Country Brief

Last updated September 2009

Introduction

In January 2009, Ghana provided an example of a maturing democracy by transferring power to the opposition, despite a very close margin of votes. State institutions, particularly the Judiciary and the Electoral Commission, withstood significant tension. The new Government of Ghana has now nominated its ministers and confirmation by Parliament is almost complete. The nominees include a mix of experienced hands (including the Ministers of Finance and Economic Planning, Energy, and Agriculture) and new faces, including several women, fulfilling the campaign promise of filling at least 40% of positions with women. The new Government has quickly focused on the delicate macro economic situation and has prepared a budget for 2009, which has been approved by Parliament, and which aims to stabilize the economy and begin to address a new wave of structural reforms needed.

Political Development

The democratic process continues to be well consolidated in Ghana. Ghana recently completed another peaceful transition of power, despite a very close and drawn-out election. In doing so, it became an example to the rest of Africa, and the world, on successful democratic practice. Ghana’s political rights, civil liberties and freedom of press rankings are among the best in Africa. After about a decade or so of repealing the media libel laws and liberalized the airwaves, resulting in a more open society, with a vibrant media and strong public dialogue, Ghana is on course to pass a right to information act, which many believe will not only deepen democracy further, but will also enhance transparency and accountability.

The government understands the need to consolidate political achievements, and is actively participating in the African Peer Review Mechanism, a governance initiative of the African Union. Ghana was the first country to be reviewed under this initiative and to prepare a program of action. Progress reports on the program of action have been produced annually.

There is an emergence of Civil Society Organizations in the country during the past decade. The CSOs and the vibrant private media continue to be vehicles for demanding accountability. Both the CSOs and the private media play a very important role in the promotion of good governance. They act as vigilant watchdogs for human rights and the abuse of authority by those in power and also ensure accountability, transparency, credibility and legitimacy. They also forge partnerships between government and the citizenry and thus provide channels of communication and flows of information between governments and citizens.

Summary of the Main Indicators

Recent Macroeconomic Developments

• Following the widening of fiscal and external deficits in 2008, the economy is starting to show some signs of stabilization, as demand pressures lessen. Yet, more is needed to bring the economy back onto a sustainable path, in particular on the fiscal front. Insufficient progress will otherwise increase the pressure to use forthcoming oil revenue (in late 2010 or 2011) to cover public consumption expenditures rather than finance much needed investments. The Government has taken a number of measures to stabilize the situation, including an ambitious budget and medium term macroeconomic framework, financially supported by the World Bank and the IMF.
• As anticipated, both the fiscal and external deficits were reduced in the first half of 2009 (H1 2009, in comparison with that of the same period in 2008, H1 2008), under the impact of positive exogenous shocks (good rains, low oil prices, high cocoa and gold prices, good cocoa season) and fiscal stabilization efforts. The fiscal deficit reached 4.5 percent of GDP while the Balance of Payment (BOP) current account was in little surplus. Since July, the exchange rate has broadly stabilized against the US$, as well as the inflation rate, around 20 percent. Indirect indicators (Bank of Ghana composite index, private sector credit, indirect tax revenue, etc.) all suggest a deceleration in GDP growth, which should nevertheless remain positive in per capita terms. And while Ghana’s sovereign bonds spreads are now declining, as in the other emerging markets, the impact of the global crisis is now mostly felt through the decline in remittances and foreign direct investment. Except for a few specific cases (e.g. Ghana Commercial Bank’s high exposure to oil related SOEs unable to meet their obligations), the financial sector seems to be withstanding the global crisis, but non performing loans could suffer from a delayed settlement of government arrears. Foreign currency reserves have stabilized and are expected to improve with IMF support and the decision of the G20 to raise special drawing rights will enable Ghana to place an additional US$425 million at the Central Bank.
• Challenges, however, remain if Ghana is to meet its medium-term fiscal targets. Following the adoption of the IMF-backed macroeconomic framework in June 2009, the Government revised its budget law to introduce a new set of austerity measures (removal of tax exemptions, introduction of new levies, account for additional budget support - from the World Bank in particular - in substitution of domestic borrowing) in order to be able to meet its end-year fiscal deficit target of 9.4 percent of GDP. It also managed to negotiate a within-budget increase in public wages with the trade unions (except for the health sector, where negotiations with doctors were not concluded by early September). The submission of the supplemental budget to Parliament in August 2005 (for the remainder of 2009) nevertheless also revealed a stock of outstanding public arrears largely exceeding that budgeted (US$ 1.2 billion or 7.9 percent of GDP, against 2.5 percent budgeted). However, it is still not clear how the issue of arrears will be settled, as the supplemental budget does not include any specific provision for it, beyond due diligence and audit.
• Persistent price inflation and State Owned Enterprises (SOEs’) financial situation also remain of concern. The annual inflation remains high at around 20 percent (end-July), as do interest rates (26 percent on 3 month T-bills). Nonetheless, the stabilization of the exchange rate could help the Central Bank to approach its end-of-year 14.6 percent inflation target. Commercial banks have tightened their credit stance in Q2 09 (shorter maturities, higher collaterals), while net private demand from enterprises and households for credit continued to drop, in particular for investment expenditures (equipment and housing loans). At 10 percent in June 2009, the share of banks’ non performing loans remains of a concern with growth deceleration and the issue of public arrears and contingent liabilities. The high exposure of some banks to energy SOEs (and related high indebtedness of the same SOEs) seems to be of particular concern to the Government, for its implications in terms of financial sector vulnerability and SOEs’ ability to continue operating.

