Documentof The World Bank FOR OFFICIAL USEONLY ReportNo. 29177-GH INTERNATIONALDEVELOPMENTASSOCIATION PROGRAMDOCUMENT FORA PROPOSEDCREDIT INTHE AMOUNT OF SDR58.6 MILLION (US$85MILLIONEQUIVALENT) AND PROPOSEDGRANT INTHE AMOUNT OF SDR27.6 MILLION (US40 MILLIONEQUIVALENT) TO THE REPUBLICOF GHANA FORA SECOND POVERTYREDUCTIONSUPPORTCREDITAND GRANT June 7,2004 PovertyReductionandEconomicManagement4 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ii CURRENCY EQUIVALENTS CurrencyUnit Cedis us$o.oool US$1 ---- Cedis Cedis 9,012 FISCAL YEAR January 1-December 31 ACRONYMS AND ABBREVIATIONS AAA Analytical and Advisory Services APR Annual ProgressReport APRM Africa Peer ReviewMechanism APL Adaptable ProgramLending BOG Bankof Ghana BPEMS BudgetandPublic ExpenditureManagementSystem CAGD Controller and AccountantGeneralDepartment CAS Country Assistance Strategy CEM Country EconomicMemorandum CFAA Country FinancialAccountability Assessment CHPS Community BasedHealthPlanningand Services CPAR CountryProcurementAssessment Report CHO Community HealthOfficer COMC Committeeof Oil MarketingCompanies CWIQ Core Welfare IndicatorsQuestionnaire DACF District Assembly CommonFund DFID Department for InternationalDevelopmento fthe UnitedKingdom DPs DevelopmentPartners DPT Diphtheria, Polio andTetanus ECG Electricity Companyof Ghana EdSEP EducationSector Project EFA EducationFor All EPA EnvironmentalProtectionAgency EPI ExpandedProgramon Immunization ESW Economicand Sector Work ETC Entity Tender Committee EU EuropeanUnion FASDEP FoodandAgriculture Sector DevelopmentPolicy FINSSP FinancialSector StrategicPlan GAC GhanaAids Commission GCMS Ghana CustomsManagement Systems GCNet GhanaCommunityNetwork GDP Gross DomesticProduct GET Fund GhanaEducationTrust Fund GPER Gross PrimaryEnrollmentRate GLSS GhanaLiving StandardsSurvey GNI Gross National Income GoG Governmentof Ghana GPRS GhanaPovertyReductionStrategy HAART Highly Active Anti-Retroviral Treatment HIPC - AAP Highly IndebtedPoor Countries - AssessmentandAction Plan HIPC Highly IndebtedPoor Countries IDA InternationalDevelopmentAssociation ILO InternationalLabor Organization IMF InternationalMonetaryFund IMR Infant Mortality Rate IRS InternalRevenueService ITN InsecticideTreatedNets JSA Joint Staff Assessment KFW Kreditanstaltflir Wiederaufbau LIL Learningand InnovationLoan FOROFTI- USEONLY M&E Monitoring andEvaluation MDAs Ministries, Departments andAgencies MDBS Multi-Donor Budgetary Support MDG MillenniumDevelopment Goals MFI Micro FinanceInstitutions MMDAs Metropolitan, MunicipalandDistrict Assemblies MMR Maternal Mortality Rate MOFA Ministry of Foodand Agriculture MOFEP Ministry of Financeand Economic Planning MOJ Ministry of Justice MOH Ministry of Health MTEF Medium-term Expenditure Framework NDAP ' National DecentralizationAction Plan NDPC National Development Planning Committee NETS NationalExpenditureTracking System NHIS National HealthInsuranceScheme PEM Public ExpenditureManagement PER Public ExpenditureReview PETS Public ExpenditureTracking Surveys PLWHA People Living With HIViAIDS POW Programof Work PPB Public ProcurementBoard PPMED Policy, Planning, Monitoringand EvaluationDirectorate PRGF Poverty Reductionand Growth Facility PRSC Poverty ReductionSupport Credit PSIAs Poverty and Social Impact Analysis PSDS PrivateSector Development Strategy PSRS Power Sector ReformStrategy PURC Public Utilities Regulatory Commission RELC Research ExtensionLiaison Committee STAP Short Term Action Plan SEA Strategy EnvironmentalAssessment SDR Special DrawingRights SSNIT Social Security andNational InsuranceTrust SWAP Sector Wide Approach TA TechnicalAssistance TOR Tema Oil Refinery TRC Tender ReviewCommittee U5MR Under 5 Mortality Rate UNICEF United NationsChildren's Fund VAT Value-AddedTa.. VRA Volta River Authority Vice President: Callisto E. Madavo Country Director: Mats Karlsson Sector Director: Paula Donovan Sector Manager: Robert Blake Task Team Leader: Carlos B. Cavalcanti This document has a restricteddistribution andmay be used by recipientsonly in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. i --__ iv TABLE OF CONTENTS 1 INTRODUCTION 1 2 THE GHANA POVERTYREDUCTIONSTRATEGY ...................................................... 2 3... ................................................................................................................... RECENT ECONOMIC DEVELOPMENTSAND PROGRESSINPOVERTY REDUCTION ................................................................................................................................................... 4 A . Macroeconomic and StructuralReforms................................................................................ B Medium-Term Prospects:MacroeconomicOutlook andExternal FinancingRequirements 8 . .4 C. Poverty Profile. Trends andProgress in Social andHumanDevelopment.......................... 10 4. WORLD BANK GROUPSTRATEGY ............................................................................... 13 A. Overview .............................................................................................................................. 13 . 14 C. Analytical Underpinnings..................................................................................................... B Consistencybetweenthe GPRS. the CAS. andthe PRSCs.................................................. . . D. The DevelopmentPartnership.............................................................................................. 15 17 5. THE POVERTY REDUCTIONPROGRAMFORPRSC SUPPORT ............................ 18 A . Overview ........................................................................................................................... 18 B. C. D. The ProposedPRSC-2ReformProgram........................................................................... Progresssince PRSC-1...................................................................................................... 21 External Evaluation........................................................................................................... 19 23 E. F. PromotingGrowth. Income and Employment .................................................................. Improving service provision for humandevelopment...................................................... 23 31 45 6.GTHE. Improving GovernanceandPublic Sector Management................................................... PROPOSEDCREDIT AND GRANT ........................................................................ 55 A. PRSC-2Credit and grant Administration ......................................................................... 55 B. C. Alignment with the IMF ................................................................................................... 59 59 D. Environmental Aspects ..................................................................................................... Poverty and Social Impact Analysis ................................................................................. 61 E. Benefits and Risks............................................................................................................. 63 List of Tables Table 1: Government Poverty Spendingand its Composition. 2003-2004..................................... 7 Table 2: Key MacroeconomicIndicators........................................................................................ 8 Table 3: External Financing, 2001-06............................................................................................. 9 Table 4: Poverty Indicesby Locality, 1992-1999......................................................................... 10 Table 5. Analytical Underpinnings............................................................................................... 17 Table 6: Supportingthe GPRS implementationthrough the PRSC.............................................. 18 Table 7: Assessment of progressagainstthe PRSC-2prior actions.............................................. 22 Table 8: Allocation criteria for scholarships................................................................................. 33 Table 9: Female Gross Enrollment Ratio-2001/2003................................................................. 33 Table 11: Criteria for educationrecurrentexpenditureallocation formula................................... Table 10: Ministry of Education's Execution Rate ofNon-Salary Expenditure, Sept.2003........34 35 Table 12: GPRS - ExpectedEducational Outcomes andTargets by 2005 ................................... 36 V Table 3: Primarypupil-teacher ratio inthe three most deprivedregions, 2002-2005.................36 Table 4: Pupil-textbook rationinthe three mostdeprived regions, 2001-2005......................... 36 Table 5: QualifiedTeaching Staff, 2001-2015 (%)..................................................................... 37 Table 16: HealthIndicators, 1988-2003(%)................................................................................. 37 Table 17: Health-GPRSOutcomesfor 2005................................................................................. 41 Table 18: PRSC/MDBS ReportingandResponsibilityAssignment............................................. 57 Table 19. PSIAs Preparedfor MDBS-2004/PRSC-2:Methods,................................................... 62 List of Figures Figure 1: GPRSTargets for Growth, Poverty Reduction,HumanDevelopmentandHIV/AIDS Figure2: MonthlyConsumer Price Index, Jan-Dec, 2003 (%)....................................................... Prevention, 2000 to 2005.............................................................................................. 35 Figure3: Budget Executiono fPoverty RelatedExpenditures, 2003.............................................. Figure4: EducationExpenditure, 2002-03 .................................................................................... 5 Figure5: HealthExpenditure, 2002-03........................................................................................... 6 - 6 Figure6: PovertyHeadcount ........................................................................................................ 12 Figure7: Use of pre-NatalandMaternalHealthServices andAccess to Health Facilitiesby Region .................................................................................................................................... 13 List of Schedules Schedule 1:Letter of DevelopmentPolicy Schedule 2: PolicyMatrix: Government's ReformStrategies andProgress Indicators Schedule 4: Ghana- PRSC andMillenniumDevelopmentGoals Schedule 3: QuantitativeMonitoringIndicators Listof Annexes Annex 1: Status Report on Triggers for the HIPCFloatingCompletionPoint Annex 2: TechnicalAnnex to the FrameworkMemorandum-MultiDonor Budgetary Support (MDBS) Annex 3: Countryat a Glance Annex 4: CountryEconomic Indicators Annex 5: Key Social Indicators Annex 6: Key ExposureIndicators Annex 7: Ghana-IMF/ World BankRelations Annex 8: Ghana-Status of Bank Group Operations Annex 9: Timetable ofKey ProcessingEvents Annex 10: FundRelationsNote This document has a restricted distributionand may be used by recipients only in the performance of their official duties. Its contentsmay not otherwisebe disclosedwithout WorldBank authorization. vi GHANA SECONDPOVERTYREDUCTIONSUPPORT CREDITAND GRANT Financingand ProgramSummary Borrower: Government o f Ghana Amount: US$125 million (US$S5 millionIDA Credit and US$40 million IDA Grant) Terms: Standard IDA terms: 40-year maturity with a 10-year grace period Description: The proposed operation o f US$125 million is a Poverty Reduction Support Credit and Grant (PRSC) that would build on recent reforms carried out by the Government o f Ghana and support the implementation o f the Ghana Poverty Reduction Strategy (GPRS). The proposed PRSC-2 will support the policies and reforms aimed at improving the living conditions o f the population by promoting growth, incomes and employment, accelerating human resource development, and strengthening governance and public sector management as spelled out in the country's GPRS. The second PRSC would lay the ground for helping the country to attack poverty in a comprehensive manner. It i s envisaged that there will be further single- tranche PRSC in FY05. Benefits: The proposed PRSC-2 i s expected to provide a series o f benefits. The main and ultimate benefit is the human progress towards the MDGs expected from the growth and service delivery outcomes o f the implementation o f the program supported by this operation. In addition, there are two intermediate benefits. The first i s helping maintain macroeconomic stability by contributing to the closing o f the external financing gap. The second is enabling Government to generate the funds required to execute GPRS policies and programs. Risks: There are four risks to the success o f the program: (i)the government is unable to sustain its current fiscal stance in the run up to the December 2004 elections; (ii)the macro-financial context may deteriorate and make program implementation difficult as a result o f exogenous shocks such as adverse terms o f trade or increasing regional instability; (iii)fiduciary weaknesses may limit the impact o f the program; and (iv) capacity limitations may lead to . only partial implementation. The risk that Government changes its fiscal stance in the run up to the December 2004 elections is mitigated by the government's recent track record on fiscal management, and early action in identifying expenditure savings and additional revenue measures to offset price subsidies for retail petroleum products. vii The risk that exogenous shocks, such as unfavorable terms of trade shocks that widen the external financing gap, could disrupt the macro-financial framework i s to some extent mitigated by the excellent relations the government maintains with the Multi-Donor Budget Support (MDBS) development partners. These excellent relations should ensure access to emergency financing in case needed. The partners have pledged their support in the form of predictable and sufficient multi-year financing, as long as the program is implemented with commitment, and they stand ready to adjust the timing o f their disbursements to provide adequate financing as long as the program remains sound. The risk that residual fiduciary weaknesses may lead to the misapplication o f public funds i s steadily decreasing, with progress made on strengthening the regulatory framework for public expenditure management (e.g., the new Public Procurement Law, the Financial Administration Act, the Internal Audit Agency Act), and in strengthening budget management itself. During 2003, there was an improvement in cash and commitment controls, prompt reconciliation o f budgetary and banking accounts, and frequent and timely reporting on budget execution. The implementation o f the NETS system and the rollout o f the Oracle Financial Applications System, under BPEMS, to key ministries in 2004 hrther reduce these risks. Finally, risks are hrther mitigated by the elevation to national attention o f fiscal transparency communications, budget account disclosures, and Parliamentary oversight o f resource use and development results - all as part and parcel o f the GPRS process. The risk that implementation capacity may fall short o f the requirements o f the program i s mitigated by the fact that the government continues to build its own capacity, as well as draw on the extensive technical assistance being made available by the development partners. The Bank continues to provide advice on structural reforms with a strong AAA program. The IMF continues to offer macroeconomic management advice (including fiscal) via the services o f a resident Technical Advisor. And donor support under the MDBS has made critical technical assistance available in areas o f policy monitoring and evaluation, with a particular emphasis on health and poverty developments. Disbursements: SDR86.2 million (US$125 million equivalent) will be disbursedupon PRSC- 2 effectiveness. Implementing Agency: The Ministry o f Finance and Economic Planning Project ID Number: PE-PO83246 The World Bank core team for this operation was led by Carlos Cavalcantiand consisted of: Benoit Millot, Laura L. Rose, Eunice Dapaah, Evelyn Awittor, Eileen Murray (AFTH2); Vivek Srivastava, Guenter Heidenhof, Yongmei Zhou, Smile Kwawukume (AFTPR); Marcelo Andrade, Daniel Boakye, Simplice Zouhon (AFTP4); Dona1 O'Leary, Richard Senou, Subramaniam Iyer (AFTEG); Sarah Keener (AFTS2); Mbuba Mbungu (AFTPC); Papa Thiam, Michael Wong, Kofi-Boateng Agyen (AFTPS); Anthony Thompson (AFTFS) Patience Mensah, Edward Dwumfour (AFTS4); Gert Van Der Linde (AFTFM); Irene Xenakis (AFTOS); Ayman Abu-Haija (LOAG1); Karen Hudes (LEGAF). Salli Cudjoe (AFClO), and Marta Berhane (AFTP4) helped to prepare the document. Jeni Klugman (PRMPR) and Benno Ndulu (DECRS) provided guidance and advice as peer reviewers. Overall guidance was providedby Robert Blake (Sector Manager AFTP4), and Mats Karlsson(Country Director, AFC10). INTERNATIONAL DEVELOPMENTASSOCIATION PROGRAMDOCUMENTFORA PROPOSED SECONDPOVERTYREDUCTIONSUPPORT CREDITAND GRANT TO GHANA 1. INTRODUCTION 1, This Program Document proposes a single-tranche Second Poverty Reduction SupportCredit (PRSC-2) for SDR 58.6 million (about US$85 million equivalent) and Grant for SDR 27.6 million (about US$40 million) to the Republic of Ghana for a total of SDR 86.2 million, an amount equivalent to US$125 million, on standard IDA terms. The proposed operation is an integral part of the Bank's strategy to support the implementation of Ghana's Poverty Reduction Strategy (GPRS). The proposed operation is the second in a series of three such operations and would facilitate the implementationof cross cutting reforms aimed at improving the living conditions of the population by promoting growth, incomes and employment, improving the delivery of human services, and strengthening governance and public sector management. 2. The implementationof the program supported by the first operation(PRSC-1) has been satisfactory. Progress in completing the prior actions for PRSC-2 has also been satisfactory, although the prior action relating to the Cabinet statement on Public Sector Reform strategy i s expected to be completed by mid-2004. The main elements of the proposed strategy are reviewed inthis program document. The overall progress made since the approval of PRSC- 1 warrants, therefore, the move to PRSC-2. Subject to satisfactory progress in the implementation of the GPRS, it is envisaged that in 2005 there will be a third single tranche PRSC. 3. The reform program associated with this operation builds on the Government's GPRS and is alignedwith the Bank's FY04 Country Assistance Strategy (CAS).* Givenits cross-cutting focus, PRSC-2 helps harmonize existing sector focused operations, leveraging their poverty focus by ensuring appropriate expenditure allocation (level and structure) and by addressing some of their financing implications for the poor (e.g., cost recovery policies). Where PRSC-2 focuses on institutional development, its poverty leverage i s achieved by focusing on budget design and execution, as well as by monitoring poverty outcomes, ensuring that sector programs deliver results interms of human development indicators. 4. PRSC-2 builds on analytical work carried out over the past year, as well as the findings of the recently completedBank-Fundmission that preparedthe 2004 draft HIPC Public ExpenditureAssessment and Action Plan. Analytical work completed during the past year include the FY04 Country Economic Memorandum (CEM) on `Public Policy, Growth and Poverty', the FY04 Country Financial Accountability Assessment (CFAA), the FY03 Country ' "Ghana Poverty Reduction Strategy and Joint World Bank-IMF Staff Assessment of the GPRS" (March4, 2003), and"Ghana: CountryAssistance Strategy"- ReportNo. 27838-GH, February20, 2004. 2 Procurement Assessment Report (CPAR), the FY03 Poverty Report entitled `Reducing Poverty and Improving Human Development', and the FY03 FIAS study on `Regulatory Barriers to Investment in Ghana'. The program also builds on analytical work carried out by the Government and other development partners. 5. Bilateral and multilateraldonor assistancewill play an important role in supporting the implementation of the GPRS given that the country's own resources fall short of the levels required to achieve the objectives spelled out in the strategy. The GPRS has created the momentum for a significant group o f donors to align their budgetary support under a common framework, the Multi-Donor Budgetary Support (MDBS), o f which the PRSC i s part. This framework i s another step taken on the principles o f harmonization, as the MDBS will provide a framework for policy dialogue and decisions linkedto progress inthe implementation o f the GPRS. 2. THE GHANA POVERTY REDUCTIONSTRATEGY 6. Ghana launchedthe participatory GPRS process in2002, leadingto the preparation of the full GPRS that was approved by Parliament in February 2003, and considered by the Boards of the Fund and the Bank in March 2003. The main objectives outlined in the GPRS are: (i) accelerating annual real GDP growth to 5 percent by 2005; (ii) reducing poverty from 39 percent to 32 percent over the same period; (iii) improving basic infrastructure such as roads, water and sanitation, and market access; (iv) increasing the level o f primary enrollment and completion rate; (v) reducing infant, child and maternal mortality and the incidence o f infectious diseases; and (vi) improving governance and the efficiency o f the public sector (Figure1). 