NUMBER 99 L _ _ _ _ _ _ . _ _ __ _ _ _ _ _ _ _~~~~~ ~~~_________ ____ ____ *ED_recisu Operations Evaluation Department ~~~~~~December 1995 Ghana: Is Growth Sustainable? World Bank loans of mnore than $2 bil- eralized and inflation drastically re- cently the private investment rate lion, incluidinig more than $1 billion for duced. Extensive price and distribu- was only 4 percent of GDP, and the adjustmenzt operations, have helped tion controls were dismantled. national savings rate was only Ghana's economnic progress over the past Cocoa and other exports recovered. 1 percent of GDP. decade. Buit a new study by OED* GDP growth has averaged about warns that the progress will not be sus- 5 percent a year over the past de- * Aid. Ghana's recovery in the tained uxnless Ghana speeds up the cade. Poverty has been reduced and 1980s was led by the public sector, implemenitatiotn of a large unfinished social indicators have improved. supported by external assistance. In agenda of policy reform. The current 1988-92, annual net receipts of offi- strategy has not fostered the response Long-term concerns cial development assistance aver- needed from the private sector. Nor has aged more than 10 percent of it raised agricultutral productivity. The While Ghana has been hailed as a Ghana's GDP. Much of the aid was Bank needs to frame its assistance strat- success story, prospects for sustain- quick-disbursing and used to fi- egy to help Ghana achieve participatory ing satisfactory rates of growth and nance current expenditures. But in developmenit and self-reliant, private poverty reduction are uncertain: today's stringent aid climate, Ghana sector-led groztth. cannot count indefinitely on large * Agricultural growth is much concessional inflows. Progress in adjustment slower than necessary and feasible, and may be slower than population * Environmental problems are seri- Ghana launched its far-reaching growth. Over the decade 1983-94, the ous. Soil fertility loss, soil erosion, Economic Reform Program (ERP) in Bank emphasized structural reform and deforestation have been esti- 1983. After more than a decade of of prices, marketing, and enterprise mated to cost Ghana 4 percent of its economic decline and political insta- ownership. But Ghana made slow GDP annually (see "Ghana 2000 bility, three shocks had brought the progress in eliminating the para- and Beyond", World Bank, 1992). economy close to collapse: a pro- statal monopoly in cocoa marketing longed drought, a marked deteriora- and in developing more efficient * Poverty. Since the adjustment tion in the terms of trade, and the markets. Little was done to improve program started, important "qual- unexpected return of more than a the productivity of the main food ity of life" indicators, including million Ghanaian workers expelled crops or to generate dynamic inno- child malnutrition, infant mortality, from Nigeria. vation in the small farm sector. literacy, and access to clean water, have improved. Between 1988 and The crisis changed attitudes and a Fiscal problems have resurfaced. 1992 the proportion of Ghana's perceptions both in Ghana and in Deficits are larger than is consistent population in poverty fell some- the World Bank. Bank staff formed a with low inflation and adequate what, from 36 to 31 percent. Almost strong partnership with a core group credit to the private sector. Fiscal all the improvement in incomes of Ghanaian officials responsible for problems, combined with excessive came from economic growth; in- preparing and implementing the credit to public enterprises, still de- come distribution remained fairly ERP. A key factor in sustaining the press private investments and sav- reforms since 1983 has been the con- ings, and underlie the resurgence of *Ghana Country Assistance Re- tinuity and competence of this core inflation in 1993-95. view: A Study in Development group. Effectiveness, Operations Evalua- - Savinlgs and invzestment. Total and tion Department, World Bank, The main achievements of the private savings and private invest- 1995, forthcoming. ERP are well known. Trade was lib- ment rates are extremely low. Re- ,_ g. stable. The income gains benefited coordination among development through sending the signal that stat- most regions, and especially rural agencies. The Bank and other ist policies and intimidating practices areas, but poverty increased in agencies sometimes pushed more are still tolerated. Accra. Living standards among the assistance on Ghana than could ef- poorest groups remain seriously fectively be managed by the public Fostering private sector develop- low. Most of Ghana's poor are food sector. And not enough attention ment is an area in which the Interna- crop and export crop farmers with was paid to the disadvantages of tional Finance Corporation should incomes about one third of the na- large aid flows, including new forms play an increasingly active role. tional average. Targeting of social of rent-seeking through patronage spending has not improved. relationships. The least effective A "niexuis strategy" to address thze instrument