Ghana’s Policy Score Card

Ghana ranks 3.9 in the provisional Country Policy and Institutional Assessment index 2008, which means it is classified amongst the strong performers in Sub-Saharan Africa, along with Botswana, Cape Verde, Mauritius and South Africa, Senegal, Tanzania and Uganda. A summary of Ghana’s achievements and challenges is presented below:

• Macroeconomic and Fiscal Policies (3.7). – Ghana’s macro-economic and fiscal policy rating was downgraded (from 4.0 in 2007) for its fiscal slippages discussed above. Fiscal policy continued nevertheless to have a pro-growth and a pro-poor orientation, with domestically-financed public investments at 10.4% of GDP by end-2008 (against 9.2 percent in 2007), and poverty reducing expenditures at 9.2 percent of GDP by end-2008 (against 9.4 percent in 2007). Health and education expenditures respectively accounted for respectively 7.9 and 13.3 percent of total budget expenditures in 2008.
• Structural Policies (4.0) – Ghana has one of the best trade policies in the sub-region, with a relatively simple tariff structure averaging around 14.5 percent. Other elements of the business environment are also good, with reductions reported in the time required to register new businesses and to register property, as well as in the ease of trading across borders. Access to credit by the private sector was also made easier, as measured both by the Doing Business report and by the increase in the private sector’s share in total domestic credit. The cost of starting a new business has declined, while commercial courts dealing with bankruptcy and debt recovery cases have raised the probability of business survival. As a result, Ghana moved up the Doing Business index, rising from 102 out of 175 countries in 2005 to 82 out of 178 countries in 2008.
• Social and Equity Policies (4.1) – Ghana has made considerable progress in reducing poverty. The latest estimates from the 2006 Ghana Living Standards Survey (GLSS) indicate that the poverty headcount declined to 28.5 percent, down from 39.5 percent in 1998, and World Bank estimates suggest it further declined afterwards. Part of the reduction in poverty is attributable to growth, while redistribution also contributed, especially in rural areas. Redistributive factors included greater access to education, health services, and land ownership.
• Governance and Anti-Corruption (4.0) – Ghana has held five multi-party elections since 1992, with 4 of these election results have been accepted as free, fair and transparent by both domestic and foreign observers. In December 2008, Ghana again witnessed yet another peaceful and successful change of government from one party to another at the end of the second term of Ex-President Kufour. The 2008 elections which ended in a second round however stretched the institutions of governance to a limit. At the end, the Electoral Commissioner declared a winner on January 3, 2009. A new President (Prof. John E. A. Mills) was thus installed on January 7, 2009. Property rights are protected, contracts are enforced and the legal system is becoming more effective. The quality of public administration however remains low and the wage bill continues accounting for a large share of public expenditure (30 percent). Corruption and state capture by vested interests are surmountable problems in Ghana due to vibrant public dialogue, facilitated by an independent media.