7. The GPRS outlines five main strategies for achieving these objectives. These strategies are as follows: Ensuring macroeconomic stability, with prudent fiscal, monetary and exchange rate policies recognized in the GPRS both for the immediate macroeconomic benefits, and for the longer term goals o f growth and poverty reduction. Stable exchange rates, single- digit inflation, and lower interest rates are important, inturn, for fostering a supportive investmentclimate. Increasing production and gainful employment. The GPRS outlines policies needed to create an enabling environment for private sector development, especially agro-based industrial development, with a strong R&D component. Raising productivity in agriculture, encouraging non-traditional exports, encouraging small and medium sized enterprises, and addressing gender inequality in access to credit are some o f the key elements o f this component o fthe overall strategy. Encouraging human development and the provision of basic services. This strategy focuses on strengthening the provision o f health care (especially HIV-AIDS prevention), populationplanning, basic education, and safe water supply and sanitation. 3 Reaching out through special programs for the vulnerable and excluded. These will focus on those in extreme poverty and that suffer deep social deprivation, such as AIDS orphans and street children. Another important element of this strategy i s establishing the capacity to deal withthe effects ofnaturaldisasters. Promoting good governance. This strategy aims at strengthening the leadership and oversight functions o f government in implementingthe GPRS, calling for strengthening the communications betweengovernment and civil society, as well as actions to promote openness, accountability, and social inclusion. Figure 1: GPRS Targets for Growth,PovertyReduction,HumanDevelopmentand HIV/AIDS Prevention,2000 to 2005 5 Increase growth m apcuiture I i'i " I I I I ! I Reduce poverty I I P I I I II P Reduce extreme poverty I a I l I K ~ Reduce poverty in three savannah reaons (avg) I I I I I I Increase P n m q Guls GCR - Increase Junior Secondq School G GER W 2005 !a 2000 0 P -B Reduce matemal mortality I I I P Reduce lnfant mortality Access to safe water inruralareas I l l I I I I I I I a Increase condom useamong women > I I I 2 Increase condom use amongmen i I ! 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 4 8. Progress in the implementation of the GPRS was recently assessed in the 2003 Annual Progress Report (APR), which provides a comprehensive review of progress in implementing the strategy adopted earlier in the year. The APR was prepared by the government during the first quarter o f 2004 and actively involved the national intra-agency poverty monitoring groups. The APR presents a wide-ranging set o f macroeconomic, budgetary, and sectoral statistics to track developments inthe five pillars ofthe GPRS. The report confirms that in 2003 Ghana made considerable progress on macroeconomic stability, noting, however, that outcomes o f several key social indicators have beenmixed. Achievements in 2003 include improved fiscal management, which coupled with a record cocoa harvest and favorable world prices for cocoa and gold, resulted in an acceleration o f growth to 5.2 percent and progress in stabilizing the macroeconomic environment. Also, there were important achievements in the implementation of structural and social policies, with good progress recorded in education and the power sector. The implementation o f the petroleum pricing policy did not proceeded as planned, however, and renewedefforts are still needed to improve basic social services delivery targeted to the poor to ensure that the country's progress towards achieving its poverty reduction objectives. Of particular concern was the deterioration inhealth indicators, namely the increase in infant mortality and under 5 mortality rates, as well as the slow reduction in maternal mortality rates. 3. RECENT ECONOMICDEVELOPMENTSAND PROGRESS INPOVERTYREDUCTION A. MACROECONOMIC AND STRUCTURAL REFORMS 9. Since embarking on economic reforms in the mid-l980s, Ghana has made considerable progress on laying the foundations for sustainable growth and poverty reduction. This has resulted in sustained per capita output growth, averaging 1.6 percent per annum, and increased private sector activity and investment. Social indicators also improved over the period. In parallel with the economic reforms, the country completed the political transition, moving to a firmly democratic form o f Government. Overall, outcomes have fallen short o f expectations, however, as progress in social and economic developments have been periodically interrupted by episodes o f weak macroeconomic management associated with the electoral cycle. 10. The country's macroeconomicperformance in 2003 exceeded expectations,with a turnaround in fiscal and monetary policies. Improved fiscal management over the last 18 months, coupled with a record cocoa harvest and higher world prices for cocoa and gold resulted in sustained growth and progress in stabilizing the macroeconomic environment. Real GDP growth accelerated to 5.2 percent, up from 4.5 percent in 2002. The improved fiscal and monetary policy mix allowed the easing in inflation in recent months, following a 13 percent spike in February in the aftermath of the 95 percent increase in prices o f petroleum retail products (Figure 2). The overall fiscal deficit declined to 4.5 percent of GDP, down from 6.8 percent in 2002, with the shortfall between revenues and expenditures entirely financed by foreign credits and grants. The combination o f a growing economy with fiscal discipline 5 allowed domestic debt reduction to gain momentum, with the debt to GDP ratio estimated to have declinedto 19.6 percent by end-2003, comparedto 26.2 percent at end-2002. Lower levels of domestic public debt and declining inflation allowed for interest rates to fall to an annualized rate of 16 percent, early in January 2004, down from a 35 percent peak in June. This, in turn, contributed to increasing credit to the private sector, with its share of domestic credit estimated to have reached 58 percent by end-2003, up from 47 percent inthe previous year. Figure 2: Monthly Consumer Price Index, Jan-Dec, 2003 (%) 143 12 h lo 8 6 \ 11. Contributing to the improvementinthe fiscalsituationwere higher than anticipated inflowsof external grants, includingdebt relief, which totaled 4.7 percent of GDP, up from 3.1 percent of GDP in 2002. Inflows of external assistance were particularly important in the first part of the year, helping bridge tax revenues shortfalls due to seasonal factors, and keeping budget execution, especially of poverty related expenditures on track. By end-2003 overall spending on poverty related programs exceeded the planned amounts, totaling 9 percentage points more than what had been budgeted (Figure 3). Basic education, primary health, rural water and the feeder roads program were among the programs with the highest rates of budget execution, while poverty focused agriculture and rural energy programs had lower execution rates. Figure 3: BudgetExecutionofPovertyRelatedExpenditures,2003 (In PercentofPlannedBudget) Other Rural electricity Feeder roads Rural water >overty focused agricultural Primary health care Basic education 0% 20% 40% 60% 80% 100% 120% 140% 6 12. Increased inflows of external assistance also meant higher levelof spending for GPRS priority programs. Actual expenditures on education, as a percentage of GDP, increasedby over 25 percent between 2002 and 2003, with expenditures on basic education alone increasing by 30 percent (Figure 4). Similarly, 2003 expenditures on primary health, as a share of GDP, increase three-quarters over comparable 2002 figures, despite overall expenditures on health remaining almost constant as a share o f GDP (Figure 5). This increase spending on primary health is warranted because Ghana public spending on health is among one of the lowest in the region, averaging only US$8 dollars per capita at average exchange rates, or US$32 dollars in PPP adjustedvalues. Figure 4: Education Expenditure, 2002-03 (Inpercent of GDP) I 2002 Actual 2003 Budget 2003 Actual Figure5: HealthExpenditure,2002-03 (In percent of GDP) 2 0% 0Health 2002 Actual 2003 Budget 2003 Actual 7 13. Improvementsin fiscal management notwithstanding,several developments in 2003 meant that poverty-related programs did not fully benefit from the available external assistance. Wage and salary commitments ended up accounting for a larger-than-anticipated share o f overall spending, including poverty related expenditures on education and health programs. End-year figures for poverty related programs indicate that over two-thirds of poverty expenditurewas on wages and salaries, reaching evenhigher proportions ineducation andhealth programs (Table 1). As a result, the execution of the budget across programs was tilted toward programs with high payrolls, such as education and health, while more investment-intensive programs, such as rural energy and agriculture, presentedlower budget execution rates. Also, increase transfers to State owned enterprises due to delays in adjusting tariffs for public services andprices of retailpetroleumproducts partially crowded-out higher spending inother programs. Finally, poverty related expenditure carried out at the local level (Le., through the District Assembly Common Fund) represented less than 7 percent of total poverty spending, raising concerns about the inadequate frontline focus on the delivery of poverty-related expenditures. Table 1: GovernmentPoverty Spendingand its Composition,2003-2004 (Cedis Billion, unless otherwise noted) 2003 Budget 2003 Actual 2004 Budget Total Government Spending' 15,713 15,744 19,508 Total Poverty Spending 4,020 4,279 5,465 Poverty Spending/Total Spending 26% 27% 28% of which Wages and salaries 2,582 2,966 2,992 % ofPoverty Spending 64% 69% 55% Non-wage expenditureinthe Governmentbudget 411 148 572 % ofPoverty Spending 10% 3% 10% Non-wage expenditurefrom extra-budgetaryfunds' 1,027 1,313 1,904 % ofPoverty Spending 26% 31% 35% Poverty Spendingon Education 1,911 2,357 2,605 % of Sector Spending 55% 58% 58% % ofPoverty Spending 47.1% 55% 48% % Spent on Wages and Salaries n.a. 85% 78% Poverty Spending on Health 826 1,061 1,551 %of Sector Spending 73.4% 60% 78% % ofPoverty Spending 20.4% 25% 28% % Spent on Wages and Salaries n.a. 76% 48% Source: Ghanaianauthorities. 1) Total government spending less amortization, foreign financed project assistance, and arrears. 2) Funds:DACF, GETF, Road Fund, HIPC & CocoaBoard. 8 B. MEDIUM-TERM PROSPECTS: MACROECONOMIC AND EXTERNAL OUTLOOK FINANCING REQUIREMENTS 14. The growth outlook for the 2004-06 period is positive,with signs of robust economic activity that should allow the GPRS target of 5 percent real GDP growth to be achieved over the next two years, meaning a per capita real GDP growth in 3.0 percent range (Table 2). Current industry forecasts project cocoa productionin2004 at levels higher than 2003, which had already reached record levels, exceeding 490 thousand metric tons. There i s also evidence o f strong investment activity in cement production, mining and agro-processing, as well as continued growth in the service sector (tourism, banking and communication). Finally, expatriate remittances, which are projected to have reached US$ 780 million in 2003, are expected to remain high on account o f a rising number o f Ghanaian professionals working abroad. Table 2: Key Macroeconomic Indicators 2001 2002 2003e 2004p 2005p 2006p National income and prices (YOchange) Real GDP 4.2 4.5 5.2 5.2 5 .O 5 .O Real GDP per capita 1.6 1.9 2.6 2.6 2.4 2.4 Nominal GDP 40.2 28.3 35.4 18.9 13.5 11.3 GDP deflator 34.6 22.8 28.6 13.0 8.1 6.0 Consumerprice index (annual average) 32.9 14.8 26.7 10.8 6.0 5.0 Consumer price index (end of period) 21.3 15.2 23.6 7.7 5 .O 5.0 External sector (% change) Exports, f.0.b. -3.6 10.2 20.1 8.1 7.0 6.2 Imports, f.0.b. 2.6 -4.1 20.1 10.7 8.5 6.1 Export volume -1.3 -2.1 -6.8 10.8 6.2 6.3 Import volume 10.0 -6.8 6.9 5.4 11.4 6.6 Terms o ftrade 4.8 9.4 14.8 -7.0 3.3 0.4 Investmentand saving (% of GDP) Gross investment 26.6 19.7 23.2 23.1 23.8 24.0 Private 13.8 13.6 14.0 13.8 14.2 14.6 Public 12.8 6.1 9.2 9.3 9.6 9.5 Gross national saving 21.3 20.2 24.9 23.5 22.9 23.1 Private 16.1 19.0 19.2 15.7 12.6 12.5 Public 5.1 1.2 5.7 7.8 10.3 10.6 Foreign savings Including official transfers 5.3 -0.5 -1.7 -0.4 0.9 0.9 Excluding official transfers 12.2 2.6 3.1 3.9 4.4 4.1 Governmentbudget (% of GDP) Total revenue 18.1 18.0 20.8 23.1 23.2 22.9 Grants 6.9 3.1 4.7 4.3 3.5 3.2 Total expenditure 32.7 26.1 29.0 28.5 26.2 25.3 Overall balance (including grants)' -9.0 -6.8 -4.5 -1.5 -0.8 -0.5 Domestic primary balance 3.8 2.0 2.2 1.7 1.9 1.3 Net Domestic Financing 2.3 4.8 -0.1 -1.4 -2.6 -2.5 Source: International Monetary Fund, and Ghanaianauthorities. World Bank staff calculations. e) Estimates. p) Projections. 1) After arrears clearance. 9 15. The realization of a positive growth scenario assumes the continuation of the current macroeconomic policy environment, in particular prudent fiscal policy. Prudent fiscal management would require sustained revenue growth, including from revenue measures introduced in 2003, as well as expenditure cuts to offset the projected 1.4 percent of GDP fiscal gap due to delays in adjusting domestic retail prices for petroleum products. The other key factor for the realization of this growth scenario i s sustainedlevels of private sector investment, which depends on the availability of credit to the private sector. Increasedcredit to the private sector should result from lower interest rates associatedwith a continued decline ininflation, and improved financial intermediation. The latter would reflect: (i) the ongoing strengthening of the regulatory framework for the financial sector, (ii) reforms inthe public banking system, and (iii) improvements inthe enabling environment for private sector development. 16. The projected growth outlook is expected to be supported by a gross investment ratio in the 23 to 24 percent range, with the national savings ratio around 23 percent of GDP. While the difference suggests a relatively small contribution from external savings, it is important to note that estimates of public savings include official transfers for foreign governments. Excluding official transfers, the external current account gap would average 4.2 percent o f GDP for the 2004-06 period, meaning a projected overall extemal financing requirement during this period averaging just over US$1 billion. Grants, already committed, project loans, and debt relief (including HIPC) would average around US$841 million, leaving a gap of US$224 million. From this amount, drawings from the IMF would average US$65 million, IDA'Ssupport through the PRSCs would average another US$133 million, and quick disbursing assistancefrom other partners supporting the GPRS would cover the remainder (Table 3). Table 3: ExternalFinancing, 2001-2006 (US$ Million) Average 2001 2002 2003 2004 2005 2006 2004-06 Gross FinancingRequirements -974 -635 -976 -1,076 -1,086 -1,033 -1,065 Current Account deficit -546 -190 -266 -362 -439 -439 -413 CapitalAccount' -276 -278 -282 -391 -271 -259 -307 Changes inreserves (-increase) -200 -158 -675 -100 -181 -188 -156 Other 48 -9 247 -223 -195 -147 -188 Financing 974 635 976 1,076 1,086 1,033 1,065 Grants 366 193 359 351 310 296 319 ProgramGrants 148 105 198 138 155 148 147 Project Grants 218 88 162 212 155 148 172 Project Loans 391 195 370 319 336 338 331 ExceptionalFinancingincl. InterimHIPCrelief 150 179 173 194 201 180 192 IMFDrawings 67 68 74 78 78 39 65 Other support incl. IDA PRSC2 0 0 0 135 161 180 159 IDA PRSC3 0 0 0 125 125 150 133 Financinggap 0 0 0 10 36 30 25 Sources: Ghanaianauthorities, InternationalMonetaryFund, and Bank staff calculations. 1) Includeschange innet foreign assets ofthe commercialbanks. 2) Beforetaking intoaccountBank program lendingand additional donor support. 3) Includesgrant component. 10 c. POVERTY PROFILE, TRENDS PROGRESSIN SOCIAL AND HUMAN AND DEVELOPMENT 17. Poverty in Ghana remains predominantly rural; with some pockets of poverty in urban areas, especially in the savannah region (Table 4).3 Within the rural areas, poverty is deeper and more widespreadamong householdsheadedby food crop farmers, many of whom are women, and self-employed workers. Most urban areas registered improvements in poverty reductionduringthe 1990~~ on account of bothgrowthinmedianincomeandreductionsinincome inequality. Householdsheadedby moreeducatedpeople,as well as Accra-basedpublic employees and self employedworkers, experiencedstrongimprovementsintheir levels of welfare duringthis peri~d.~ Table 4: Poverty Indices by Locality, 1992-1999 Population Share Poverty Headcount Contribution to Poverty 1992 1999 1992 1999 1992 1999 Accra 8.2 8.8 0.231 0.038 3.7 0.8 Urban Coastal 8.7 7.8 0.283 0.242 4.7 4.8 Urban Forest 11.0 11.8 0.258 0.182 5.5 5.4 Urban Savannah 5.3 4.8 0.378 0.430 3.9 5.2 Rural Coastal 14.2 14.6 0.525 0.452 14.4 16.7 Rural Forest 29.6 31.6 0.616 0.380 35.3 30.4 Rural Savannah 23.1 20.6 0.730 0.700 32.6 36.6 GHANA 100.0 100.0 0.517 0.395 100.0 100.0 Source: World Bank (2003). Ghana- Reducing Poverty and ImprovingHuman Development. Report No, 26220- GH. 18. There is a strong gender dimension to poverty in Ghana, with gender inequalities reflecting differences in access to education and, in the case of farming households, to inputs and financial services. Ghana's primary school enrollmentrates are lower for girls (78 percent) than for boys (84 percent), although the gender gap has been reduced over the last few years. Also, male-dominatedcash crops benefit more from inputs and financial services than do female- dominated food crops. Inthe distributionof health services women appear to have an advantage over men, withwomenrecordinghigherutilizationrates. Figures for 1999 indicated that rural areas accounted for 84 percent of the poor, despite representing only 60 percentofthe population. 3Poverty refers to an absolute poverty line of 900,000 cedis per adult per year in 1998/99 (US$363 in 1999 prices). Individuals with expenditures above that level are considered able to purchase enough food to meet their nutritional requirements and non-foodbasic needs. 4This poverty analysis is based on the results of the 1991/92 and 1998/99 householdsurveys, as well as the result of the 1997and 2003 Core Welfare Indicators. A new householdsurvey is plannedfor 2004, allowing a full updateofthe povertyprofile by end 2005. 11 19. During the 1990s, poverty experienced a declining trend, falling from 52 percent in 1992 to 39.5 percent in 1999,with the poverty line defined around 1999 US$1 per day. While poverty reduction gains recorded inthe 1990s might have been partially reversedin the aftermath o f the late 1999 terms of trade shock, the subsequent stabilization and returnto growth are expected to have led poverty back to a declining trend. At the current real GDP growth rates, averaging 5 percent, poverty is projected to decline further, to 32 percent by end-2005. This projection assumes that the distribution of income remains unchanged, and that household consumption grows at the same rate as GDP.' 20. Figure 6 shows four poverty reduction scenarios,6 with the medium case scenario depicting how, at the present real GDP growth trends, the 32 percent poverty headcount target could be achieved.' Also, as expected, under three o f the four real GDP growth assumptions the MDGgoal o f halving the 1990 poverty headcount by 2015 i s achieved. Indeed, a per capita growth rate of 2 percent should be sufficient to achieve the goal, and only under the most pessimistic scenario (per capita growth ofjust 1.3 percent) will poverty be higher than the MDGgoal for 2015.8 The assumption that household consumption is constrained by GDP growth may be somewhat too restrictive for the Ghanaian case. In reviewing the sources of income growth that fuelled the reductions in poverty during the 1990s it is clear that income from remittance have been vitally important for rural poverty reduction. To the extent that this continues to apply in the future, household income and consumption may grow faster than GDP, allowing poverty to fall even more than indicated. On the other hand, there are other factors which would reduce the growth o f household consumption below the pace o f GDP growth. Ifthe accelerated growth tracked in the projections calls for equilibrating adjustments to be made to the macro-economic imbalances (for example, closing the fiscal deficit), or if the investment rate has to be raised, household consumption growth might lag behind GDP growth. These caveats must be borne in mind when considering the projections. The scenarios are as follows: (i)a lower-case scenario that assumes, based on cross-country regressions, that Ghana's long run per capita growth potential is o f the order o f 1.3 percent per annum, or just 3.3 percent real GDP growth; (ii)a historical case scenario that assumes a annual real GDP growth rate o f 4.1 percent, or 2.1 percent in per capita terms; (iii)a medium-case scenario that assumes the continuation o f present trends, with annual real GDP growth rates o f 5 percent, or 3 percent in per capita terms. This scenario should be achievable if Ghana is able to sustain the present macro-economic (fiscal) stance; and (vi) a high-case scenario, where annual real GDP growth accelerates to 6 percent per annum, or 4 percent per capita. Cross-country analysis suggest that this would be achievable if Ghana reaches the macroeconomic policy stance o f the high performing economies o f Asia (other factors constant). Based on the UN medium-variant projections for Ghana, we assume that population will grow at 2 percent per annum over the 2002-2015 period (falling from 2.3 percent in2000 and 2.1 percent in2001). * Strictlyspeaking, the M D G poverty goal would be half the headcount for 1990, but this is not available. Assuming that poverty fell slightly between 1990 and 1992, the MDG goal used here would be just a very few percentage points on the low side-that is, a marginally more ambitious goal. 12 Figure 6: Poverty Headcount (under different assumptions for annual per capita real GDP growth 2003-2015) 45 1 , +1.3% +2.1% -3.0% I -St4.0% 40 4u -- I - 35 2015: g 30 8 29% 25 s: 24% 20 8 19% 15 MDGpoverty incidence goal: 26% 10 15% Source: Bank staff estimates 21. Critical for the realization of the poverty reduction scenario in the GPRS is reducing the significant regional differences in access to education and health services. The results from the 2003 CWIQ show that, despite the improvements since 1997, there continues to be significant differences in access to education and health services withinthe country, with access to health services inthe northern regions at just over one-third o f the percentage reported in the Greater Accra region. The latter reflects both difficulties inthe physical access to these servicesg as well as the ability to pay for them. For instance, the use o f pre-natal care that was free at the time o f the survey (February-April 2003) was uniformly high across the country. In contrast, supervisedmaternal deliveries that were not yet exempt from fees at the time o f the survey were uniformly lower throughout the country, reaching particularly low levels inthe northern regions (Figure 7). Physical access to health care is reflected in turn in the distance to health care facilities and the ratio o f health care providers to the population between regions. In northern Ghana, for instance, in 1999 each doctor served 72,000 people in 1999 and each nurse served 3,000 people, compared to figures o f 14,500 and 730, respectively, for Greater Accra. 