Political Overview

Ghana enjoys one of the more robust democracies in Sub-Saharan Africa. With the 2012 presidential and general elections approaching, the fate of President John Evans Atta Mills and his administration will hinge on public perceptions of his ability to deliver on his electoral promises.  

Saddled with starting projects promised in the National Democratic Congress (NDC) manifesto, the government also has the challenge of mapping and off-loading public servants onto the new Single Spine Salary Structure (SSSS) and improving macro-economic indicators.  Incremental implementation of the SSSS started in July 2010, and by September 2011, about 69 percent (44 institutions) of the 520,000 public sector employees had been migrated on to the SSSS. The government planned to migrate the remainder by the end of 2011 however, the expected decompression of wages under the SSSS was postponed to the final years of implementation. 

Opposition parties in Parliament have remained very critical of government’s decision to explore non-concessional financing facilities for its priority infrastructural projects, particularly in gas and power, roads and transport and water sectors. Nonetheless, the government has endorsed a Private–Public Partnership policy as an option to finance its projects in the light of a reduced IDA allocation to US$285 million (from US$600 in FY 11) and expected decline of concessional facilities.

The government also followed through on its commitment to extend the principles of the Extractive Industries Transparency Initiative (EITI) to the oil and gas sectors, with the start of oil production in 2010.

The government and opposition parties in Parliament have passed into law the Petroleum Revenue Management Act (Act 815), which makes it possible for the government to access the annual budget funding amount from oil proceeds, estimated at GH¢646.4 million for 2011. Act 815 also makes room for setting up Stabilization and Heritage Funds.

Parliament has also passed the Petroleum Commission Act to regulate activities of the use of petroleum resources, with a goal of achieving optimal resource exploitation while ensuring high health and environmental standards. The Petroleum Commission is yet to be inaugurated.

The government has initiated far-reaching reforms in the area of executive accountability mechanisms. In 2010 and 2011, the Parliamentary Public Accounts Committee reinvigorated its efforts to publicly review and discuss various audit reports. It is expected that government will go further to prosecute those who have misappropriated public funds.

After a long delay, the government presented Parliament with the Right to Information Bill, designed to improve access to public information and promote activities that could ensure better transparency and accountability in Ghana. After nation-wide consultation, Parliament is currently considering the bill.

The journey to the 2012 elections is picking up the pace following successful August primaries by the NDC. At a party congress, President Mills successfully faced down a leadership challenge by Nana Konadu Agyemang Rawlings, the wife of Jerry Rawlings, former president and the founder of the NDC. Rawlings’ continued criticism following the battle indicates that unity is yet to be fully achieved within the party.

The ruling NDC announced in early August that the vice-president, John Mahama, will partner President Mills, on the NDC’s 2012 presidential election ticket. The largest opposition party, the National Patriotic Party has already selected its presidential candidate, Nana Akufo Addo, but is yet to announce his running mate. The third and fourth biggest parties, the Convention People's Party (CPP) and People's National Convention (PNC), have yet to pick their flag-bearers. The CPP recently elected its party executives, dominated by women. Its election of Samia Yaba Nkrumah, a daughter of late President Nkrumah as chairperson is a record and makes her the first woman to chair a political party in Ghana.

Economic Overview

In 2010, GDP grew to 7.7 percent, up from 4.0 percent in 2009. In 2011, the rate of growth is projected to jump to 14.1 percent (Figure 1). The transmission to farmers of increases in global cocoa prices (US$1,787/ton in 2007 to US$3,328 /ton in 2011) significantly encouraged growth in production, to about 1 million tons. It is anticipated that in 2011, Ghana will become the largest producer of cocoa in the world.

On the demand side, continued high export receipts (gold and cocoa) and oil-related private sector investment stimulated aggregate demand and mitigated the negative impact of continued fiscal stabilization. In real terms, both household final consumption and gross investment in 2010 increased by 9.6 percent and 11 percent above their respective values in 2009. Value-added tax (VAT) collection in the first half of 2011 suggests continued growth in private consumption, following the rebound of 2010 (Figure 2). Private consumption and total investment (public and private) are projected to grow by 12 and 15 percent respectively in 2011. 

In the first quarter of 2011, agriculture GDP grew by 39 percent (compared with the first quarter of 2010), contributing 9.1 percentage points to 2011-Q1 GDP growth (Figure 2). The industrial sector grew by 36 percent, propelled by a strong performance in manufacturing and construction, contributing 4.8 percentage points to GDP growth, excluding oil. The service sector grew by 7 percent over the 2010-Q1 production level, contributing 4.6 percentage points to overall GDP growth. In previous years, first quarter GDP growth performance was always the weakest of all four quarters.