was technical assistance liinks amnonig rapid popiulationl growth1, Bank assistance strategy aimed at fostering institutional declininig agricultuiral productivity, anzd reform. einzironinen tal deteriorationi. Ghana's In the 1980s, the Bank's assis- unexploited land and forests have tance strategy was relevant to For the Bank's assistance to be been dwindling fast, and rising Ghana's needs in giving priority to as relevant, efficacious, and cost- population density has led to shorter stabilizing, liberalizing, and rehabili- effective as possible, the Bank and fallow periods and reduced soil fer- tating the economy. The strategy government should rethink their tility. The combination of rapid closely accorded with the govern- priorities. Externally supported population growth, declining agri- ment's strategy of "going for spending on infrastructure and so- cultural productivity, and environ- growth" through a public sector-led cial sector development can keep mental deterioration needs priority recovery program. Both lending and economic growth going for a time. attention in the Bank's lending pro- nonlending services were efficacious But to sustain growth and poverty gram and in economic and sector and cost-effective. They put appro- alleviation will require much more work, policy dialogue, and aid priate emphasis on getting prices, vigorous responses from the private coordination. balances, and incentives right, on sector and from agriculture than rebuilding moribund infrastructure, have been achieved so far. This Agriciultuire. The reform of ineffi- and on mobilizing aid. The sound- calls for a breakthrough in the in- cient agricultural parastatals is too ness of most of the Bank's policy ad- vestment climate and business envi- slow. More in-depth analytical work vice was founded on good economic ronment for private business. It is needed to identify ways and and sector work. also calls for a new agriculture and means to increase private investment human resources development in agriculture-particularly in non- In the early 1990s, however, the strategy. traditional export crops-and to raise Bank's assistance program did not agricultural productivity in ways adapt sufficiently-either in its pri- Elemiienits of strategy consistent with environmental orities or instruments-to Ghana's sustainability. changed conditions. Complacency Conzditionis for private eniterprise. To led to a loss of momentum in ad- persuade the private sector that the Educationi. Ghana launched a com- dressing the unfinished agenda increasingly market-friendly policies prehensive educational reform pro- of adjustment. Neither the Bank's are unlikely to be reversed, Ghana gram in 1986, to provide a more nor the government's strategy has needs to provide unequivocal sup- vocationally and practically oriented adequately incorporated the goals port for private sector development, curriculum and wider access to basic of poverty reduction, raising agri- carry out in-depth administrative education, especially for rural fami- cultural productivity, institutional reforms, and undertake accelerated lies. With strong government com- reform, and environmental programs of privatization. mitment and heavy support from the sustainability. Bank and donor agencies, the pro- Ghana's overstaffed and poorly gram provided all the inputs thought Over the decade 1983-93 as a functioning public administration to be necessary. But test results are whole, the Bank's most effective in- and parastatal enterprises impede very poor, suggesting that students struments were its macro- and private sector development in sev- are learning very little. This has pro- policy-oriented economic work, eral ways: through giving excessive voked a new stocktaking by govern- macro-level policy dialogue, the first credit to parastatals, which crowds ment and donors. Other countries, two structural adjustment opera- out the private sector from access to too, have found that successful edu- tions, lending for infrastructure re- finance; preferential treatment of cational reform can prove more com- habilitation, and aid mobilization public firms; de facto monopolies; plicated than expected. There seems efforts. Lending for agriculture and rent-seeking, obstruction, and ha- to be agreement that Ghana's re- in the social, financial, and indus- rassment by public officials; ineffi- forms allowed too little time for de- trial sectors had less satisfactory re- cient delivery of infrastructure and bate, curriculum design, piloting, sults, as did efforts to foster other public goods and services; and and teacher training. December 1995 1980s. The Bank made major contri- Ghana: sustainabilitv indicalors | butions through its economic work _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ __ _ _b tin th o g it ec no i wor 1IS4S7. 