13 Figure7: Use of pre-Nataland MaternalHealthServices andAccess to HealthFacilitiesby Region (Inpercent) ~~1 0Pre-natalcare Delively by health professionals Access to health facilities 100 90 80 70 60 50 40 30 20 10 0 Total WR CR GR VR ER AS BA NR UE uw Source: 2003 Core Welfare Indicators Questionnaire. 4. WORLD BANK GROUP STRATEGY A. OVERVIEW 22. The PRSC is central to the Bank's recently discussed FY04-07 CAS, which envisioned a series of PRSCs supporting the implementation of policies and institutional developmentprogramscontainedin the GPRS. The PRSCsrepresent the Bank's contribution to the Multi-Donor Budgetary Support, accounting for around 50 percent o f overall Bank lending during the CAS period. Given its cross-cutting focus, the PRSCs leverage the poverty focus of sector focused operations, leveraging their poverty focus by ensuring appropriate expenditure allocation (level and structure) and by addressing some of their financing implications for the poor (e.g., cost recovery policies). PRSCs also focus on institutional development, focusing on budget design and execution, as well as on monitoring poverty outcomes, ensuring that sector programs deliver results in terms of human development indicators. Indeed, by helping to internalize these monitoring functions the expectation i s that the allocation of resources will begin to reflect the feedback from these results. 14 B. CONSISTENCY BETWEENTHE GPRS, THE CAS, AND THE PRSCS 23. The Bank Group's assistance strategy articulatesthe GPRS priorities around three key development results: higher growth and employment generation, improved service provision for human development, and stronger governance and public sector management. The Bank assistance under growth and employment aims at assisting Ghana in: (i)managingpublicfinances formacroeconomicstabilityandpovertyreduction; (ii) removing constraints to private sector investment; and (iii)harnessing the sources of growth. The assistance on managing public finance finances for macroeconomic stability and poverty reduction draws heavily on the proposed series of PRSCs, which provide overall support to the budget, as well as funding for poverty reduction programs identifiedinthe GPRS. The CAS also envisions several non-lending activities that provide the analytical underpinnings for the PRSC support to strengthening fiduciary arrangements. These non-lending activities include annual Public Expenditure Reviews (PERs), the Country Financial Accountability Assessment (CFAA), and the Country Procurement Assessment Report (CPAR). The agenda for removing barriers to private sector investment ranges from support to trade facilitation, several large infrastructure operations, and support to small and medium enterprise development and natural resource management. This agenda i s embraced by the PRSCs, which supports reforms in institutions providingthe interface betweenthe public and the private sectors inareas such as trade, business registration, procurement, finance andnatural resourcemanagement. 24. The GPRS agenda for poverty reductionaims at reducingthe poverty headcount to 32 percent by 2005, down from 39.5 percent in 1999. The Bank's support to the Government's poverty reduction agenda will be provided though the ongoing PRSC series, as well as investment lending at the local government level and Learning and Innovation Loans (LILs) that are testing new approaches to poverty reduction. The proposed Community Based Rural Development would transfer technical and financial resources to rural populations to help reduce rural poverty, while the second phase of the Community Water and Sanitation APL is designedto increasecoverage of improved water and sanitation services. The Community Based Poverty Alleviation LIL (US$5m; FY99-05) tests approaches and mechanisms for delivering, coordinating, monitoring and evaluating community-based poverty reduction through nutrition, food security and support to street children. The LIL in support of Promoting Partnershipswith Traditional Authorities (US$5m grant; FY03-08) tests ways to develop partnerships with government that substantively integrate and improve traditional authorities' involvement in the social and economic development of their communities. Analytical work, such as the FY03 Poverty Note and the FY07 Poverty Assessment, as well as the FY04 and FY07 CEMs, either have analyzed, or will analyze, progress on poverty reduction and policies needed to accelerate it. 25. The GPRS goals for educationaim at increasingbasic literacy and numeracy skills, with a focus on basic educationaccess in deprived districts. To help achieve these outcomes, the series of PRSCs provides programmatic support for education policy reform. The Bank is also financing the Education Sector Project (US$78m, FY04-09), addressing and promoting equitable access to, and efficient delivery of, quality services at basic and higher levels. An 15 ESW on the disabled is proposed, with a focus on disabled childrenand strategies for improving their access to education and achieving the education for all (EFA) goals. Finally, IFC is developing a mechanism for providing a package of financing and technical/managerial assistanceto private primary and secondary schools. 26. The healthoutcomes that the GPRS aims at achievingincludeimprovednutritional status of children under-five,reducedunder-five mortality from diarrhea-relateddiseases, reduced mortality associated with malaria and other preventable diseases, and improve access to essential quality obstetric care, with priority attached to improving service delivery in deprived regions. To support the government's efforts to achieve these key health outcomes, the Bank will continue its support through the second Health Sector SWAP (US$89.6mYFY03-08),with its objectives of improvingthe health status of the population while reducing geographical, socio-economic and gender inequalities in health outcomes. Other ongoing interventions aimed at improving health outcomes are the PRSC, with a focus on level and structure of public expenditure on health, and the ongoing ESW on the implementation of the NationalHealthInsurance Act. 27. One of the pillars of the GPRS seeks to ensure good governance through the effective application of accountable legal, regulatory and institutional frameworks of public, private and civil society institutions. The Bank's strategy supports the government's goals o f building a transparent, accountable, and inclusive state and improving public sector management for better service delivery. The Bank's main lending instrument to help achieve these outcomes i s the series of annual PRSCs, focus on cross-cutting issues ranging from public sector reform, public expenditure management, and governance. In addition, the Education Sector Project will help support the preparation of citizens' report cards in40 depriveddistricts. C. ANALYTICALUNDERPINNINGS 28. The PRSC-2 draws from recentlycompletedwork on poverty and socialanalysis, as well as from country economic and fiduciarywork. The FY03 Poverty Note draws from the results of the Ghana Living Standards Survey (GLSS), examining trends in poverty and human development. The findings of this poverty report validate the policy directions proposed in the GPRS, and supported by this second PRSC, namely the importance of: (i) continued economic growth, especially inthe export crops and nonfarmprivate sector, for sustaining the recenttrends in poverty reduction; (ii) prudent management of public finances to ensure macroeconomic stability for growth andto reverse the underfunding ofthe social sectors; and (iii) investing inhumancapital to mitigate the situation of chronic and persistent poverty among a large number of households in the rural Coastaland Savannah regions, since households inthese two regions have failed to benefit from the patternofeconomic growth basedon exports andindomestic trading activities. 29. The recently completed Country EconomicMemorandum(CEM) on public policy, growth and poverty also substantiates the policy reforms and institutional development programs supported by this second proposed PRSC. This CEM provides a comprehensive view of the policy agenda facing Ghana, drawing on new and existing analysis. The main recommendations are that: (i)governance institutions should be structured in a way that is 16 conducive to fiscal restraint; (ii)sound macroeconomic management should be pursued as a means to increase the efficiency of the state and foster economic growth; (iii) business the environment and the investment climate should be more supportive of private sector investment; (iv) export growth and output diversification in manufacturing and agriculture should be promoted; and (v) public policies that foster growth should also aim at reducing inequalities, so that the benefits o f economic growth canhave maximum impacton poverty reduction. 30. A wide variety of analytical work on fiduciary arrangements has been carried out over the last year, setting out action plans for improvements in public financial management and public procurement, and providing important insights to the choice of policy actions supported by this PRSC. These works include the FY04 Country Financial Accountability Assessment (CFAA), the FY03 Country Procurement Assessment Report (CPAR), the FY04 Public Expenditure Review (PER), and the Bank-Fund 2004 Country Public ExpenditureAssessment and Action Plan -- the HIPC PEM AAP. The findings of the CFAA and the CPAR underscore the major risks associated with budgeting, payroll and expenditure control, accounting, reporting, auditing, and with existing procurement procedures. Specifically, the CFAA draws on these findings to highlight deficiencies in accounting and auditing, especially internal auditing. The CPAR outlined the agenda for design and implementation of the new procurement law, with an emphasis on achieving better value for the public funds used in procuring goods and services. The PER mission reviewed the poverty related expenditure, acknowledging the increase in overall spending while highlighting the imbalance in the composition of spending, with wages and salaries dominating the overall aggregate. The HIPC PEM AAP noted that, notwithstanding recent improvements, Ghana's Public Expenditure Management (PEM) system still requires upgrading inthe areas of budget formulation, execution andreporting (Box 1). 31. The FY04 CAS also outlines the analytical work that would support the second round of PRSCs (PRSC4 to 6) to be implementedin support of the government's poverty reduction strategy. In preparation of this next round of PRSCs, the non-lending activity in fiduciary management will continue to play a major role, and will involve (but will not be limited to) capacity building and dialogue, to help public officials to become more action- oriented, and empower civil society to monitor implementation. A series of PERs (FY04-07) will build on the agenda outlined in the ongoing work, shedding light on the management of poverty related expenditures through analytical work and expenditure tracking surveys. The expenditure management work will be complemented by a CFAA Update planned for FY06, while poverty developments will be examined in a Poverty Assessment to be undertaken in FY07, following the release of the upcoming household budget survey (GLSS 5) data. A decision on the focus of the next CEM will be made during the CAS implementation, so as to ensure maximum relevance for the policy dialogue. Finally, underpinning the PRSCs will be a series of PSIAs further examining issues such as access to electricity services and ability to pay for these services. 17 Table 5. AnalyticalUnderpinnings Last done Remarks PovertyAssessment 2003 The 2003 Poverty Note was completed in June 2003. The PRSC draws on the analysisofthe PovertyNote CEM 2003 CEM FY04 decisiondraft was completedinFebruary2004. PER 1992/2000 To be carriedout annually, starting in FY04. The PRSC builds on the findings of the 2004 PERmission. CFAA 2004 CFAA was completed in March 2004. The PRSC policy matrix builds on the CFAA 2004 recommendations. CPAR 2003 The FY03 CPAR was completed in October 2003. Key recommendations were includedin the PRSCpolicy matrix. D. THEDEVELOPMENT PARTNERSHIP 32. The PRSC is part of a concerted effort with development partners grouped around the Multi-Donor Budget Support (MDBS)." The MDBS aims at reducing the Government's transaction costs in dealing with development assistance by ensuring greater complementarity betweenthis assistance and the Government's own poverty reduction strategy. Inthe runup to the preparation of PRSC-2, development partners carried out two joint missions (June and September 2003) that were important first steps in aligning mission schedules, advancing agreements on policy actions and on the timing of future assessment reviews. These efforts led to a better alignment of programs for 2004, with an almost complete overlap betweenkey policy actions agreed under the MDBS 2004 and those envisioned under the proposed PRSC-2. The development partners also agreed with the Government of Ghana on a joint matrix of policy actions to be supported by PRSC-3 and MDBS-2005, aligning monitoring and evaluation frameworks. There is still room for further improvement, however, with greater alignment of disbursementschedules. 33. This PRSC has been prepared in parallel and closely coordinated with the IMF's PRGF," following the agreed institutional divisionof labor with the IMFtaking the lead on macro-economic sector issues while the Bank takes the lead on structural and social issues. In a number of areas where the mandates of the two institutions overlap, the work is being coordinated to ensure that consistent advice i s provided to the authorities. In this context, the Bank Fund recently undertook a mission to review with the authorities the HIPC Public Expenditure Management Assessment and Action Plan (HIPC PEM AAP). The preliminary findings ofthe mission are summarized inBox 1below. lo In addition to the World Bank, the following development partners participate in the MDBS: African Development Bank; Canada; Denmark; European Union; Germany; Netherlands; Switzerland; and the United Kingdom. France, Japan and the United States participate as observers. A copy o f the draft Framework Memorandum for the 2004 MDBS is attached as Annex 3. Ghana's current three-year PRGF arrangement was approved on May 9,2003. 18 5. THE POVERTY REDUCTIONPROGRAM FORPRSC SUPPORT A. OVERVIEW 34. The support provided through the PRSC-2 focuses on three broad components of the poverty reduction agenda organized under: (i)the promotion of growth, income and employment; (ii)improvementsin the delivery of services for humandevelopment; and (iii) the strengthening governance and public sector management. These three components encompass the five thematic pillars o f the GPRS,namely (i) ensuring macroeconomic stability, (ii) expanding production and employment, (iii) supporting human development, (iv) protecting the vulnerable and the extremely poor, and (v) promoting good governance and public sector reform. While the PRSC-2 support translates primarily into funding for the implementation of the GPRS, particular attention i s given to policy dialogue and to monitoring resource allocation and outcomes (Table 6). PRSC-2also pays attentionto welfare andpoverty indicators that allow an assessment of whether poverty reduction objectives (including income and non-income dimensions o f poverty) are beingindeed achieved. Table 6: Supportingthe GPRS implementationthrough the PRSC GPRS Macroeconomic Production and Human Protection Good Governance Objectives Stability Gainful Resource for the Employment and Basic and the Promotinggrowth, incomeand employment Improving Service Delivery for Governanceand Public Sector Reform Pillars/ HumanDevelopment Education Health Social Decentralization Public Public Monitoring Focus Protection Sector Expenditure and and trade Reform management evaluation facilitation Policy dialogueispecific actions Outcomemonitoring/public Policy dialogue/specific actions Instruments expendituredialogue ~ 35. The first component of PRSC-2 reflects the objectives of the first and second pillars of the GPRS, and focuses on ensuring progress on macroeconomicstability and pro-poor growth. It includes measures to reduce public domestic debt, creating room for increase credit to the private sector, as well as measures to strengthen the business environment, through the expansion o f energy supply services, increased trade facilitation, and the removal o f administrative barriers for business. This component also focuses on measures to improve the performance o f the rural sector through actions aimed at raising farmers' income, strengthening support to smallholder's agriculture, and developing a new framework for micro-finance. 36. The second component of PRSC-2 is based on the third and fourth pillar of the GPRS, incorporating measure aimed at assisting Ghana reach the MDG goals by improvingservice delivery in education,health, and social protection. Measures to improve 19 service delivery in education focus on increasing access and completion o f quality basic education, particularly in the three most deprived regions (Northern, Upper East and Upper West), and on improvingthe efficiency and equity o f education financing, with greater attention to the poverty impact. Measures to improve the delivery o f health services center on bridging the equity gaps inthe access to health care services in deprived regions (Northern, Upper East, Upper West and Central), and at reducingthe spread o f HIV/AIDS. Measures to improve social protection concentrate on actions supporting the vulnerable and the excluded, such as the people living with HIV/AIDS,orphans, the homeless, and street children. 37. The third componentis based on the fifth pillar of the GPRS and incorporatesactions designed to strengthen governance and public sector management. Action envisioned in this component center on moving ahead with a medium term agenda for public sector reform that includes decentralization, improving public sector performance, the modernization o f the fiduciary framework and public expenditure management, and strengthening the capacity to monitor and evaluate the policy agenda. 38. The programmatic approach embedded in the PRSC process aims at providing greater adaptability for step-by-step institutional reforms, capacity building that involves significant policy content, and an economy-wide scope that goes beyond the scope of individual projects. This focus on programmatic lending envisioned under the PRSC process is grounded in clear country commitment and capacity to reform, structured in a series o f operations supporting a medium-term reform program, and disbursed on the basis o f completed actions rather than future commitments. B. EXTERNAL EVALUATION 39. The external evaluation of the poverty reduction program for PRSC support is based on four core assessments: (i) Joint Staff Assessment (JSA) o f the GPRS Annual the Progress Report, focusing on program outcomes; (ii) the HIPC Public Expenditure Management Assessment and Action Plan (AAP), evaluating the capacity o f the Public Expenditure Management system to track poverty-reducing expenditures; (iii) Public ExpenditureReview the (PER), focusing on progress in budget design and implementation; (iv) the 2003 mission o f the Country Financial and Accounting Assessment (CFAA), examining fiduciary risks and arrangements; and (v) the IMF review o f the Ghana PRGF, assessing recent macroeconomic developments. The JSA of the GPRS Annual Progress Report underscores the messages from the APR reviewed earlier in this document, concluding that overall progress in achieving program outcomes has been satisfactory, notwithstanding delays in some structural reforms and the increase ininfant and under fives mortality rates. 40. The 2004 draft HIPC AAP makes a positive assessment of Ghana's progress in tracking poverty-reducing expenditures, showing that the country now achieves 7 out of the 16 PEM benchmarks, compared to 1 out of 15 in the assessment carried out in2001 (Box 1). Areas o f improvement include: (i) improved budget execution, with a reduction inthe level o f accumulated arrears, (ii) expenditure classification, including poverty-reducing better expenditures; and (iii) satisfactory reconciliation between accounting transactions and banking 20 records. Areas that require further attention include (i) the strengtheningo f internal control and internal and external auditing; (ii) comprehensiveness of the budget information and fiscal the reporting; (iii) preparation of mediumterm expenditure frameworks; and (iv) the working o f the the procurement systems. ment of Ghana has initia Source. Draft GhanaPublic Expenditure Management-HIPC Assessment and Action Plan. 41. The PER mission of February 2004 assessed positively the progress achieved in better aligning the budget with the GPRS, reflecting in part improvements in the budget process, The mission remarked that the 2004 Budget Statement provided a good basis for assessing Government's financial commitment to implementing the GPRS with the budget statement reflecting the strategic themes of the GPRS and including GPRS-specific quantitative data relating to 2003 expenditure and 2004 projections. The mission also noted that the 2004 budget pointed to an increasing share o f public resources allocated towards poverty-related programs. The figures showed actual poverty spending at 27% o f the total government l2"Update on Implementationof Action Plans to Strengthen Capacity of HIPCs to Track Poverty-ReductionSpending." IDA andIMF, March 7,2003, IDAR2003-2004. l3These hnds are the District Assemblies Common Fund (DACF), the Road Fund, the GhanaEducation Trust Fund (GETF) and the PetroleumRelatedFund. A National Health Fund was also introduced inthe 2004 Budget. Statutory appropriations in aid to these institutions constitute around 15% o f total expenditure (excluding arrears clearance) in the 2004 central government budget. 