Ghana’s current account deficit widened by 8.4 percent of GDP in 2010. Import growth in 2010 (36 percent compared with 2009) was mainly driven by higher imports of crude oil, capital goods, and processed industrial supplies. Export receipts were sustained by a 36 and 19 percent increase in the value of cocoa and gold exports respectively. Private remittances remained strong at US$2.1 billion, a 19 percent increase over 2009 with the easing of the global economic crisis in 2010. The capital and financial account expanded by 40 percent, from US$3.1 billion in 2009 to US$4.3 billion in 2010.  

Ghana’s external position improved significantly over the first half of 2011 with both the current account and the trade deficit falling by 14.3 percent and 22.1 percent respectively compared with the same period in 2010. Half year exports value increased by 64 percent, the combination of strong new crude oil exports (3.1 percent of GDP), higher cocoa (4.4 percent of GDP) and gold (6.3 percent of GDP). Imports increased by 43 percent during the same period; up 47 percent for capital goods, up 35 percent for intermediate goods and up 57 percent for consumption goods.

Private transfers grew by 34 percent (from US$0.95 billion in H1 2010 to US$1.27 billion in H1 2011). Direct private investment increased by 25 percent, from US$1.39 billion in H1 2010 to US$1.75 billion in H1 2011.

Inflation declined to 8.4 percent in July 2011. Food inflation fell from 15.5 percent to 3.3 percent from June 2009 to July 2011 as increased domestic food production resulted in lower prices of cereals, fish and other food products. Non-food inflation, at 11.8 percent in July 2011 (down from 24.7 percent in June 2009), was driven by increased prices of imported household durables, and other non-tradable items such as transportation and hotel service charges. Acknowledging reduced inflation pressures, the Bank of Ghana revised its policy rate downward by 100 basis points to reach 12.5 percent in July 2011. The Bank of Ghana targets an end-year inflation of 9.0 percent.

In the first half of 2011, net foreign assets expanded as purchases of three-year government bonds from non-residents and export receipts increased (see above).  Private sector credit continued to expand (with an 18.2 percent annual growth in nominal terms), notably for the agriculture sector, external trade and other services. The cost of credit declined as deposit money banks (DMBs) reduced their average base rate quotation by 59 basis points to reach 23.95 percent in line with the general decline in interest rates and easing of inflation.

The government revised its fiscal deficit target for 2011, from 4.1 to 4.3 percent of GDP. By June 2011, the overall budget and primary deficits were respectively below their targets, on account of higher tax revenues and contained expenditure. However, projecting higher expenditure growth and slower revenue growth in the second half, the government increased its fiscal deficit target in the supplementary budget adopted in July 2011. The government also intends to liquidate more arrears in 2011 than initially anticipated in the 2011 Budget Law. Anticipating a reduction in grants and other concessional resources ahead of next year’s elections, the government is focusing on improving domestic revenue mobilization to finance its expenditure.

By June, realized tax revenue was 16 percent above its target because of ongoing reforms in the Ghana Revenue Authority, and better capture of import duties. Grants in the first half of 2011 were 42 percent below target. By June 2011, the wage bill was also above the budget target, as the migration of public sector employees to the single spine pay structure was quicker than anticipated. The government plans to migrate all remaining public sector employees to the Single Spine Salary Structure (SSSS) by the end of 2011, from 69 percent of the labor force in September.

The government started fulfilling its budget promise to repay outstanding domestic arrears in the first half of 2011.  Domestic repayment to the banking sector and other domestic financing constituted about 55 percent of outstanding total arrears. Arrears liquidation (through cash payments and bond issuances) aims at reducing the exposure of commercial banks to non- performing loans, strengthening their balance sheets, and restoring utilities ability to operate at full capacity. Ghana’s economic outlook for 2011 is favorable. Growth prospects for the second half of 2011 remain high, with good cocoa and oil production, stimulated by high international commodity prices.  Real GDP growth is expected to reach 14.1 percent in 2011. Inflation is also expected to remain within the single digit boundary for the rest of the year.

 

World Bank Assistance

Ghana’s IDA allocation fell in the face of newer requests. Ghana’s IDA envelope was reduced to US$285 million per year mainly because of debt relief charges, after having received US$605 million in FY11. Ghana's FY12 allocation (SDR205.8million) decreased by 9 percent from its FY11 allocation (SDR226.3million, before front-/back-loading), and the decrease is mainly driven by the changes of Ghana's FY12 allocation input parameters that are used in the rule-based Performance-Based Allocation system. In particular, four factors (higher GNI per capita, lower CPIA rating, higher grant share, and higher MDRI debt relief) contributed to allocation decrease of about 29 percent, while two other factors (FY12 IDA envelope increase and population increase) contributed to allocation increase of about 20 percent. The net result is an allocation decline of about 9 percent in FY12.

Progress on oil and gas has been slow. Commercial exploitation of oil has begun and the Petroleum Revenue Management Act was approved by Parliament in March 2011, which comprises strong transparency and executive accountability mechanisms, without earmarking revenue for specific regions. 