193S-99 1993 on public investment and public expenditure reviews. But weak- bia\-ngs. inv estment. aid dependenc~- Prk ate investment t.1(i ot GDP 4 7 nesses in budget execution, ac- National -a% ing. as,: of GDP i 7 counting, and evaluation systems Genuine sav-ing- rate as' orGNP -12 -4 I r still need priority attention. A huge ODA disburst*ments as ot GDP 6 11 9b public sector wage bill-for nearlv Nexus indicatacor 600,000 employees in a country of Total tertilit- rata 7 6 6 16 million people-underlies the -Agncultural grov\ th rate 3 2 3 difficulties in controlling the fiscal Enx iroitmental indicators deficit. There is an urgent need to Annual loss troni deforestation. erosion, 4 shoil degradtio,n as: o GDP improve public expenditure moni- detoreg.taton rate tannual; of total forett l toring and control mechanisms. Export growth Traditional 11 9 zo Poverty. To foster social and po- Nontradfitional 3.2 s litical sustainability, Ghana's strat- Go\ ernment revente as - ot GDP 12 1 1 7 egy needs to ensure that the benefits Percent 0t populaton belo%% povertv linL- 3rv 31' of growth, and of external assis- a otbtained1 t'~ Xsvubtraclting dep5rr:catio n at1 ti%e.U captlt anod d litance, are broadly shared. Imple- Ini tha n3inal b% ing, ratl mentation problems prevented the b tQI-2 Program of Actions to Mitigate the v _____ Social Cost of Adjustment ____J (PAMSCAD) and the Social Dimen- Capacity blilding, civil service re- Divestiture and restruzcturing of sions of Adjustment Program from form. Ghana's underused human puiblic enterprises. Privatization achieving significant results. capacities and the poor ethos of its of Ghana's large and inefficient bureaucracy are arguably more im- public enterprise sector has been Changes needed portant constraints on the function- slow. Only 54 of 300 nonfinancial ing of government than is the public enterprises had been fully The Bank's assistance strategy scarcity of skills. Thus far, the gov- divested by 1993. Some important needs to be framed in a long-term ernment and the Bank have empha- privatization measures have been perspective of at least a decade. sized increases in the supply of taken since then, but Ghana needs The problems just outlined need skills through externally financed to draw up a clear action plan urgent attention, but they will training programs, and neglected for enterprise divestiture and not be solved by quick or simple the institutional context and gover- rationalization. policy measures or bv piecemeal nance conditions that determine investments. how effectively skills are used. Too For public enterprises, many often, technical assistance to Ghana pricing and procurement decisions Broaden and deepen "ozvnersliip". has been dominated by short-term are still taken by government and In the 1980s, the Bank dealt with a considerations, rather than geared efficiency improvements have been small group of leaders and techno- to long-term capacity building and limited. Capacity utilization is crats accountable to an unelected institutional learning. poor. Many enterprises need to be head of state. In the 1990s, Ghana liquidated. has an increasingly active parlia- The need now is for a coherent ment (notwithstanding its one-party and comprehensive strategy for re- Bank staff attribute the slow pace composition) and new forms of de- forming public administration. This of privatization to insufficient politi- centralized organization and ac- strategy should address the root cal support-partly because of countability. The political reforms causes of underutilization of Ghana's ideological heritage and may slow decision making and Ghana's trained people, overstaffing partly because of vested interests. policy implementation in the short and low productivity in the civil The Bank's approach to privatiza- term. But insofar as they broaden service and public enterprises, and tion may have been too formulaic the "ownership"-and thus im- the poor performance of most tech- and not sufficiently heedful of prove the sustainability-of poli- nical assistance projects (not only important political and social cies, they will serve to deepen and the Bank's). The Bank should en- dimensions. to speed development over the courage the government to convene longer term. The Bank needs to a local consultative group to pro- Pitblic expcenditutre mnalagemtienzt. build the analysis of political duce an action plan for making Expenditure allocation has im- economy factors more explicitly technical assistance more effective. proved markedly since the early into its country assistance strategy. OED Precis Interact zwith broader constituencies. faster, management noted the tension Noting that many of the findings, As part of its role in helping to elu- between the goals of rapid implemtienita- concluisions, and recommendations cidate policy options, the Bank tion and Ghanaian ownership. The Bank could usefuilly be applied to other coun11- should interact with broader con- plans to support measutres that govern- tries and regions, the committee subse- stituencies in and outside Ghana. It ment itself develops for public service quently sent the Bank's President a list can help provide information and reform, provided they can be expected to of generic issues for discussion with analysis on Ghana's economic and achieve the goal of a leaner and mnore ef- Bank