21 expenditure (excluding external debt repayments and clearance of arrears) in 2003, comparedto a budget plan of 26%, and up from 22% in2002. Also, poverty spending appears to be rising as a proportionof GDP, totaling 6.6% of GDP in 2003, comparedto 4.8% in 2002, and planned to increase further to about 7% of GDP in2004. 42. The CFAA mission noted that, based on the CFAA 2001 findings, the Government had initiatedseveralinitiativesto strengthen its financialaccountabilitysystems. New laws have replaced old laws, such as the Financial Administration Act, the Financial Administration Regulations, the Procurement Act, the Internal Audit Agency Act and the Audit Service Act. Major public finance systems are being upgraded, with the government's core accounting system being replaced by the Oracle Financial Applications System, under the Budget and Expenditure Management System or "BPEMS", while the payroll system being substituted by the Integrated Personnel and Payroll Data System (IPPD 11). Also, the internal audit arrangements are being strengthenedwith the establishmentof anindependentInternal Audit Agency. 43. At the conclusion of the latest IMF review of the PRGF, on December 19,2003, the IMFBoardcommendedthe Ghanaianauthoritiesfor the conduct of macroeconomicpolicy in 2003. Furthermore, a recent IMF mission reports having reached a satisfactory understandingon petroleumpricing, as neededto ensure completion of the second review under the PRGF arrangement. In December, the Board noted that the economy was on a steady growth path, with fiscal discipline restored, and official reserves exceeding targets. It added that it was vital that the Ghanaian authorities remain resolute in their commitment to counter pressures to raise government spending in 2004, an election year, to consolidate the progress already made under the 2003-2006 PRGF-supported program. An IMF mission in February confirmed that macroeconomic policies remained broadly on track through end- December 2003, and concluded that the 2004 budget was consistent with the PRGF-supported program. During the April 2004 mission, the IMF team noted that a satisfactory understanding had been reached on petroleum pricing and on progress on the remaining policy triggers under the enhanced HIPC Initiative. These understandings will pave the way for Ghana to reach the HIPC completion pointby mid-2004. C. PROGRESSSINCE PRSC-1 44. The overall progress in completing prior actions under the program supported by PRSC-2 has been broadly satisfactory. Macroeconomic stabilization has been achieved, and there has been progress in implementing the human development and the public financial management agendas. While the implementation of specific actions under the private sector development agenda are still in their initial stages, progress so far reflects the government's commitment to move ahead. This progress inthe achievementof the prior actions are summarized below (Table 7) and discussedinmoredetail below. 22 Table 7: Assessment of progress against the PRSC-2prior actions /Launching power sector reform, including the implementationof the first year of the public-private partnership plan. (Letter ofDevelopmentPolicyfs 41) Completed. The power sector reform was launched in March 2003, and actions associated with the first year implementation included the restructuring of the debt owed by State-ownedenergy utility companies to the government; and the review ofthe legal framework for the VRA holding company. Completing the automation (GCMWGCNET) of customs proceduresto speed up clearance times at Takoradi and Tema ports. (Letter of DevelopmentPolicy Q 47) Completed. GCMSIGCNET became operational at the Tema seaport in July 2003 and at the Takoradi seaport inNovember 2003. Develop and begin implementation of a Cabinet approved Private Sector Development Strategy (PSDS) with an action plan to remove key regulatory and administrative barriers. (Letter of DevelopmentPolicy Q 45-55) Completed. The Private Sector Development Strategy was approved by Cabinet in January 2004 with several actions aimed at removing key regulatory and administrative barriers already completed, including (i)the signing into law of a new Labor Act, amending and consolidating existing legislation and establishing a National Labor Commission with a mandate to address issues related to tripartite dialogue, and (ii)the modernization of customs operations. Inaddition, actions taken over the course of the lasttwo years to reduce the cost of starting a new business, including reducing the time needed to obtain the environment certificate and the tax registration, lowering the registration fee.I4 Establishingincentive schemes, including scholarships, to enable girls to complete primary school in deprived districts. (Letter of DevelopmentPolicy 8 68 and 71) Completed. Incentive schemes to enable girls to attend public primary school in deprived districts have been established, including the allocation of $ 8.9 billion for girls' scholarships through the GET Fund for the school year 2003/2004. Implement fee exemption policy on maternal deliveries in the deprived regions. (Letter of DevelopmentPolicy fs 91) Completed. The exemption policy on maternal deliveries was instituted in four deprived regions in 2003, and expanded to two more deprived regions in the 2004 budget proposal. The exemption policy has been adequatelyfunded inthe budget using HIPC resources. Adopting a new health recurrent expenditure allocation formula to protect most deprived areas. (Letter of DevelopmentPolicy Q 89) Completed. A new resourceallocation has been adoptedand applied to the 2004 budget. The objective of a new formula is to provide additional funding to deprived areas and is based on population adjusted for health needs (U5MR and IMR) and deprivation (percent of the population below the poverty line). In ~ 2004, the formula has been applied to non-salaryrecurrentexpenditures (items 2 and 3 inthe budget). Beginning implementation of the Procurement Bill and make operational Public Procurement Institutions (Public Procurement Board, Secretariat, Entity Tender Committees, and Tender Review Boards). (Letter of DevelopmentPolicy Q 123 to 126) Completed. The new ProcurementAct was signed into law on December 30, 2003. The implementation of the law began with the establishment of the public procurement institutions, including the nominations of the members of the Public Procurement Board, and its Chairman. Other implementation steps already completed include: (i)the launching of the information and awareness program; (ii)the preparation of new standard tender documents; and (iii)the preparationof a new procurementtraining manual. l4According to the World Bank's `Doing Business Data Base', between January 2002 and January 2004, the time to start a business fell from 129 to 85 days (-34.1%), and the cost to start a business, measuredas a percentage of per capita GNI, fell from 130.8% to 84.0% (-35.8%). These changes were driven largely by a time cut in obtaining the environmentcertificate and tax registration, and a lower registration fee. 23 Issuing a Cabinet policy statement with a time-bound public sector reform strategy. (Letter of DevelopmentPolicy 8 127 to 135) To be completed. The draft policy statement on public sector reform strategy has been placed on the Cabinet's agenda to be discussed at a future meeting. The proposed policy statement outlines a strategy aimed at finalizing and implementing a professional human resource (HR) framework for public sector employees, developing and commencing implementation of a communications strategy, commencing organizational restructuring of the civil service, and establishing a regulatory framework for subvented agencies. ExpandingBPEMS to cover Accra sites of the Ministries of Education,Health, Roads and Transport. (Letter of DevelopmentPolicy Q 120) Completed. The Oracle Financial Application System, under BPEMS, has been configured and is functional in the Accra-basedoperations of the ministries o f Education, Health, and Roads and Transport. The BPEMS modules have been activated in phases, with priority given to: accounts payable, purchase orderingand generalledger. D. THEPROPOSEDPRSC-2 REFORM PROGRAM 45. The PRSC-2 reform program covers the second year of a three-year program of support of the implementation of the GPRS. Reforms supportedby PRSC-2 buildon reforms implemented with the support of PRSC-1. For each area we discuss (i) key issues that the government is addressing; (ii) the proposedreform strategy; (iii) progress madeunder PRSC- the 2; (iv) monitorable actions planned to take place under PRSC-3; and (v) expected results of the implementation o fthe PRSC supportedreform program, with monitoring indicators. E. PROMOTINGGROWTH, INCOMEAND EMPLOYMENT 46. The issues. With realGDP growth having acceleratedin2003, reaching 5.2 percent, the key issue facing the Ghanaian economy is how to sustain the current growth trend and cross the 5 percent real GDP growth threshold. Achieving this objective will require broadening of the country's economic base and consolidating the country's fiscal position. Broadening the country's economic base is important because it is still very narrow, with strong dependence on the performance of exports o f primary commodities, especially cocoa earnings. Consolidating the fiscal position is essential because, as a small, open economy, Ghana i s subject to external shocks, such as oil price hikes and fluctuations inthe prices of primary commodities that tend to be magnified whenever there are weaknesses in fiscal management. Thus, while the country has made recent efforts to reduce its vulnerability to extemal shocks through measuresto diversify its export base and strengthen its fiscal management, progress in export diversification has been limited. Moreover progress is still need in reducing sources of fiscal pressure and in removing structural impediments constraining the private sector's ability to respond to growth opportunities. Some of these sources o f fiscal pressure and constraints to private sector development were consideredinthe PRSC-1program document, and includedthe following: e The high level of public domestic debt, leading to high interest rates and to the crowding out of credit to the private sector. 24 0 The high cost business environment, limiting the entry of new business and competition within the private sector.15 0 The low reliability of energy supply resulting from the deterioration of the power distribution system, operational inefficiencies of the power utility companies, and slow expansion of low-cost, high quality energy supply sources. 47. In addition, there are new issues that are to be considered in PRSC-2 and subsequent operations, includingthe following: 0 The low level of Ghana's overall financial intermediation compared to other Sub- Saharan African countries further constrains financial deepening and private sector growth. The authorities have made some important progress over the past two years in the area of financial sector reform, with the approval of the Financial Sector Strategy Plan (FINSSP), the updating relevant financial sector legislation, improvements in bank and non-bank supervision, and the restructuring some of the commercial banks' claims on the state-owned Tema Oil refinery. There remain various weaknesses, however, including: (i) inefficiencies of the dominant Ghana Commercial Bank (GCB); (ii) lack the of long-term capital; and (iii) the continued lack of level playing field for providers of financial services. 0 The high cost of bringing agricultural production to the market, creating barriers in the expansion of non-cocoa agriculture and in the progress on poverty reduction. The agricultural sector employs about 60 percent of the labor force and contributes with only around 35 percent of GDP. While the real GDP growth performance of the rural sector in 2003 was high by historic records, reaching 6.1 percent, average growth during the 1990-2003 period has beenlow, reaching 3.2 percent --just a shade above that of the population. Barriers in the expansion of agricultural production include: (i)heavy reliance on traditional planting and harvesting techniques, with low usage of pesticides and chemical fertilizers; (ii) interest rates, reducing the availability of financing in high rural areas; (iii)high transport and marketing costs, stemming from a poor road and market infrastructure. The latter is threatening to erode Ghana's comparative advantage insupplying certain crops, since inthe case of some staples, transport costs represent as muchas halfofthe retail urbanprice; and 0 Ineffective management of natural resources, threatening to deplete the country's natural resource base. Weak institutional and enforcement capacities and policy failures have led to alarming rates of depletion of forest and savanna woodland, aquatic and marine, wildlife and fisheries resources, as well as farm and pasturelands. Land degradation and deforestation are the most pervasive natural resource and environmental l5Some of the factors leading to the high costs of doing business in Ghana include: (i)time consuming and costly business registration and licensing, with a number of fees, fines and operating permits involved in opening and operating a business; (ii)inadequate land registration, titling and administration, creating bottlenecks in access to land and site development; (iii)protracted commercial dispute resolution schemes, increasing the lag involved in enforcing contractsand recovering debt obligations; (iv) limited financial services, constraining private sector access to credit and capital; and (iv) delays in customs clearances due to time consuming proceduresand official discretion. 25 management threats in Ghana. Savannas, which comprise about 66 percent of Ghana's land area, are threatened by a number of factors, including overgrazing, bush fires, firewood harvesting, expansion of agricultural cultivation, and inappropriate crop management. In the high forest areas, timber production is occurring at four times the sustainable rate, with an annual rate of deforestation estimatedat about 1.6 percent (about 65,000 ha annually), putting at risk the main source of rural energy for heating and cooking and threatening to eliminate off-reserve forests in 10 years. Inaddition, mining, inappropriate farming systems and massive encroachment by farmers have dramatically reduced the extent and quality of Ghana's forest resources, threatening wildlife and biodiversity. 48. Reform strategy. The prospects for sustaining current GDP growth rates, with strong, broad-based growth requires continued implementation of reform strategies identified in the GPRS and in other Cabinet approved documents. These strategies aim at reducing the cost of doing business and at fostering conditions for sustainable development. They include (i) Domestic Debt Reduction Strategy; (ii) National Medium Term Private the the Sector Development Strategy (PSDS); (iii) the Financial Sector StrategicPlan(FINSSP); (iv) the Power Sector Reform Strategy (PSRS); (v) the Food and Agriculture Sector Development Policy (FASDEP); and (vi) the Strategic Environmental Assessments (SEAS). 49. A summary reviewofthese strategies is as follows: 0 The Domestic Debt Reduction Strategy aims at broadeningthe scope for financing developmentthrough the reduction of public domestic debt from the 29 percent of GDP level inend-2002 to a sustainable level of about 15 percent by 2005. Debt reduction is to be accomplished through a combination of primary budget surpluses and the use of savings from debt reliefprovided through the HIPC initiative.16 0 The NationalMediumTerm PrivateSector DevelopmentStrategywas elaboratedon the basis of several studies on Ghana's business environment, including the July 2003 FIAS update of `Administrative Barriers to Investment in Ghana'. Actions identified in the Action Plan for this strategy included: (i)deepening the dialogue between government and the private sector; (ii) developing and implementation of a trade policy framework; (iii) phasing out subsidies to firms; (iv) codifying interventions under the Presidential Special Initiatives (PSIS); (v) streamlining the business registration by reducing the number of fees, fines and operating permits involved in opening and operating a business; (vi) strengthening the operations o f the offices for land administration, placing more emphasis on the land rights of small landholders and on removing key bottlenecks in access and security to land and site development; (vii) reviewing the commercial law regime, including the redrafting the bankruptcy and insolvency laws; (viii) creating a new Commercial Court, as part of the High Court, with an aim to reduce the time lag involved in debt recovery in the higher courts; (ix) modernizing and improving administrative procedures o f the customs office; (x) l6The HIPC Decision Point Document (IDA/R2002-2005) refers to the use for domestic debt reduction of 20 percento frelief provided under the enhancedHIPC Initiative. 26 modernizing tax administration and rationalizing the tax regime for micro and small enterprises with a view o f reducing the unnecessary burdeno f taxation on businesses; and (xi) introducing a new regulatory framework for the financial sector with the goal to facilitate and broadenthe private sector's access to credit and capital. 0 The National Trade Policy Framework began to be formulated in February 2004, aiming at: (i) providing a coherent framework for on-going activities; (ii) prioritizing key actions; and (iii) identifyinggaps inthe on-going work. Key issues likely to be addressed include the: (i) implementation o f existing international and regional obligations; (ii) strengthening o f the mechanisms for addressing anti-dumping mechanisms for co- coordinating with existing GoG sector strategies, so that they support the Trade Policy; (iii)streamlining ofthe responsibility for implementationof GoG'strade policy; (iv) effective participation in trade negotiations (to address e.g. the reduction o f tariff and non-tariff barriers for Ghanaian products, and appropriate opening up o f the Ghanaian market), involving the private sector and other key stakeholders in such negotiations; (v) addressing of anti-dumping issues, building mechanisms to ensure that there i s effective dissemination about opportunities and threats offered by global and regional markets to the private sector; (vi) enhancing o f export promotion; and (vii) issues related to quality and standards o f goods. 0 The FinancialSector Strategic Plan (FINSSP), outlines the reforms needed to develop a competitive financial sector. The FINSSP identifies five major objective areas, which are currently translated into over a hundredactionable recommendations that are planned to be implementedover the next three years. These objective areas include: (i) improve private sector's accessibility to credit and capital through increased liquidity in the secondary trading market, a venture capital and private equity industry, and a strengthened corporate bond market among others; (ii)promote efficient savings mobilization by establishing long-term saving vehicles, enhancing informal sector savings mobilization, and promoting the investment management industry; (iii) enhance the competitiveness o f Ghana's financial institutions via an enhanced payment system, and improved standards o f practice within the financial sector; (iv) ensure a stronger and more facilitative regulatory regime through enforcement o f regulations, regulatory parity between financial institutions and deregulation o f services and products; and (v) diversify domestic financial sector by broadening the range o f financial products and services including inthe rural and micro financial sector. 0 The Power Sector Reform program was launched in August 2003, and identifies the following actions: (i)the development o f Public Education and Awareness Strategy," with a media professional engaged to assist the Power Sector Reform Secretariat in defining and implementing a comprehensive and efficient public education and awareness; (ii) review o f the underlying legal framework for the country's power the utility company responsible for electricity generation and transmission, as well as l7An important element in ensuring the successful implementation of the energy sector reform is an effective consultation with key stakeholders (workers of VRA, ECG, and NED, the TUC and the general public) on these reforms. 27 distribution in the northern regions of the country -- the Volta River Authority Act --as an important first set for formation of a VRA holding company that would allow the separation of generation, transmission and distribution, and, eventually, the opening of the energy sector to other independent power producers; (iii) asset revaluation and the separation of VRA's balance sheet, with the engagement of a professional firm to carry out this task; (iv) the review of the legal framework for development of rules for operating the national transmission grid and the electricity market; (v) the restructuring of a large share of the debt obligations of the Volta River Authority (VRA) and the Electricity Corporation of Ghana, (ECG) to government, laying the necessary groundwork for new investments by these companies; and (vi) the preparation of performance-based management service agreements for ECG, aiming at improved commercial and technical operations. 