However, equally important legislation to amend the framework for petroleum exploration and production, including the role of the state oil company Gas National Petroleum Company (GNPC) has yet to be taken up by Parliament. Legislation to create a petroleum regulatory commission has passed, but the presidency has been slow to appoint the members of the commission. A new Ghana National Gas Company (GNGC) was recently incorporated to implement the national gas infrastructure project, which is several years late. 

The Ghana portfolio continues to improve its performance. The Ghana portfolio comprises US$1,494 million in 24 projects, of which US$1,159.3 million is undisbursed. The disbursed amount has been increasing since FY09, US$ 386.2 was disbursed in FY11 –the sixth largest in IDA- and we expect to reach US$450 million in FY12, a country record. The good governance indicators and improved portfolio performance allowed Ghana to absorb US$605 million during FY11, and we expect to frontload the IDA envelope this year for the available US$370 million, and if more resources are available, the pipeline will be ready to move ahead. The most recent approved operations were Fisheries (US$50 million), Ghana Statistics (US$30 million),  and the pipeline of projects are as follows: PRSC8 (US$87.5 million), Commercial Agriculture Project (US$100 million), and the Public Private Partnership (PPP) Project (US$40 million).

Regional projects reflect Ghana’s role as a hub in West Africa.  Ghana increased her regional portfolio to seven projects to nearly US$630 million with US$ 495 million to be disbursed, in transport, energy, trade facilitation and agriculture. Also we have an IDA guarantee that help the completion of the West Africa Gas Pipeline which connects Nigeria’s gas resources to Benin, Togo and Ghana, lowering energy production costs in Ghana.

The World Bank poverty report highlighted geographical diversities in poverty.  Head count poverty had fallen from 52 percent in 1991 to 28 percent in 2006, and indications are it has fallen further since then.

Ghana’s poverty reduction has been driven by growth and not by improvement in equity. There are significant regional disparities between the northern Savanna regions (58 percent) and the rest of the country (19 percent). Internal migration has helped move the benefits of growth from the rapidly growing areas around Accra, Kumasi and Takoradi/Sekondi to other areas but this has not helped the Savanna region due in part large to the poor human capital endowment of the potential migrants from the Savanna region. 

As a potential middle income country with relatively low levels of poverty (compared to its past), Ghana needs move towards to more effectively targeted program to help the poor rather than generalized programs such as energy subsidies. The World Bank is supporting Ghana’s development of a common targeting approach by all programs.

Ghana’s impressive track record on growth hides major regional discrepancies in poverty and human development outcomes. In part this is due to the failure of a centrally run locally non-responsive service delivery system. The government has recognized this problem and is moving forward on a rapid decentralization agenda. Central control aside, the institutional structure of education and health service delivery institutions are not geared towards servicing the needs of a dynamic middle income country and there is a need for outside the box thinking. Special attention is needed to help children from poorer households improve their human development outcomes.

Enrollment rates are maintained at high level, but further progress in completion, gender and geographical parity are hindered by disparities both in funding, access to education services. There are also serious deficits in learning outcomes. Deprived districts, schools serving poor rural communities continue to lack qualified teachers and have limited access to textbooks.

With middle income status skills for productivity improvement and competitiveness and higher education need to be addressed. Ghanaian universities need support to enable them to keep up with growing changes in the global economy and the technical and managerial challenges needed to keep up. The skill development system is not geared to producing the types of skills demanded by employers. Health indicators continue improving, with under-five mortality rates having declined between 2003 and 2008, dropping from 111 to 80. However, Ghana is unlikely to meet the Millennium Development Goal (MDG) targets for both child and maternal mortality. 

Nutrition status among children has improved, but one in three children are still stunted: 29 percent of children under-5 years were stunted in 2008 as compared to 36 percent stunted in 2003.

National Health Insurance Scheme (NHIS) provides basic protection against the financial burdens of illness with a comprehensive package of some curative services enrolling a significant proportion of the population since its inception in 2005. However, the coverage of the poor remains low: 29 percent of the lowest 20 percent of the socio-economic group had a valid health insurance card, compared to 64 percent of the highest income group (2008). There is urgent need to improve the coverage of the poor. Rural areas also have lower coverage (43 percent) compared to urban areas (54 percent).

A Public Private Partnership (PPP) Policy was approved in June 2011 which establishes a PPP Unit within the Ministry of Finance and Economic Planning. This unit will in charge in leading the capacity building efforts to support efforts in line Ministries, develop a contingent liability management system, capital market reform and guide PPP operators. A law will be enacted that would provide coverage enough to prospective investors. The preliminary ideas have been on transport, agriculture (irrigation), water and solid waste management.

