preserve macro stability while creating jobs, we need to improve the quality of our expenditures, and broaden the tax base in order to collect more revenues. To do so, we need to continue our efforts to reform public financial management, review the import duty exemption regime, improve the management of our State Owned Enterprises, continue to rationalize recurrent expenditures, and remain vigilant in the face of the threat of high debt burden. We also need to finalize our preparations for the oil era,” notes Dr. Kwabena Dufuor, Ghana’s Minister for Finance and Economic Planning. “In 2011 in particular and over the medium term in general, the Government of Ghana is committed to continuing the fiscal consolidation that it began in 2009 by further reducing the fiscal deficit while at the same time accelerating growth.”
Beyond providing financial and technical support, the World Bank is keen on enhancing citizen engagement and participation in the discussions leading to important policy decisions, stresses Ishac Diwan, Country Director for Ghana.
“We welcome the fact that the government has managed to reduce progressively macro imbalances while preserving growth.” Mr. Diwan said. “The role of civil society organizations in keeping a close watch on the quality of government expenditure is very valuable, and the role of think-tanks in supporting the emergence of fiscal responsibility traditions in Ghana is also critical, and we will endeavor to accelerate our support to these civil society groups.”