0 The Food and Agricultural Sector DevelopmentPolicy (FASDEP) was approved in November 2003, addressing non-cocoa agricultural issues, and aligning the Ministry of Food and Agriculture (MoFA) strategy with the GPRS. The FASDEP focuses on five main areas: (i) human and institutional capacity in agriculture, (ii)financial services delivery; (iii) technology development and diffusion, (iv) infrastructure development, and (v) the promotionof selected commodities, includingimproved access to markets. 0 The Strategic EnvironmentalAssessments (SEAs) has been formulated and introduced as a process tool to evaluate the potential environmental, social, and institutional effects of actions envisioned under the GPRS, as well as to follow up on regional and district plans. It has resulted in greater attention to the poverty reduction-environment nexus, including interventions that support sustainable natural resources management, and options for better enforcing environmental regulations and standards. Giventhe broader range of sectoral issues covered in the SEAs, the next step inthe implementation of the findings of the SEAs requires better coordination betweencentral agencies (the Ministry of Environment, the Environmental Protection Agency and the National Planning Development Commission) and the sector ministries responsible for agriculture, lands and forestry, water, transport, health, local government and rural development. 50. Progress under PRSC-2. Progress made under the program for growth and employment generation supported by PRSC-2 has been satisfactory, with prudent management of fiscal accounts providing scope for debt reduction, while new government programs for the development of the private sector, agriculture and natural resources management provided guidance to the implementation of the GPRS. Specific actions included the following: 0 Reducingpublic domestic debt to increasethe credit available to the private sector. In 2003, prudent fiscal management allowed domestic debt reduction to proceed as scheduled, with the ratio of domestic public debt to GDP reaching 22.6 percent by end- 2003, down from 29 percent in end-2002. Lower levels of domestic public debt and declining inflation allowed, in turn, for interest rates on 91 days treasury bills to ease to an annualized rate o f 16 percent inJanuary 2004, down from the 35 percent peak in July 2003. Increasedavailability of credit to the private sector followed suit, increasing by 35 percent in2003. 28 0 Beginningthe implementationof the power sector reform,with the following actions completed under the program supported by PRSC-2: (i) the review of the underlying legal framework for the formation of the VRA holding company (VRA act); (ii)the restructuring of a large share of the debt obligations of the Volta River Authority (VRA) and the Electricity Corporation of Ghana (ECG) to government;" (iii) beginning of the the revaluation of assets and the separation of VRA's balance sheet; and (iv) the beginning of the selection of a transactions advisor for the negotiation of performance- basedmanagement service agreements for ECG. Adjusting power sector tariffs according to the cost recovery formula, with tariffs adjusted twice inthe year (March and October, 2003), yielding an 18 percent increase in prices for end-users. Adjustment scheduledfor earlier this year were forgone because of higher than anticipated power generation from the Akosombo Dam, which meant adjusting one of the parameters of the cost recovering formula, thus obviating the need to increase electricity tariffs. There were delays, however, in adjusting the prices of retail petroleum products according to the cost recovery formula, leaving prices unchanged from their February 2003 level, and leading to an unplanned fiscal gap of around 1.4 percent of GDP in 2004. The authorities intend to offset this overrun through expenditure cuts and further revenue mobilizationto preserve the original goal of halving domestic-debt-to-GDP by 2005, and to protect social spending. The government will also announce a new pricing regime for petroleum products, whereby an independent Committee of Oil Marketing Companies (COMC) will freely set the prices for petroleum products based on an established formula without prior review or approval by any national authority or agency. The new regime will be enshrined inlegislation, providing an effective mechanism to depoliticize petroleum pricing and insulate the budget from rising world oil prices. 0 Facilitating trade with the installation of automated clearance procedures (GCMWGCNET) at the Tema (July 2003) and Takoradi (November 2003) seaports, yielding a reduction inthe average clearance time at customs by reducing the number of clearance steps from 11to 3. 0 Removing administrative and regulatory barriers for investment, with several actions already completed, including: the signing into law of a new Labor Act, amending and consolidating existing legislation and establishing aNational Labor Commission with a mandate to address issues related to tripartite dialogue, and the modernization of customs operations. In addition, actions taken over the course of the last two years to reduce the cost of starting a new business, including reducing the time needed to obtain the environment certificate and the tax registration, and lowering the tax registration fee.lg '' Total debt relief conceded by government to VRA add to US$145 million, with a commitment to provide more relief until 2008, on an annual basis, provided that VRA meets agreed performance indicators relating to commercial and technical efficiency. According to the World Bank's 'Doing BusinessData Base', betweenJanuary 2002 and January 2004, the time to start a business fell from 129 to 85 days (-34.1%), and the cost to start a business, measured as a percentage of per 29 0 Improvingthe performanceof the rural sector in the interest of the rural poor. In 2003, the actions completedto achieve the objective of improvingthe performance of the rural sector in the interest of the rural poor included the planned increase in cocoa producer prices to 69 percent of FOB prices, which took place in October 2003. Also in October, the stakeholder review of the national framework for micro-finance institutions was held, leading to a revised National Framework Paperfor Micro-Finance Institutions (MFI). The revised national framework is intended, among other objectives, to address issues of capacity building of MFIs, the development of a suitable regulatory mechanism for the MFI industry, the promotion of linkages between the formal and informal institutions, training for results in improved portfolio management. These actions are also important to the extent that they enable the disbursement of capital grants funded through HIPC funds through micro-finance institutions. 0 Completing the strategic environmental assessments, which reviewed interventions that support sustainable natural resources management, as well as options for better enforcing environmental regulations and standards, in areas ranging from land, forestry, and water to housing, health, andtransport. 51. Monitorableactions underthe program supportedby PRSC-3 includethe following: 0 Implement the Financial Sector Strategic Plan, focusing on: (i)improving the administrative framework for micro finance, (ii)establishing a Central Securities Depository for government securities; and (iii) enacting the Long Term Savings law for private pension andhousing schemes. 0 Implement the second year of the power sector reforms, including: (i)commencing the implementation of the performance-based ECG Management Support Services Agreements; and (ii) continuing the process of transforming VRA into three separate companies (the thermal company, the transmission company, and VRA Hydro company and other residual functions) by: (a) completing the legal framework, including the passage of revisions to the VRA Act; (b) separating the assets and liabilities; and (c) forming the new legal entities for these companies. 0 Implementthe 2004 tranche of the action plan for the Private Sector Development (PSD) Strategy, including: (i)strengthening of the institutional framework for implementation of the PSD strategy; (ii) completing andbeginning implementation o f the National Trade Policy; (iii) facilitating land registration by establishing four (4) Land Registries outside the Accra metropolitan region; (iv) reducing the clearance time at customs by extending GCMS/GCNet facilities to Aflao and Elubo; and (v) expediting business registration by completing the automation o f the Registrar-General's department. 0 Promote rural developmentby focusing on the implementation of poverty elements of the Ministry of Food and Agriculture's (MoFA's) strategic plan, including the: (i) ~ ~~ ~ ~ capita GNI, fell from 130.8%to 84.0% (-35.8%). These changes were driven largely by a time cut in obtaining the environment certificateandtax registration, and a lower registrationfee. 30 operationalize RELCS (Research Extension Liaison Committee); (ii)engage 250 Additional Extension Agents Engaged; and (iii) reorganize and revitalize policy process withinthe Policy, PlanningMonitoringandEvaluation Directorate (PPMED). Strengthen the management of forestry resources by: (i) continuing the plantation development program; (ii) extending competitive bidding inthe allocation logging rights to natural and plantation timber; and (iii)developing a framework for operationalization of an effective log tracking system. The extension of competitive bidding in the allocation of logging rights will increase transparency and raise government revenues from these auctions. Also, the introduction of systematic log tracking to identify the source o f timber leaving the forest will allow better monitor timber harvesting, processing and exports. 52. Expected outcomes. It i s expected that, as a result of the reforms, barring unfavorable exogenous events, real GDP growth rate would remain at least in the current 5 percent range through 2005, with prospects for better performance in 2006. This growth outcome would result largely from improvements in the general policy environment, assisted by the removal of bottlenecks for the development of the private sector andby a greater efficiency inmanagement of the public sector. This outcome is expected from several intermediate results: (i) reduced interest rates, creating room for increased private sector access to credit; (ii) improved financial and operational results at the Electricity Company of Ghana (ECG) and at the Volta River Authority (VRA), opening scope for new efficiency enhancing investments and the expansion in electricity supply at affordable costs; (iii) improved provision of broad-basedaccess of a wide range of competitive financial products and services; (iv) increased international competitiveness, based on clearance time at customs and declining transaction costs of doing business; (v) improved credit availability to the rural sector, allowing food crop farmers (that make up the majority of the rural poor) to rely more often on modern inputs and finance inventories to raise their incomes; and (vi) better management of forestry resources, leading to increaseforest cover inGhana. 53. Given the range of the reforms, the Government's growth target for the two remaining years of the GPRS (2004-05) of 5 percent is within reach. To achieve this, it is expected that agriculture would grow by an average of 6.0 percent, compared to 4.4 percent in 2002. The increase i s premised on the continuation of the favorable external environment for cocoa, greater access to credit, and improvements inmarketing and storage, aimed at minimizing post- harvest losses. It i s expectedthat industry would grow at an average of 5.2 percent, rising from 4.7 percent in 2002. The stronger performance is expected to result from buoyant agro- industrial and civil construction activity, reflecting lower transaction costs associated with production and lower domestic real interest rates. It i s expected that services would grow at an average of 4.7 percent, keeping the current growth trend on account of the continued strong performance ofthe transport, storage and communications sector. F. IMPROVING SERVICE PROVISIONFOR HUMANDEVELOPMENT Education 54. The Issues. At basic educationlevel, there are severalissues leading to the low levels of enrollment andthe low quality of education: 0 Persistentinequalitiesin access at all levels. Educationoutcomes inthe three Northern regions are considerably worse than the national average. Gross primary enrollment in the Northern, Upper East and Upper West regions are on the average, about 35 percent lower than inthe Greater Accra region.2oInaddition, the gross enrollment rate for girls is still lagging behind that for boys by about 7 percent. It i s estimated that 30 percent of children between the ages of 6 and 14 years are not in school and that the situation is worse for girls, for the disabled and in deprived rural areas. Gross admission rate for girls in 2001 was 89 percent for boys but only 73 percent for girls. Only a small fraction of the disabled are inbasic schools, and schools for the deaf and blind are usually the last to be consideredinresourceallocation. 0 Inadequate resources for non-salary expenditures. Even though recurrent expenditures on education addto 6 percent of GDP, wages and salaries absorb almost the totality of these expenditures. While non-salary expenditure received close to its planned budget allocation in 2003, allowing a 94 percent budget execution rate, non-salary expenditures accounted for less than one percent of all budgeted expenditures for basic education, meaning that very few resources available for textbooks and teaching materials. 0 Low quality of public basic schools, with public schools scoring much lower than private schools in the criterion referenced testing (CRT) for mathematics and English. The percentage of trained teachers in primary schools has only increased marginally from 69.9% in 2001/2002 to 73.5% in2002/2003 academic year. The scores on the CriterionReferencedTesting in2001 indicated that only 9% and 12% of pupils in public primary schools achieve mastery scores inMathematics andEnglish, respectively. 55. Reform strategy. The GPRS provides an overall framework for activities in the education sector and includes the promotion of human resource developmentas one of its five pillars. In November 2003 the Ministry o f Education, Youth and Sports launched its Education Strategic Plan (ESP) deriving directly from the GPRS and the President's report on "Meeting the Challenges of Education in the 21" century". The ESP identifies a clear set of costed objectives embracing the MDG goals and consistent with the GPRS. Planned actions aim at increasing access, improving quality and increasing efficiency and equity of financing education by strengtheningmanagementof the sector. Specific actions include the following: 2oInformationfrom the 2003 CWIQ. 32 0 To remove financial barriers in access to education, and promote gender equity in both enrollment and retention, the Government i s introducing capitation grants for girls attending primary schools in deprived communities, as well as in public primary schools for the disabled. 0 To improve the efficiency and equity of financing education, the Government is determined to improve resource allocation to the sector, especially non-salary resources and to consolidate all sources o f fundingto the education sector. 21 0 To ensure the quality of basic education, there are moves to deploy teachers ina more equitable and rational manner, by providing incentives and strengthening school supervision. 56. Progress under the program supported by PRSC 2 is focused on ensuring the provision o f public education services in the deprived areas, based on two overarching objectives: (i) increasing access, completion and quality in basic education, particularly in three most deprived regions (Northern, Upper East and Upper West), and (ii) ensuring sustainable financing arrangements that protect the delivery of education to the poor. Actions under the first objective focused on providing incentives to encourage girls to attend and complete basic education, and implementing teachers retention schemes in deprived districts. These actions aim at redressing existing gender imbalances in educational outcomes, and at providing better quality education in these districts by ensuring adequate staffing for the schools. The second objective focuses on a range o f measures to ensure better financing o f the education sector, including increased budget execution o f non-salary expenditures, effective targeting o f deprived districts by extending the school mapping exercise, applying an improved recurrent expenditure allocation formula, and developing a financing strategy for tertiary education. 57. A summary o fthe principal actions completed underthe program is as follows: 0 Incentive schemes, including scholarships, to enable girls to complete basic school education in deprived districts have been established at district level. Incentive scheme to encourage girls to complete basic school in deprived regions were already in place in the 2003/04 school year, with a total o f 5,000 needy pupils (80 percent girls) benefiting from these schemes. Inaddition, for the 2003/04 school year, the GETFund has allocated $ 8.9 billion for scholarships, with the funds allocated according to a transparent criteria (Table 8). This consolidation will be done by the Ministry of Education, and will include information from the Government's budget, the Ghana EducationTrust Fund (GETFund), the District Assembly CommonFund (DACF) and HIPC funds. 33 Table 8: Allocation criteria for scholarships Deprived Districts Eachdeprived district will receive atotal of cedis 111.1millionto be used as follows: 0 784 primary school scholarships(470 girls, 314 boys) at arate o f cedis 85,000 per student; 0 353 junior secondaryschool scholarships(212 girls, 141boys) at arate o f cedis 110,000 per student; Source: Ministry o f Education. 58. The impact of the various interventions appears to be positive. An analysis o f the gross enrollment ratio (GER) indicates a steady increase inoverall enrollment from 79.5 percent in 2002 to 81.1 percent in 2003. Moreover, in the Upper West Region, female enrollment targets were exceeded, with the GER increasing from 63.1% in 2002 to 69.6% in 2003, surpassing even the 2005 target of 63%. Also, both in the Northern region and in the Upper East Regions there were increases infemale enrollment and the regions appear to be on track to meet their GER for total enrollment for girls (Table 9). Table 9: Female Gross Enrollment Ratio -2001/2003 2001/2002 2002l2003 2005 Target National 77.0% 77.7% 88.5% Northern Region 55.0% 59.1% 70.0% Upper EastRegion 69.0% 72.1% 79.0% Upper West Region 63.O% 70.3% 63.0%?? Source: Ministryof Education. e The school mapping exercise has been extended to cover additional districts. The School Mappingprogram has four objectives: (i) provide a basis for district action plan; (ii) resourceallocationandimproveresourceutilization; (iii) target facilitate education sector's annual budget process; and (iv) build district capacity for data collection, planning, and resource allocation. In 2003, school mapping was completed in five deprived districts, reaching 50 percent of the target agreed under the PRSC-2 program. In the first quarter of 2004, additional school mappings were completed in four more deprived districts in the Central Region, two districts in the Upper West region, and two districts in the Northern region, reaching the target of fifteen (15) districts envisioned underthe program supportedby PRSC-2. 34 e Teacher retention schemes are beingimplementedin depriveddistricts. In2004, one hundredunits of teacher accommodationare to be built to accommodateteachers inbasic schools. It is envisaged that a significant proportion will be allocated to deprived districts, facilitating the retention of teachers inthese districts. Also, to stem the outflow of teachers, the number of paid study leave will be reducedto 3,000 in 2004/2005, down from 5,000 inthe previous school year, through better definition and enforcement of the criteria for paid study leave.22 To ensure that teacher training is notjeopardized, teachers are being encouragedto undertake distance education programs. The number of teachers to benefit from distance education in-service training is expectedto have increased from 3,618 in2002/2003 to 5,692 in2003/2004. 0 The execution rate of budgeted non-salary recurrent expenditures from 64 percent in 2002 to 75 percent in 2003 has increased. Budget execution reports for 2003 indicate that the 75 percent target for budget execution was surpassed, reaching 83.7 percent. September 2003 reports also indicate that the budget execution rate for deprived districts had already been higher than the target for the country as a whole. Out of budgeted non-salary expenditure of @7.9m, 91 percent of funding was actually released for depriveddistricts. Increasedexecution onnon-salary expendituresreflected increased pro-poor spending attributed to the resource allocation formula developed and implementedby the Ministry of Education, Youth and Sports. While only 29 percent of non-salary expenditure was originally budgeted for deprived districts, the actual share of releases going to deprived districts in September 2003 was 45 percent, indicating improvement inactual pro-poor expenditure (Table 10). Table 10: Ministry of Education's ExecutionRate of Non-Salary Expenditure, Sept. 2003 2003 Non-Salary Budget 2003 Non-Salary Releasedas at 9/12/03 Execution Rate Total MOEYS #198.8b 6116.5b 58.6% Deprived Districtsz3 657.9b 652.7b 91.0% %to deprived dist. 29% 45% 1) Items 2,3 and 4 of the budget. Source: Ghanaianauthorities. 