In recent years Ghana’s financial sector has grown rapidly, and increased in sophistication in terms of product offerings. While the government has instituted an impressive series of reforms to support these developments, its capacity to regulate effectively has not kept pace. The Bank is supporting government’s efforts in this regard through the Economic Management and Capacity Building Project, as outlined in last year’s FSAP process. 

The government has made significant progress, but more needs to be done. In the banking sector in particular, non-performing loans remain uncomfortably high, and a clutch of banks remain vulnerable to further shocks. The level of state ownership and influence in the banking sector is also problematic. Further bank consolidation and a rationalization of government ownership should improve depth in the banking sector and reduce overhead costs. Improved risk management, along with strengthening of supporting institutions such as the credit information and insolvency regimes, should continue to ease the access to finance constraint for SMEs. 

The Ghana Africa Infrastructure Country Diagnostic report estimates that raising the country’s infrastructure endowment to that of the region’s middle-income countries requires addressing both an efficiency and a funding gap of $1.5 billion per annum, highlighting the potential role of private sector participation to leverage Government’s own financial and managerial resources.  

 

As a result of World Bank assistance and engagement, progress in Ghana has been largely positive, with notable advances in agricultural crop production, natural resources governance, land management, household electrification, ICT, primary education completion, social protection, and safe water supply. Weaker progress was registered in private sector development, transport, health, and public sector.

In the area of Private Sector Competitiveness, the World Bank’s four investment projects (Micro, Small and Medium Enterprise Project, Economic Management Capacity Building, Land Administration Program and e-Ghana) have contributed to the country’s goals by increasing private sector credit and foreign direct investment. However, credit growth has mainly benefitted consumption, and has remained costly and of short term duration. Time taken to register deeds and titles to land have also decreased substantially from 36 months to 2.5 and 7 months respectively, and this was supported primarily through the World Bank-financed Land Administration Project.

The Land Administration Project which closed in 2011 has also resulted in the strengthening and streamlining the institutional arrangements for land administration in Ghana with the passage of the Lands Commission Act 767 (2008) by Parliament on October 29, 2008. The decentralization of the deeds registry to all the nine regional capitals, under the Lands Administration Project, has brought the registration of deeds closer to the clients making it easier to access land for agricultural purposes. The eight pilot activities which includes systematic titling, customary lands demarcation, Geodetic reference network, land valuation database, land information systems, deed registration, community-based land use planning and land courts geared towards testing best practices have all yielded useful lessons for scaling-up.

In the education sector, access and completion rates have improved steadily with primary completion increasing from 80.1 in 2007 to 86.3 in 2009, but quality remains low. The improvements in access to education across the country have been supported by the World Bank-financed Education Sector project. 

Progress achieved in the health sector, from 2003 -2008 was impressive: under-5 mortality was reduced from 111 deaths per 1,000 births to 80, the proportion of malnourished under-5 children was reduced from 18 to 14 percent, and the pregnancy-related mortality rate dropped from 503 to 451 per 100,000 live births. Improvements in the under-5 mortality, malnourished uner-5 children and pregnancy-related mortality have been supported by the World Bank-financed Nutrition and Malaria Control Child Survival and Health Insurance projects.

There has been significant progress in the ICT sector. The combined efforts of Government’s proactive policy and regulatory interventions, support from the World Bank Group and other development partners, and highly competitive private sector is translating into increased investment, impressive telephone penetration rate of over 80 percent in July 2011 (from 60% in 2010 and less than 3 percent in 2003), over 50 percent decrease in local and international call rates, and a threefold reduction in internet access prices from US$3 to less than US$1/hr.

The eGhana project is contributing to these achievements by supporting critical applications, skills development, and regulatory institutions.

 

Ghana continues to enjoy the support of a whole range of development partners, as well as nontraditional partners.  The multi-donor support framework remains strong even though, ODA is expected to decline in the medium term with the production of oil and the achievement of a middle-income status. At present, official development assistance to Ghana (grants and loans) declined by 2 percent in 2010 compared to about US$2 billion received in 2009. Over the last several years, development partners have substantially increased their levels of budget support to approximately 30 percent of Official Development Aid. Actual Multi-Donor Budget Support (MDBS) in 2010 was estimated at US$326 million. The MDBS currently includes the African Development Bank, Canada, Denmark, the European Commission, France, Germany, Japan, The Netherlands, Switzerland, United Kingdom, and the World Bank.

By June 2011, IMF was considering Ghana on track to meet its immediate macroeconomic targets: positive primary surpluses from 2012, increased foreign currency reserves (4.2 months of imports by end-2012), clearance of all arrears vis-à-vis private contractors by end-2012, and contained price inflation to single digit levels. The IMF Article IV and ECF third and fourth reviews from May 2011 consider Ghana’s external and growth prospects as favorable, driven by high export prices and oil production, assuming that fiscal vulnerabilities are addressed through structural reforms.