managemenit. These included: social situation and prospects by fective public service; this strategy is disseminating its documents more consistenit with supporting a progran * the Bank's propensity to underesti- widely, by encouraging the govern- that is both Ghana-ozvwned and sustain- mate the time required, especially in ment to discuss Bank and jointly able. On consultation with broader con1- countries zvith wveak instituitional ca- authored reports with broader audi- stituenicies, managemenlt noted its plans pacities, to implement reforn programs ences, and by undertaking more for public dissemination of the resilts of and achieve sustainied slupply responses; outreach activities in regard to the Bank's economic and sector work, nonlending services. In the process, and for supporting zvorkshops for parlia- * the need for country assistance strat- Bank staff should listen more to men tariatns and the public at large. On egy to reflect the country's political views and concerns of other ana- public expenditure management, rnan- economny; lysts of Ghanaian issues. agement noted that a financial manage- ment technical assistance project n1owZ in * the need to consider costs as zvell as Focus on governance. The Bank's preparation zvill support implemtienitation benefits of rapid trade liberalization, to policy dialogue with the govern- of expenditture monzitoring and account- design programs flexibly, and to monitor ment, and the design of its assis- ing systems in 16 miniistries. On aid de- their effects so as to enable midcourse tance strategy, should emphasize pendency and coordination, manage- corrections; governance factors that tend to di- rment noted that donors' impact and in- minish the confidence of the private fluenice on government's choices remains * the need for advice and support in sector and hence private savings large, even if declininlg. The government the finanicial sector to address and investments. now coordinates aid in some suibsectors, root causes, not just symptomtis, of and it led the development of the public problems; Help improve aid coordination poli- expenditure programn, uhich has become cies and practices. Aid is well coordi- the basis for all donor support. Fututre * the need for an adequate method of nated in some areas but not others, Bank economic and sector work will ex- defining and measuring the minimal and the government should take a amine the potential for reducing aid de- acceptable degree of "ownershtip" needed much greater role itself. In particu- pendency. As to the skill mnix of Bank for success in individual operations, and lar, sectoral and subsectoral coordi- staff, managementt noted that it is pay- for consistent, thoroughgoing efforts to nation needs to be strengthened in a ing special attention to instittutionlal promote partnership and borrozwer par- context of agreed sectoral strategies developmenit skills in its recruitment ticipation in Bank operations; and action plans. policy. * the need for high quality, judiciously Bank management, responding The Committee on Development timed, economnic and sector work and to the study, agreed that Ghana's poli- Effectiveness of the Bank's board of ex- for thorouigh analysis of proposed cies should seek to encourage private ecutive directors, discussing the study, operations; sector growth by accelerating highlighted the following issues: the need privatization, increasing coinpetitionz in for greater borrower participation in pre- * skill inix, staffing, and zvork location the financial sector, liberalizing the co- paring the Bank's country assistance issues. coa and petroleum sectors, and sustain- strategies; differenices between manage- ing macroeconomic stability; support ment and OED o01 the proper pace of The committee also asked the Director institutional development by improving institutional development; aid depen- General, Operations Evaluation, for a public expenditure managemnenit and dency and ways of improving domestic sumllmary of OED findinigs on1 the need restructurinig the public service; and resource mobilization; zways to to broaden the Bank's skills mix, and the promote agricultural growth zvhile pro- strengthten aid coordination; and the desirability of greater involvement by tecting the environment. As to OED's need to be realistic about the time needed resident missionts in the Bank's opera- recommendation that the unfinished to implemenit reform programs and tional work. That summary zvas deliv- adjustment agenda be implemenited achieve sustainied supply responses. ered to the committee on July 26, 1995. OED Precis is produced by the Operations Evaluation Department of the World Bank to help disseminate recent evaluation findings to development professionals within and outside the World Bank. The views here are those of the Operations Evaluation staff and should not be attributed to the World Bank or its affiliated organizations. Please address comments and enquiries to the managing editor, Rachel Weaving, G-7137, World Bank, telephone 473-1719. Internet: rweaving@worldbank.org December 1995