0 There was an improvementin the efficiency and equity of financing education with attention to greater poverty impact. The education recurrent expenditure allocation formula inthe 2004 budget was revised to further benefit deprived districts. It increases the base grant for the 40 most deprived districts, raising the disadvantaged district criterion to 60%, up from 40% in2003 (Table 11). 22 The criteria for paid study leave now i s at least three years service two of which should be in a deprived district, study in a critical subject area, a district assembly sponsorship, and a bond ofthirty million (30 million) cedis. 23Deprived districts constitute 40 districts selected as a resultof low ranking using agreed educationcriteria. 35 Table 11:Criteria for educationrecurrentexpenditureallocationformula Criteria for resourceallocation in2003 Criteria for resource allocation in2004 Enrollment = 40% Base grant for 40 depriveddistricts Number of schools= 20% Ofthe remaining Disadvantagedcriteria = 40% Enrollment = 30% Number of schools = 10% Disadvantagedcriteria = 60% Source:Ghanaianauthorities. 0 The implementation of the first year of the Education Strategic Plan, including revising tertiary cost recovery policy. Education Strategic Plan (ESP) is now beginningits second year o f implementation, the Educational Sector Technical Advisory Committee (ESTAC) was established inthe first quarter o f 2004. The budget estimates for the 2004 Medium Term Expenditure Framework were completed for 2004-06, and negotiations are ongoing on how to bridge projected shortfalls. The National Council o f Tertiary Education has established a committee to work with tertiary institutions on revising the cost recovery strategy for tertiary education. Meanwhile, public universities have increased academic user fees and residential facility fees by at least 30 percent, raising students' contribution to meeting the cost o f goods and services. 59. Monitorable Actions under the program supported by PRSC 3. The main monitorable actions for education under PRSC-3 are the following: e Eliminateall government-controlledfees and introducecapitationgrants for girls in publicprimary schools in depriveddistrictsand in all public primary schools for the disabled. This measure aims at increasing access to education, particularly girls enrollments in deprived districts. There i s an increased recognition that key barriers to increasing access to education are the authorized and unauthorized leviedfees paid by pupils. Once these levies and fees are removed, and schools are providedthe incentive o f capitation grants for every girl pupilenrolled, access i s expected to increase sharply. e Expand teacher retention schemes in most deprived districts, to motivate teachers into accepting posting to rural areas. The Ghana Education Service reports around 24,000 teacher's vacancies in basic schools, with a significant proportion o f these in deprived districts. Trained teachers are reluctant to accept posting/deployment to deprived areas. Without providing incentives it is unlikely that teacher deployment and acceptance to teach in rural areas will increase in line with the expected increase in enrollment from the introduction o f capitation grants. 0 Ensure timely delivery of core textbooks for primary schools in most deprived regions, so that the increase in enrollment can be met with textbooks and teacher manuals that are essential for ensuringeducation quality. 0 Deliver increased resources to 40 deprived districts on basis of district education plans, to ensure that the most deprived districts are provided the necessary financial resources to implement the actions aimed at improvingeducation access and quality. 36 Increase execution rate of budgeted non-salary expenditures to not less than 85 percent in 2004, up from 83 percent in 2003, to ensure that resource necessary for ensuringeffective teaching and learning is sustained. 60. Expected outcomes. By the end of the third year of PRSC support to education, it i s expected that the following outcomes towards reaching the MDGs, will be achieved. (Table 12): Table 12: GPRS Expected Educational Outcomes and Targets by 2005 - 1990 2002/2003 2005l2006 Target 2015 MDGs Gross primary enrolment ("3) National 79 81 88.5 100 Female n.a. 78 88.5 100 Deprived Regions Northern Region n,a, 68 70 100 Upper East Region n.a. 72 79 100 Upper West Region n.a. 70 73 100 Source: Ghanaianauthorities. 61. These outcomes are expected from several intermediate results: 0 An increase inprimary pupil-teacher ratio inthe inthe three most deprived regions (Table 13): Table 13: Primary pupil-teacher ratio in the three most deprived regions, 2002-2005 2002/2003 2005/2006 Target Northern region 35:l 35:1 Upper East 51:l 45:1 Upper West 39:l 37:1 0 An increase inpupil-text book ratio inthe three most deprived regions (Table 14): Table 14: Pupil-text book ration in the three most deprived regions, 2001-2005 2001/2002 2005/2006 Target Northern region 1:1.3 1:3 Upper East 1:1.4 1:3 Upper West 1:1.9 1:3 0 An increase in the number of qualified school teachers in primary schools from 77.2 percent in2001to 81.3 percent in2005 (Table 15): 37 Table 15: QualifiedTeaching Staff,2001-2015 ( O h ) 2001' 2003 2004 2005 2010 2015 Trained 29.0% 34.1% 39.2% 44.3% 69.6% 95.0% Untrained 71.0% 65.9% 60.8% 55.7% 30.4% 5.0% Trained 77.2% 78.5% 79.9% 81.3% 88.1% 95.0% Untrained 22.8% 21.5% 20.1% 18.7% 11.9% 5.0% Source: EducationStrategic Plan. 1) Baseyear figure from 2001 (latest available data). Health 62. The Issues. While the health status o f the Ghanaian population has significantly improved during the last decade, reflecting progress in several areas, recent indicators show increasing in infant and under 5 mortality rates, as well as slow progress in reducing maternal mortality rates (Table 16). These health indicators raise concerns because, if trends recorded during the fist half of the 1990s were to be maintained, Ghana would be on track with most health-related MDGs, except for the target o f reducing maternal mortality ratio (MMR) by two- thirds by 2015. Getting back on track with meetingthe MDGs will require the country to face the following challenges: 0 Reducing regional inequalitiesin access to health services. Large regional inequalities exist and seem to be increasing in access and use o f health services. As a result, health outcomes inthe poorest regions are considerably worse than the national average. Table 16: Health Indicators,1988-2003 (YO) 1988 1993 1998 2003 Infant Mortality Rate 77 66 57 64 Under five mortality rate 155 119 108 111 Maternal mortality ratio 240 214 214 n.a. Crude birth rate 47 44 39 n.a. Crude death rate 17 12.5 10 n.a. Lifeexpectancy at birth 54 56 58 60 Total fertility rate 6.4 5.5 4.6 4.4 Sources: DHS, WDR and the health sector Program of Work in Ghana- FactsandFigures 2003 0 Increasing financing to the health sector. The funding available to the health sector i s low by international standards (even by the standards o f low income countries), exposing the population to serious financial risk at the time o f illness due to lack o f appropriate insurance coverage. Total health care expenditure in Ghana was around 4.2 percent o f GDP in2002 (US$8 dollars per capita at average exchange rates or US$32 dollars inPPP adjusted values). Spending in the public sector i s about 2.4 per cent of GDP, meaning that Ghana one of the lowest spenders on public health care in the world (World Health Organization 2002), leaving a large fraction o f the burden o f health expenditure to the general population. 38 0 Stemming the `brain drain' and rebalancing the unequal distribution of staff. Despite an "additional duty hours allowance" that i s paid to health workers to top o f f their salaries and provide an incentive to remaininthe public sector, Ghana continues to lose doctors and nurses to the UK, US and neighboring African countries. The distribution o f those staff that remains i s heavily skewed towards Accra, Kumasi and other urban areas. 63. Reform strategy. In 2002, Ghana approved a second five-year health strategy (2002- 2006) and corresponding Program o f Work (POW), describing the health sector policy and is aligned with the GPRS. The key components o f the Government's policy are: (i)addressing HIV/AIDs threat, using the HIV/AIDS control strategy; (ii) shifting from facility-based services by emphasizing community based care; (iii) reducing financial barriers by abolishing the cash and carry system, thereby ensuring that no one lacking funds at the time of need is denied essential health care; (iv) reforming the financing arrangements for the entire sector by replacing the requirement to pay at the time o f service with prepayment and insurance arrangements; (v) increasing the use o f non-governmental and private health providers; (vi) scaling up the control o f malaria, TB, and the elimination o f Guinea Worm, and strengthening reproductive, maternal and child health, as well as immunization services (EPI); (vii) decentralizing resource management to budget management centers; (viii) improvingstaff motivation and health worker incentives; and (ix) undertaking inter-sectoral collaboration for health related issues like sanitationand nutrition. 64. Implementation of the POW is being supported by the health SWAP (Sector Wide Approach), the Ghana AIDS Response.Project,and the HIV/AIDS Treatment Acceleration Program(currently under preparation). The PRSC complements that support by elevatingto the center o f Government three issues that received particular attention in the GPRS. First, it draws Government's attention to existing inequities by supporting the GPRS's priority to the most deprivedregions. Second, it supports measures to encourage health professionals to work in remote areas. Third, it also supports measures aimed at ensuring sustainable financing arrangements, which protect the poor. Another important dimension o f the PRSC i s that it also supports programs expected to have the greatest impact on the MDGs (see schedule 4). 65. Progressunder PRSC-2. The Ministry of Health and its agencies made good progress in implementingthe program supported by PRSC-2. The two prior actions related to health component were completed. The Government o f Ghana developed a new resource allocation formula that resultedin additional budget allocation to the four deprived regions in 2004. Also, the program for maternal exemptions was expanded to two more regions and adequately funded inthe 2004 budgetusingHIPC resources. The implementationofthe program hada slow start in the first six months o f the program, however, and steps need to be taken to improve its performance. Overall funding for exemptions from fees for the poor increased and steps will be undertakenduringthe next year to improvetargeting. 66. Other actions supportedby PRSC-2includethe following: 0 Increasing the coverage of the Community Based Health Planning and Services (CHPS) program in the Northern, Upper East, Upper West and Central regions. The CHPS program aims at providing cost effective and adequate quality health services 39 to households inthe communities where they live. Underthe Government's program, the target was to complete 1,570 CHPS by end 2006,24 meaning that during the period covered by PRSC-2 20 percent of the planned zones were to have been completed. To date, new CHPS compounds have been built in 47 zones (28 of which are in deprived regions), meaning that the 20 percent target was not met. This seemingly slow progress under the CHPS initiative has provided, however, some strategic direction on the way forward, with increasing attention the training community health officers (CHO), which inthe 2004 budgethasreceivedacedis 22 billionallocation from HIPC funds. 0 Implementing high impact rapid delivery program for USMR and MMR within at least two deprived districts. The high impact rapid delivery program is defined as the pilot program currently implementedby UNICEF in 4 districts inNorthern region and 2 districts in Upper East. The achievements of this program in 2003 were quite remarkable with (i)two hundred and fifty thousand (250,000) Insecticide Treated Nets (ITNs) distributedto children intwo regions inthe North, and (ii) five thousand (65,000) sixty nets retreated in Upper East. As a result, the proportion of children below five years sleeping under I T N s has increased from 4 percent to 40 percent in the Northern and UpperEast regions. Inthe meantime, community agents insix districts have beentrained on home-base care to manage malaria and diarrhea. As an outcome: (i) percentageo f the children under five years with diarrhea using Oral Rehydration therapy has increased from 30 percent to 60 percent in the Northern and Upper East regions; (ii) the regional medical stores have been assisted to purchase pre-packed chloroquine; (iii)the immunizationrate for DPT3Penta3 in 19 districts inthe Central Region has increasedby 10 percentage points; (iv) three hundredthousand (300,000) children under five (5) have beendewormed; and (v) the first dose of vitamin A supplementation was administered in May 2003, covering about 96 percent of eligible children, with a second dose completed inDecember. 67. The implementationof this program by the Government of Ghana has not entailed a simple scale up of the existing pilot, but the funding by the Ministry of Health of priority health programs in the 2004 budget, as reflected in the 2004 budget circular signed by the Minister. Furthermore, UNICEF does intendto continue supporting the program and expand it into the Central Region. 0 Promoting the relocation and retention of health professionals to most deprived districts, with proposals included in the 2004 budget and approved by Parliament. The MOH has identified 55 deprived districts, which includes all of the districts in the deprived regions, as targets for interventions to retain and attract new staff. The 2004 budget sets aside 22 billion cedis to provide a salary incentive of 15 to 35 percent o f the base salary to all health workers currently in these districts. An additional 19 billion cedis from HIPC funds will be used to attract new health workers to the distri~ts.'~ 24 Ministry of Healthand GhanaHealthService,StrategicPlanfor Rolling Out CHPS in Ghana,2004. 25Focus group interviews have been undertakenthat suggest that the incentives that are most likely to attract and retainhealthworkers are schools for children, given the poor quality o f education in the deprived districts, travel to home districts, electricity, water, vehiclesandflexible fundingfor personalhousing. 40 Cabinet has approved these two programs, and the District Assemblies will administer these funds. Adopting a new recurrent expenditure allocation formula favoring most deprived areas. A new resourceallocation has beenadoptedand applied to the 2004 budget. The objective of a new formula is to provide additional funding to deprived areas and i s based on population adjustedfor health needs (USMR and IMR) and deprivation (percent of the population below the poverty line). In2004, the formula has been applied to non-salary recurrent expenditures (items 2 and 3 inthe budget). Reformingthe fee exemption policy to target the poor and extend exemptionpolicy for maternaldeliveriesto remainingregions. The fee exemption for maternal delivery began inAugust 2003 and implementation inthe deprived regions has been slow despite adequate funding. It is expected that implementation of the program will improve significantly in 2004. The amount in the budget allocated to the maternal delivery ' exemption in 2004 i s higher, 27 billion cedis, compared to 17 billion in 2003, which assumes an expansion of the program to 2 additional regions. Funding will be made available through HIPC and administered by the District Assemblies. Methods to improve targeting for the poor are included as part of the new Health Insurance Act and will be implementedby the program supportedbyPRSC-3 Evaluating the financial implications of the National Health Insurance Scheme (NHIS). The Government, with the assistance of the International Labor Organization (ILO), began the evaluation of financial implications of the National Health Insurance Scheme. The evaluation includedthe projections for scheme financing and costing of the benefits package. Having completed this evaluation of the implications of the NHIS, priority now should be given to examining best and worst case scenarios, undertaking sensitivity analysis to deepen understanding of the benefits and risks o f the proposed financing arrangements. The latter includes the expected effect of additional demand for health services on the finances of the NHIS, as well as onthe government's regular health budget. 68. Monitorable Actions under PRSC-3. The monitorable actions for the health program supportedby PRSC-3 includethe following: e Assess health professional attraction and retention program in consultation with stakeholdersand decentralizemanagementof human resources continued,including the identification of options for decentralizing personnel and emoluments (P.E.). The purpose of this measure is to improve quality and access to health services in the deprived regions by increasing the number of staff in deprived areas and ensuring the retention of existing staff. The ratio of nurses and doctors per population i s significantly lower in the deprived regions because o f lack of adequate financial resources to pay incentives for staff to remain or move to these areas. The lack of staff means inturnthat facilities cannot operate, reducing access to health services. e Revise the resource allocation formula to be used in the 2005 budget, favoring the most deprived districts, to include for goods, services and investments (items 2, 3 and 4 41 in the budget). While the allocation formula used in the 2004 budget distributes resources more equitably by considering population need and health indicators, it is limited to goods and services (items 2 and 3 in the budget), covering 37 percent of the budget resources in 2004. The existing formula does not address the main expenditure categories, which are wages and salaries (item 1 inthe budget, accounting for 35 percent of the resources in2004) and investment (item4 of the budget, accounting for 28 percent of the resources in2004). The revision inthe formula to be includedinthe 2005 budget will address some of these concerns by including resources for investment in the allocation formula. 0 Increase funding for exemptions, develop and implementsystem for identifyingthe poor for exemptions from feedhealth insurance premia subsidy, and expand maternal exemptions to two additional regions. This would improve utilization of health services by the poor by removing financial barriers, and lead to improved health outcomes. The removal of these financial barriers are particularly important inthe case of fees for maternal deliveries, as maternal mortality rates are unacceptably high in the deprived regions and poor women are particularly at a disadvantage in having access to adequate delivery services. The results of the 2003 CWIQ survey showed that 85 percent of births in the Greater Accra region are conducted at a hospital or maternity, compared to only 16 percent to 32 percent in the Northern regions. Also, the National Health Insurance scheme (NHIS) is seen as a key step in improving the financial accessibility of health services inthe longer term. However, since there are concerns that these potential benefits may not be achieved unless explicit efforts are made to ensure coverage of the poor, the exemptions for maternal delivery have been implemented in four (4) regions and are being extendedto two (2) additional regions. 0 Lay the Legislative Instrument for the National Health Insurance Scheme before Parliament,thus initiatingthe process of implementing the NHIS. 69. ExpectedOutcomes. By the end of the third year of the program, it is expectedthat the following outcomes will be reached on the way to meeting the health-related MDGs by 2015: Table 17: Health-GPRSOutcomes for 2005 1990 2002 2005 2015 Under 5 mortality rate (per 1,000 live births) National 119 112 95 41 of which: - NorthernRegion n.a. 171 130 n.a. Upper East Region n.a. 155 116 n.a. - Upper West Region - Central n.a. 156 117 n.a. n.a. 142 107 n.a. Maternal mortality ratio (per 1,000 live births) 214 200 160 54 70. These outcomes are expectedfrom measurement o f several intermediate results linked to the increase utilization of health services in deprived regions, including (i) increase in the outpatient visit per capita in deprived regions from in 0.48 2002 to 0.6 in2006; (ii) decrease the inthe ratio of populationper nurse inthe four deprivedregions from 2,OOO:l in2002 to 1,500:l 42 in 2005; (iii) decrease in the ratio of population per doctor in the four deprived regions the decreased from 20,OOO:l to 16,500:l in the four deprived regions; and (iv) the increase in supervised deliveries in targeted areas from 49 percent in 2002 to 55 percent in 2006. In addition, it is expected that there would be an increase in the percent of budget allocations for goods, services and investment (items 2,3 and 4 inthe budget) to depriveddistricts. HIVAIDS 71. The issues. The core issues in containing the spread of the HIV/AIDS pandemic in Ghana are centered on the rising prevalencerate, the needto give attention to prevention, andthe care and support to persons living with and affected by HIV/AIDS. The two first issues are as follows: Prevalence. Ghana has currently one of the lowest prevalence rates for HIV/AIDS in Africa, with a median prevalence rate of 3.6 percent (2003), and a mean rate of 3.9 percent. The infectionrate trendincreasedby 50 percentbetween2000-2002, raising the infected adult population to 400,000. The highest infected age cohort is between25- 29 years, where rates were almost 20 percent higher than the overall mean. The infection ratio betweenfemale and male has also increasedover the years. It has gone from 6:l in 1987, to 3:l in 1990 and 2:l in 2002. There are six cities where the infection rate is greater than five percent, with the city of Koforidua now having a prevalence rate of 8.5 percent -- a cause for muchconcern. At the current trend, the Ghana AIDS Commission (GAC) estimates that nationally, sero-prevalence will rise from around 3.6 percent today to somewhere in the range of 4 to 9 percent by 2014, depending on the efficiency of control measures. The potential impact on the economy and society makes HIV/AIDS one of the single most important issues the Government of Ghana will face in implementing its poverty reduction strategy. Prevention. Ghana's number one challenge in keeping low levels of HIV/AIDS prevalenceis ensuring effective preventive campaigns. Although there i s no evidence of a rapid increase in HIV prevalence in Ghana during the past few years, most of the neighboring countries have experienced such an increase and, all other things being equal, it would be surprising if the same did not happen in Ghana. Assessing the effectiveness of the current preventive effort, require constantly monitoring, measuring whether high-risk groups are being targeted, and whether the public campaigns and counseling are being effective inchanging sexualbehavior. 