World Bank Group Role

The World Bank Group strategy in support of Ghana’s Growth and Poverty Reduction Strategy II rests on three overarching objectives: increasing growth, reducing poverty and reducing inequality. To achieve these objectives, the Bank also seeks to deepen its collaboration with other development partners through the Multi Donor Budgetary Support framework, as well as other partnership programs, such as those existing in sector programs for Health, Education, Energy, Agriculture and Rural Development, Environmental Governance and Natural Resource Management, Private Sector Development, Public Sector Reform, Public Financial Management and Water and Sanitation.

For the period covering the Bank’s Fiscal Years (FY) 2009 and 2010, the proposed lending program supports the objectives laid out in the Country Assistance Strategy through three development policy operations in (i) agriculture, (ii) environmental governance; (iii) the ongoing PRSC series, as well as investment operations foreseen in the transport sector, ICT, water and sanitation, energy, urban and land. These operations are subject to discussions with the new Government.

World Bank Program

The World Bank portfolio is large with over $1.5 billion ($1,511.4) and 45 different financial instruments (IDA credits and Trust Fund grants) Portfolio performance of Bank-financed projects is weaker than what would be expected for a country with Ghana’s CPIA rating. Disbursements have been on a declining trend, and only 59% of projects evaluated achieve their objectives.

Total number of current Bank Projects (including Global Environment Facility) disaggregated by sector and % as well as amount:

IFC

The International Finance Corporation’s (IFC’s) strategy in Ghana includes supporting private provision of infrastructure and extractive industries, building and deepening the domestic financial sector; expanding financing and technical assistance support to micro, small and medium enterprises (MSMEs); promoting the development of non-traditional exports; and enhancing the business enabling environment through advisory services.

For the year ending June 30, 2009, IFC’s commitments in Ghana totaled approximately US$370.0 million (IFC’s own account), Currently, the largest investments include a US$115 million loan to Tullow (oil), a US$100 million loan to Kosmos Oil (oil), a US$90 million loan to Zain Ghana (Telecommunication) as well as a US$75 million loan to Newmont Ghana (Mining). IFC also has an exposure of about US$141.5 to various financial institutions in Ghana. Current pipeline of high probability projects to be committed this fiscal year totals about US$330 million including expected investments in the Oil, Gas and Mining, in the Telecoms and in the financial sectors.

In advisory services, both the SECO-IFC Leasing and Housing Finance programs are in their closing stages. The Ghana leasing program has been incorporated into the African Leasing Facility which will now have an investment component in addition to the existing advisory services. The IFC-sponsored Home Mortgage Finance Act was signed into law in December 2008. The Lighting Africa program, a joint World Bank and IFC initiative recently held its first country advisory committee meeting in Ghana.

IFC also supports the African Management Services Company (AMSCO) who provides management expertise and capacity building to SMEs under the UNDP African Training and Management Services Project (ATMS).

WBI

The World Bank Institute (WBI) is implementing its Strategic Renewal with a focus on seven cross-cutting themes that are responsive both to corporate priorities and to strong country demand, including: Fragile and Conflict-affected States, the Global Economic Crisis, Governance, Climate Change, Health Systems, Urban Development, and Public-Private Partnerships (Service Delivery). Several new business lines will be used to support these themes: structured learning programs; just-in-time practitioner knowledge exchanges (South-South; MIC-OECD); and innovation platforms to identify and incubate innovative ideas, and nurture practitioner-generated, replicable solutions to development challenges. WBI will extend its reach and connect experts around the globe by partnering with country and regional organizations and practitioner networks and by applying new learning technologies more broadly.

WBI has delivered a host of programs in Ghana including on local governance, sustainable land use and management, project implementation, parliamentary strengthening, youth and leadership, and climate change. Participants from Ghana are heavily involved in various Regional events on similar topical areas

MIGA

Ghana represents the Multilateral Investment Guarantee Agency (MIGA’s) second largest exposure in sub-Saharan Africa. The Agency has insured three investments in support of projects in the country’s financial, infrastructure and oil and gas sectors. These projects, sponsored by investors from Bermuda, France and Luxembourg have a combined gross exposure of $131.3 million. Pipeline. MIGA is currently working with a British investor to provide guarantees for a services project in Ghana.

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