72. Reform strategy. The GPRS describesa strategy to reduce the spread of HIV/AIDS epidemic based on four areas of emphasis. First, the prevention of HIV transmission by improving service delivery, intensifying behavior change and communication activities and introducing special programs for high-risk groups (e.g. commercial sex workers). Second, provide treatment or a continuum of care for People Living with HIV/AIDS (PLWHA) and their families. Third, build capacity for organizations working with PLWHA, within the context of the District Response Initiative. Fourth, reduce stigmatization and discrimination through interventions with the judicial system and human rights organizations. Despite of progress achieved recently in the implementation of activities at the community level to prevent AIDS 43 transmission and provide care to PLWHAs and AIDS orphans, it is critical to scale up the local initiatives program. 73. Progress under PRSC-2. During the PRSC-2 period, Government-sponsored HIV/AIDS community-based programs became fully operational in 200 communities with activities ranging from awareness creation and advocacy to support to orphans and vulnerable children, andto people living with HIV/AIDS. 74. Monitorable actions under PRSC-3. Actions for the HIV/AIDS program to be supported by PRSC-3 are centered on accelerating the implementation of interventions for high risk groups and areas with high prevalence, taking into consideration recommendations of the joint review. 75. Expected Outcomes. By the end of the three-year PRSC period, Ghana expects to maintain the HIV prevalence rate among pregnant women, aged 15-24, below the five percent benchmark. Special programs for thepoor and vulnerable 76. The issues. The Ghanaian social structure remains highly decentralized, concentrated around the household, ethnic, religious and occupational groups. There i s a strong sense of solidarity at the local level, expressed in terms of family and community participation and financial support at the time of birth, marriage, illness and bereavement. This social safety net i s being tested however by increased urbanization and the problems that result from that, such as open unemployment,HIV/AIDS and street children. 77. Progress under PRSC-2. To address these concerns, the Government of Ghana has supported specific interventions, focusing initially on vulnerable street children, aiming at reintegrating them into mainstream society. Under the program supported by PRSC-2 the Government initiated a National Program, with the program becoming operational in four districts - Accra, Kumasi, Shama-Ahanta East Metropolitan Assemblies and Tamale Municipal Assembly. A total of 36 service providers have been engaged in the delivery of integrated .services to street children in the four participating districts. The program reached about 1700 children (up from the 1500 children originally targeted) through vocation and formal training. The program has also contracted specialist service to train parents and guardians of street children in small business development, ensuring that they earn adequate income to support their children either inschool or under apprenticeshipat the end of the project. 78. Monitorableactions under PRSC-3. Under the program to be supported by PRSC-3, the Government of Ghanais proposingto scale up its interventions insupport ofthe poor andthe vulnerable, beginning with the preparation o f a social protection strategy that would guide government and donor-supported interventions, 79. Expected outcome. By the end of the three year PRSC program, Ghana is expectedto have improvedthe targeting of resources available to vulnerable groups. 44 Water and Sanitation 80. Context. While actions in the water and sanitation sector were not supported by either PRSC-1or PRSC-2, there was broad agreement withinthe Government and among development partners in bringingthis sector under the program to be supported by the PRSC beginning with PRSC-3. The rationale for including water and sanitation under the agenda supported by the PRSC is the close link between health outcomes and access to safe water and sanitation. Indeed, the recent deterioration ininfant mortality and under 5 mortality rates couldbe attributed, inpart, to slow progress in access to safe water supply, and the low levels in access to safe sanitation.26 Between 1997 and 2003, the average increase in access to safe water sources was just under 9 percent, with the Greater Accra region experiencing a 12 percent decline, albeit from levels higher than the national average. Also, access safe sanitation continues to be very low, with the national average at less than 40 percent and access in the three deprived regions (North, Upper West, andUpper East) at 20 percent or lower. 81. Monitorable actions under the program supported by PRSC-3. With the broad objective of increasing access to rural potable water and sanitation in Ghana, actions to be supported by PRSC-3 would focus on: 0 Beginningimplementationof Cabinet-approvedcomprehensive water sector policy, with an aimto rationalize government and donor-funded investmentsinthe sector; Carrying out hydro-geological data base mapping, with a view to better target investments; and 0 Supporting deprived districts in preparing water and sanitation plans, so as to increase capacity at the district level and help guide these investments. 82. Expected outcome. By the end of the three year PRSC program, Ghana is expected to have a more robust policy framework for water resource management and utilization, enabling the Government o f Ghana to rationalize sector investments to achieve accelerated and sustainable coverage for water supply and sanitation. Also, it i s expected that the policy framework will result inimproved donor coordination and sector planning, further deepening the decentralization o f service delivery. Finally, enhancing quality o f groundwater resource management information systems and linking this to sector planning and investments will result in more efficient utilization of the water resource and greater efficiency in use of investment funds. 26Other factors that appear to have contributed to the increase in infant and under 5 mortality rates include the increasein childmalnutritionandthe slow increasein immunisationandVitamin A coverage 45 G. IMPROVING GOVERNANCE PUBLIC SECTORMANAGEMENT AND 83. The Issues. The GPRS underscores the importance o f improving governance and public sector management for the achievement o f the Government's growth and poverty reduction objectives. It identifies actions aimed at improving the efficiency, transparency and accountability o f government operations, and at refocusing public sector reforms by strengthening governance and public sector management. While these reforms should, within the next few years, yield considerable results, sustained efforts are needed infour main areas: 0 Improving public sector performance. Most o f the progress inthe public sector reform agenda in 2003 consisted o f preparing the legislative framework for decentralization and developing strategies for public sector reform. Although the progress so far reflects the government's commitment to move ahead with an agenda for improved public sector performance, the next stage o f implementation o f the GPRS needs to build on these achievements to deliver the expected policy outcomes. Areas that need to receive particular attention include: (i)revising pay and the incentive system to enable Government to attract and retain skilled staff, which in the short run might entail an increase in the total wage bill; (ii) improving service delivery at decentralized level; and (iii)strengtheningwage bill management. Attention inmanaging the wage billwill focus on the payroll database: (i) controlling entries, (ii) ensuring timely deletion due to deaths, retirements and other life events, and (iii) carrying out and monitoring transfers across and withinpublic sector units. 0 Strengthening public financial management. The government o f Ghana has initiated a number o f public expenditure management reforms in2003, including: (i) newlegislation for financial administration, internal auditing and procurement; (ii) procedures aimed at minimizing the risk o f budget slippages and the accumulation o f arrears by strengthening cash and commitment controls; (iii) prompt reconciliation o f budgetary and banking the accounts; (iv) increasing the frequency and timeliness o f reporting on budget execution; and (v) enhanced oversight from the Public Accounts Committee o f Parliament and the Auditor General's Department to ensure the judicious use o f public resources. Attention now i s turning toward increasing information available at the time budget statement by developing guidelines for a comprehensive collation o f annual financial accounts comprising o f the Consolidated Funds, the Statutory Funds, albeit with a one year lag, and donor funded Sector ProjectProgram funding. Also, the enforcement o f procurement rules, now with the approval o f the new law, i s receiving increasing attention to ensure the efficient use o f public funds, as well as greater transparency and accountability. Finally, the government i s pressingahead with the implementation of the new Financial Administration Act and the Internal Audit Agency Act, as important steps toward establishing a system o f internal and external controls that defines incentives and sanctions to influence staff behavior. 0 Strengthening governance institutions. Notwithstanding Ghana's favorable ranking in Transparency's International Corruption Perception Index (behind only Mauritius, Botswana and Namibia), the Government continues attaching importance to further progress in strengthening governance institutions. Actions taken in 2003 aimed at 46 improving transparency and accountability of public institutions, includingthe drafting of key pieces of legislation, such as the Freedom of Information and the Whistle Blower bills - currently under Cabinet review. With these actions having laid the groundwork for further improved governance, the next step i s to move from designto implementation, ensuring the achievement ofthe desiredpolicy outcomes. 0 Strengtheningthe capacity to monitor and evaluate the policy agenda. The work of the National Development Planning Committee (NDPC), as well as the activities of the regional and district planning departments, have provided Ghana with the main elements to carry out monitoring and evaluation of the first year of implementation of the GPRS. This work has included preparing the annual progress report, ensuring greater alignment between the budget and the GPRS, and strengthening the links between regional and district planning programs and the GPRS. This work has also included important next steps for strengthening the M&E function in Ghana, such as establishing credible baseline data for targets and indicators; and enhancing the feedback provided by M&E initiatives to policy makers. 84. Reform strategy. The government's reform strategy for improved governance and public sector management is outlined inthe GPRS governance agenda, and further elaboratedin three action plans: (i) National Decentralization Action Plan (NDAP); (ii) Short Term the the Action Plan (STAP) for Public Financial Management; and (iii) GPRS Monitoring and the Evaluation Plan. A summary review ofthese action plans is as follows: 0 National Decentralization Action Plan. The NDAP aims at strengthening and deepening the decentralization process by having the District Assemblies become the focal points for development activities at the local level. The ultimate objective i s to delegate program implementation entirely to District Assemblies, while the Central Government retains responsibility for policy formulation and oversight, and Regional Coordinating Councils assume greater responsibility for program monitoring and coordination. The intermediate steps to achieve this objective include establishing and empowering local government structures, demarcating administrative boundaries, and promoting local participation at the various levels of decision-making. Areas o f emphasis as Government moves forward with this process will include strengthening decentralized departments at the regional and district level to facilitate coordinated development and the efficient utilization of resources. The latter will be achieved by: (i) promoting participatory development planning; (ii)the active involvement of communities and service providers inthe determination of needs and the implementation of programs; and (iii) the creation of an enabling environment to promote public-private partnershipsinthe provisionof services. 0 Short Term Action Plan for Public Financial Management. The Short Term Action Plan (STAP) brings public finance management objectives under a common framework, aligning key initiatives, sequencingthem with benchmarks, expected results andpotential risks. The overall purpose of the plan is to establish a financial management system in the public sector that could: (i)enable government to make informed decisions on the allocation of its scarce financial resources; (ii)ensure that financial plans are implementedaccording to government decisions and expectations; and (iii) that all ensure 47 relevant guidelines and regulations are used correctly to secure acceptable accountability and transparency in the use o f public funds. Actions are focused on strengthening a number o f areas as basic requirements for better planning, budgeting, expenditure monitoring and control. These areas include: (i) continue deploying the Oracle Financial Applications System, under BPEMS, to key sector ministries; (ii)broadening the coverage o f the government's new cash management system; (iii) improving accounting practices by recruiting qualified accountants, training o f existing staff on modern accounting procedures, and providing equipment and logistics for monitoring these activities at the Controller and Accountant-General's Department; (iv) strengthening the auditing function through capacity building at the Ghana Audit Service and Internal Audit Agency; (v) strengthening procurement procedures by implementing the new procurement law; and (vi) designing and implementing composite budgets for local governments. 0 GPRS monitoring and evaluation plan. The GPRS Monitoring and Evaluation Plan entails the preparation o f Annual GPRS Progress Reports to be reviewed by Parliament, as well as the preparation o f relevant background information through (i)regular household surveys; (ii)expenditure tracking surveys; (iii)poverty and social impact analysis; and (iv) citizen report cards. 85. Complementing these actions plans are the proposed public sector reform strategy, focusing on improved public sector performance, and other actions for strengtheninggovernance. The mainelements ofthese two proposed set ofactions are as follows: 0 Proposed Public Sector Reform Strategy. The proposed Public Sector Reform (PSR) Strategy draws lessons from the public sector reform experience o f the 1990s to refocus and revitalize the reform agenda. Shortcomings in the implementation o f public sector reforms in the 1990s identified in various studies include the following: (i) inability to tackle system-wide issues, such as public sector pay, rightsizing o f public sector agencies, and developing a strategy for public sector human resource development; (ii) severe capacity constraints at managerial and professional levels, leading to high dependence on consultants' inputs; (iii)fragmented, technology-driven and un- coordinated public sector modernization programs; and (vi) weak linkages between central and sectoral reforms. Buildingon these lessons, the proposed PSR strategy aims at improving service delivery by (i)developing structures, processes and procedures for establishing a senior leadership tier in the public service; (ii) reviewingthe organization and structure o f the Civil Service with a view to provide clarity for the roles o f administrative, technical and political structures; (iii)developing a strategy for professionalizing the human resource function inthe public sector, including recruitment systems and performance evaluation; and (iv) developing competency based in-service training and structures that will ensure improved service delivery on a continuous basis. 0 Other actions to strengthen governance. In addition to actions to improve public sector performance and increase transparency in the allocation o f public resources, the GPRS also identifies actions to improve transparency and accountability o f public institutions, proposing measures ranging from strengthening the oversight capacity o f Parliament to institutionalizing access to government-related information, making 48 information on government processes more readily available to civil society. Strengthening Parliament oversight of the development agenda is to be accomplished by submittingto the Parliament's GPRS oversight committee the Annual Progress Reports for the GPRS. Institutionalized access to government-related information is to be achieved with the implementation of the Freedom of Information and Whistle Blower bills. 86. Progress under PRSC-2. Progress in implementing the governance and public sector reform agenda under the program supported by PRSC-2 was centered on laying the legislative groundwork for decentralization, developing a strategy for public sector reform, strengthening public expenditure management, drafting key governance legislation, and upgrading the system of monitoring and evaluation. A more detailed assessment ofthis progress i s outlined as follows: Decentralization and Public Sector Reform a Strengtheninggovernance institutions. Actions aimed at strengthening key governance institutions with the support of PRSC-2 included the establishment of the Office of Accountability in the Office of the President, the inauguration of an in-country Peer Review Council for the Africa Peer Review Mechanism (APRIvI),~~ and Government funding for the Electoral Commission's preparation of the 2004 National Elections -- more specifically the voter registration exercise. Also, the Freedom of Information and the Whistle Blower bills were submittedto Cabinet inApril 2004, and a study to clarify the legal and institutional mandates for key anti-corruption institutions was initiated, with the definition of the terms of reference and the selection of the team working on the study. Furthering decentralization. Government actions aimed at hrthering decentralization with the support from PRSC-2 focused on streamlining the legal framework and developing an action plan that strengthens accountability, empowerment, and civil society participation. A first step toward achieving the former was the enactment of the Local Government Service (LGS) Law on December 16, 2003, while the latter i s to be achieved with the implementation of the National Decentralization Action Plan (NDAP), recently endorsedby Cabinet. a Refocusing public sector reforms. Under the program supported by PRSC-2 the government efforts in refocusing the public sector reforms centered on work that would inform the preparation o f a Cabinet policy statement on public sector reform. Actions completed include: (i)following up on the census of public sector employees by removing from the payroll staff names that had not been verified by the census; (ii) developing and strengtheningthe regular capacity for payroll auditing to address fraud by individuals and misreporting by government agencies; (iii) establishing new structure for institutionalized dialogue on public sector reform, with a technical Secretariat overseen by an Advisory Group composedof experienced practitioners from the private andpublic 27This body set up earlier this year is comprised of independent eminent persons and will lay the foundation for openingup our governancemechanismsto scrutiny at the highest levels within the context ofNEPAD. sectors; (iv) taking positive steps to further mainstream decentralization into the public sector reform strategy, with joint work betweenthe PSR and Decentralization Advisory Committees and Secretariats; and (v) the preparation of a Cabinet statement on public sector reform, aimedat defining a time-bound reformprogram. 0 Strengthening payroll management and control. Under the program supported by PRSC-2, the Government of Ghana completed a census of public sector employees, with a further validation of the census results taking place in the second quarter of last year. Confidence levels in the updated database remain below original ex ectations, however, meaning that further validation and clean up will likely be required. Inthe meantime, P* steps have beentaken to tighten the rules andregulations for payroll management, control and oversight of Subvented Agencies by the Controller's and Accountant General Department(CAGD). CAGD now requests monthly (insteadof quarterly) wage bills and makes direct payment of contributions to the Social Security and National Insurance Trust (SSNIT) andofpersonalincome taxesto the InternalRevenueSystem(IRS). Public ExpenditureManagement 0 Modernizing the framework for public expenditure management. To ensure effective management of public resources, the government took steps to modernize the public expenditure management (PEM) regulatory framework, with the President signing into law the Financial Administration Act (FAA), the Internal Audit Agency Act (IAA), and the Public Procurement Act. The FAA defines the duties and responsibilities of the Minister of Finance and the Controller and Account General in (i) making payments out of the consolidated public fund; (ii)managing public property; and (iii)in the procurement of goods and services. The Internal Audit Agency Act aims at setting up an apex body to coordinate, facilitate and provide quality assurance for Internal audit controls in government ministries and agencies. Under this second law, each ministry and agency shall establish integral internal audit units, with copies of all internal audit reports sent to the apex body, enabling it to oversee appropriate action and make recommendations. The implementation of the Public Procurement Act aims at attaining greater value for public money spent on goods and services, with the following steps already completed: (i) nominations of the membersof the Public Procurement Board, the including the Chairman; (ii) the preparation of new standard tender documents; (iii) the preparation of a new procurement training manual; (iv) the launching of the information and awareness program; and (iv) the advertising for the position of the Board's Chief Executive and Tender Review Boards (TRB).*' Also, the Ministry o f Finance and Economic Planning (MoFEP) has issued circulars to the public procuring entities requiring them to form Entity Tender Committees (ETCs) and start processing all procurement inaccordance with the law. 28The majorityo fteachers removedfrom the payroll over the past couple o f monthswere re-instatedby Controller's and Accountant GeneralDepartment(CAGD) due to misreporting. 29The ChiefExecutiveo fthe Public ProcurementBoard is expectedto be inpost by end-July2004. 50 0 Strengtheningbudget reporting. To promote quality, transparency and accountability in the management of public expenditure, the government has made progress in improving the scope, timing and quality of the reportingof budget execution. Monthly (commitment and expenditure) budget execution reports reconciled with the Bank of Ghana have been produced with no more than 8 weeks lag. Also, quarterly report on execution (items 1-4 detailed) of poverty related expenditures are also being produced with no more than 8 weeks lag. These reports capture expenditures by the relevant ministry (e.g., health), as well as sector-relatedexpenditures carriedout by other MDAs (Ministries, Departments, and Agencies), and by extra-budgetary funds (e.g., GETF, RoadFund). They also contain expenditureestimates from District Assembly Common Fund (DACF). Finally, the Government has moved ahead with the expansion of a computer-based information and accounting management system (BPEMS), aiming at configuringand setting up the Oracle FinancialApplications System inthe Accra-based operations of the ministries of education, health, and roads and To produce the budget reporting required under the PRSC-2 supported program, bridging the transition toward Oracle FinancialApplications System under BPEMS,the Government has relied on a simplified spreadsheet-basedsystem for expenditure tracking (NETS), as well as existing systems for cash management, auditing and commitment control. In doing this, the government has also improved control over budget expenditures, minimizingthe risk ofbudget slippages andthe accumulationof arrears. 0 Adopting a new chart of accounts, aligningthe budgetfunctionalclassificationwith the GFS. A comprehensiveanduniformchart of accounts has beendeveloped, with the Government's accounting and budgeting forms redesigned to accommodate the Oracle FinancialApplications System. Also, a bridge table was developedto generate regular reports using the more standard GFS cla~sification.~~ To implement this new Chart of Accounts, about 2,000 government staffhave beentrainedon its use andthe Government Business Processes. Monitoring and Evaluation 0 Preparingthe GPRS Annual Progress Report (APR). The GPRS APR for 2003 was completedinmid-May. Also, the poverty mappingat the district level, and CWIQ data for the regions have been completed, and have been released to the National DevelopmentPlanningCommittee (NDPC) to aidinthe completionofthe APR. 30While the extensionof the OracleFinancialApplications System, under the Budget and ExpenditureManagement System (BPEMS), has been slower than originallyplanned, the installationo f key modules o f the system (accounts payable, purchase ordering and general ledger) is well advanced enough to consider this prior action met in substance. 31To develop a GFS functional classification, each GOG cost center has been designated a 5 digit GFS code that details the main(division) code (3-digits), the sub-category(Group) code (1-digit), and the sub-sub-category(Class) code (1-digit). This information has beenrecorded, inturn, in the NationalExpenditure Tracking System(NETS) to facilitate the generationof routine monthly expenditure reports. 51 Implementing the GPRS M&E plan. The government has begun to establish the institutional structures for ongoing review o f GPRS indicators, targets and policies, with the organization o f the National Poverty Monitoring Groups (PMGs). Also, an action plan to improve district monitoring has beenproduced in consultations with districts and regions, though regional and district PMGs have not yet beenformed. The government's engagement inNational PMGs i s encouraging, and needs to be further embedded in the actions of core MDAs. Finally, to deepen the M&E process further, civil society organizations need to be more actively engaged at national and local levels. 0 Carrying out Poverty and Social Impact Analysis (PSIAs). Four draft PSIAs were completed and technical committees, representing a cross-section o f government, established to oversee follow up steps. These PSIAs focus on: (i)the changes to the electricity tariff structure and how the overall structure o f the sector affects quality and access o f services to the poor (WB); (ii) the policies to promote growth inthe agricultural sector and the degree to which these could benefit small land holders (DFID); (iii) a vulnerability mapping exercise to improve the knowledge base for managing targeting o f interventions for the extreme poor and vulnerable (DFID); and (iv) institutional changes resulting from decentralization that may affect access to or quality o f services or resources (KFW).32 In selecting and carrying out these studies, four criteria were used: (i) potentiallylargeexpectedsizeanddirectionofimpacts; (ii)theprominenceof the issue inthe GPRS and the PRSC policy agenda; (iii) timing and urgency o f policy or the reform; (iv) the level o f national debate surrounding the reform; and (v) the lack o f existing analysis. 87. Monitorable actions under PRSC-3. Actions under the governance and public sector management program supported by PRSC-3 include the following: Governance To continue implementation o f activities aimed at reducing fraud and combating corruption, the government will endeavor under theprogram supported by PRSC-3 to: Carry out diagnostic study on legal and institutional mandates of anti-corruption agencies, discussing the results through a consultative process and implement agreed recommendations; Review existing legislative framework governing anti-corruption with a view of codifying it andbringingabout conformity with international standards; Disseminatethe resultsof the Africa Peer Review Mechanism initiative widely. 32Table 19 below provides a summaryofthese draft PSIAs: methods usedand mainfindings. 52 88. Expected outcome. By the end of the three year PRSC program, Ghana is expected to have strengthened its legal and institutional framework to reduce fraud and combat corruption. Decentralization 89. Infurtheringthe decentralization agenda under the program to be supported by PRSC-3, the Government will endeavor to continue implementing the National Decentralization Action Plan, includingthe preparation of integrated planningand composite budgetingin at least 25 districts. Also, the Government will take action to operationalize the Local Government Service Act by: (i) establishing its governing body (Local Government Council and Secretariat); (ii) preparing conditions and scheme of service; and (iii) developing guidelines and modalities for the establishment o f the consolidated departments of the Regional Coordination Councils and District Assemblies. 90. Expected outcome. By the end of the three-year PRSC program, Ghana is expected to have increased decentralization o f administrative and fiscal authority to facilitate local development and improved service delivery. Public Sector Reform 91. Buildingon the actions carried out under PRSC-2, namely the completion o f the census o f public sector employees and the preparation o f the Cabinet statement on public sector reform, the government is committed under PRSC-3 to begin implementation of priority areas o f public sector reform aimed at improving service delivery capacity o f the civil and public service. Specific actions include the following: 0 Finalizing and implementing a professionalHR framework: (i) clarifying roles and responsibilities; (ii)preparing and enforcing a code o f conduct for public sector employees; (iii) redesigning of recruitment and performance management systems; and (iv) puttinginplace a competency basedtraining andevaluation scheme; 0 Developingand commencing implementationof a communicationsstrategy, focused on deliveringefficient and timely information flows for the reform initiatives within the service andto the public at large; 0 Commencing organizational restructuring of the civil service, opening room for a clearer distinction between administrative, technical and political structures; and 0 Establishing a regulatory framework for subvented agencies, and continuing the restructuring of selected subvented agencies. 92. In parallel, the government will take action with the support of PRSC-3 to deepen payroll management and control by: (i)tightening rules and strengthening systems for control, oversightand enforcement;(ii)developingand implementingsystems for collecting and managingthe payrolldata base of subvented agencies; and (iii)clarifyinginstitutional responsibilitiesfor payrolland personneldata base management. 53 93. Expected outcomes. The public sector reform program is expected by the end of the three year PRSC period to have made progress towards creating a professional and motivated public service, which remains critical to attaining enhanced delivery capacity and for achieving GPRS objectives o f growth and improved service delivery. Public Financial Management 94. Actions to strengthen public financial management under the program supported by PRSC-3 would focus on increasing Ghana's compliance with generally accepted public finance standards by modernizing the regulatory framework for public financial management and by strengthening budget formulation, execution and reporting. Specific actions include the following: 0 Within the context o f existing legislation, develop guidelinesand procedures for more comprehensive collation of annual financial accounts comprised of the: (i) consolidated fund, (ii)statutory funds, and (iii)funds from donor funded sector projectsand programs; 0 Deepenalignmentof functional classificationof the budgetwith GFS, with a view to standardizing budget format and reporting; 0 Establish Internal Audit Agency Secretariat and begin the process: (i) staffingof existing internal audit positions in Ministries, Department and Agencies (MDAs), and in Metropolitan, Municipal and District Assemblies (MMDAs), as well as (ii)f creating o and staffing Internal Audit Units inMDAsand MMDAs currently without such Units; 0 Fully operationalizingPublicProcurementInstitutionswithin MDAs; 0 Expand the Government's computerized financial and accounting system to cover additional four (4) MDAs; and 0 Ensurethat the Auditor-Generalsubmits 2003 audited accounts for the Consolidated Fundand MDAs. 0 Increasethe 2005 budget non-salarypoverty relatedexpendituresas share of domestically- financedexpenditures (includingHIPC), compared to the 2004 budget. 95. Expectedoutcomes. By the end o fthe PRSC program, Ghana is expected to have: 0 Established a more effective budgetary process that translates policy priorities into budget allocations, and that allows for monitoring and evaluation o f policy implementation; 0 Improved quality, transparency and accountability in the management of public expenditure, by ensuring improved control systems that guarantees inter allia: (i) the 54 timely and reliable budget reporting and (ii) the compliance with generally accepted public finance standards, inparticularwiththe newprocurementrules; and Implemented the new public procurement law, leading to improved value for money and quality of publicspending.33 Monitoring and evaluation 96. Actions by government aimed at strengtheningthe monitoringand evaluation framework for the GPRS underthe programsupportedby PRSC-3will focus on: a Continuing to have the preparation of the budget informed by the APR, to ensure that progress in implementing the GPRS provides feedback into the budget preparation andpolicy formulation; a Implementingthe GPRS M&E plan, including: (i) broad disseminationand feedback on GPRS APR, and (ii) carrying out additional PSIAs in areas selected through a consultativeprocess; and a Improving the government's M&E capacity by increasing resources available for M&E and the implementation of participatory M&E activities, such as expenditure trackingsurveys andCitizenreportcards. 97. Expected outcome. By the end of the PRSC three year program, Ghana is expectedto have: a Operationalized the GPRS M&E system, laying the ground for an evidence-based decisionmakingprocess; a Strengthened parliamentary oversight of Government activities, namely by submitting to the new Parliamentary GPRS Oversight Committee the GPRS Annual ProgressReports; and a Progressedinthe involvementof civilsociety in the publicpolicymakingprocess. 33 This outcome would be measured by checking achievements of higher quality and lower unit costs for publicly procured goods and services, such as construction and maintenance of road and buildings, and general government supplies. Also, the Ghanaianpublic should expect: (i)a more efficient and effective public procurement system, with an increase in the percentage o f reporting entities preparing adequate procurement plans as part of the budget preparation process, the percentage of procurement budget utilized, the number of contracts with evaluations completed in a timely manner, and the number of complaints received and dispensed with. Finally, there should be a reduction in procurement- related corruption,an increasein the proficient procurementof public employees, and amore empoweredcivil society and private sector in monitoring public procurement. The latter is an important outcome of the reformedprocurement, as it is believedthat the privatesectorand civil society are well placedto monitor public procurementprocedures. 55 6. THE PROPOSEDCREDIT AND GRANT A. PRSC-2 CREDITAND GRANTADMINISTRATION 98. The technicalarrangementsand the steps to follow in respect to the IDA credit and grant administrationare describedbelow. The proposed financial structure for the PRSC-2 is as follows: - US$85 million equivalent (IDA credit) - US$40 million equivalent (IDA grant) Borrowerand Credit Amount 99. The Borrower will be the Governmentof Ghana. A single-tranche credit of SDR58.6 million (US$85 million equivalent) would be made available upon credit effectiveness, anticipated to be inJuly 2004. The operation closing date would be June 30,2005. Iti s believed that the current GPRS cycle i s likely to require support o f one additional single-tranche PRSC. 100. Grant Amount. Additionally, there would be a grant of SDR 27.6 million (US$40 million equivalent) that would be made available upon PRSC-2 effectiveness, anticipated for July 2004. The decisionto apply the resources inthis manner follows the guidelines on grants as per OP 8.45, and the main reason for the selection of PRSC-2 for blended financing is the Government's particular interest in using grant financing for the critical human development services supported by this operation. Examples o f critical human development services supported by this operationinclude: (i) the increase fundingfor exemptions from healthcare user fees, especially for ante-natal care in deprived regions; (ii) provision o f incentive schemes, the including scholarships, to enable girls to complete primary school in deprived districts; and (iii) the implementation o f community initiatives to preventthe spread o f HIV and to provide care for people living with HIV/AIDS, their families and orphans, The Bank will work with the Government to monitor closely the outcomes in these critical areas and help ensure that significant results are achieved inthe poverty reduction program. 101. Disbursements.The o erationwill follow IDA'Ssimplified disbursementprocedures for adjustment operation^.^' In other words, the PRSC-2 proceeds will be disbursed in compliance with the stipulated single-tranche release conditions. Disbursement will not be linkedto any specific purchases, and no procurement requirements are needed. Once the PRSC- 2 is approved by the Board, the Borrower will open and maintain a dedicated deposit account in U.S. dollars with its Central Bank for the borrower's use. Upon notification of release of the tranche, the Association will deposit the proceeds o f the credit and the grant into the deposit account when requested to do so by the Borrower. If, after deposit in the deposit account with the Central Bank, the proceeds o f the credit and grant or any parts thereof are used directly for ineligible purposes (Le., to finance goods or services on the standard negative list), as defined in 34Operational Memorandum: Simplifying Disbursementsunder Structural and Sectoral Adjustment Loans, February 8, 1996. 56 the development financing agreement, the Association will require the Borrower to either (i) return that amount to the deposit account for use for eligible purposes or (ii) the amount refund directly to the Association. 102. Auditing. Although an audit of the deposit account will not be required, the Association reserves the right to seek an audit of the deposit account at any time. Inthat event, through the Ministry o f Finance and Economic Planning, the borrower would (i) the report exact sum received into the deposit account; (ii) indicate to IDA details o f the consolidated fund account to which the Ghanaian cedis equivalent o f the PRSC-2 proceeds would have been credited; and (iii) a report on receipts and disbursements for both the deposit account and submit the consolidated fund account to enable IDA to review consistency o f the withdrawal with the development financing agreement and achievement o fthe objectives o f the operation. 103. Ownership and implementation. The Government has full ownership of the program to be supported by the proposed PRSC-2 given that: (i) it is fully aligned with the GPRS and draws heavily on the authorities' own policies and programs; (ii) program was the extensively discussed with the Ghanaian authorities; and (iii) important reform measures were adopted as prior actions, which were critical to finalize preparation o f the operation. The Ministry of Finance and Economic Planning will coordinate the implementation of reform program fundedby this operation. 104. Reporting. During the period of implementation of the program supported by PRSC-3 the following reports (Table 18) will monitor progress: (i) quarterly reports by development partners on disbursements and disbursement projections; (ii) quarterly reports on macro-economic developments at the time o f the mini-CGs, assessing progress on the implementation o f the framework agreed between the Government, the IMF and the Bank; (iii) quarterly reports on budget expenditures with breakdown by Ministry, Department and Agency with a lag o f no more that 8 weeks after the end o f each quarter. These reports will present the breakdown for Items 1-4 of the Ghanaian budget (personnel, administration, services, investment), identify expenditure authorizations, payments vouchers issued, and payment vouchers liquidated; (iv) quarterly reports on domestically financed poverty-related (including HIPC financed expenditures), with a lag of no more that 8 weeks after the end o f each quarter. These reports would include a breakdown along main poverty-related expenditure programs (education, health, etc.), and a breakdown for Items 1-4 o f the Ghanaian budget (personnel, administration, services, investment); (v) joint aide memoires at the time ofjoint review missions on the progress assessment framework, including in a mid-term assessment on progress on the PRSC-3 policy matrix and prior actions; and (vi) a report on progress on the PRSC-3 policy matrix and prior actions in early 2005. In addition, the completion o f PRSC-3 actions will be assessed in the context of the GPRS annual progress report that will document implementation and outcomes o f its reforms. 57 Table 18: PRSC/MDBSReportingand ResponsibilityAssignment Reporting Responsibility akdown for Items 1-4 ofthe Ghanaianbudget (personnel, administration, services, Sources: WorldBank andMulti-DonorBudgetarySupport(MDBS)Technical Annex to FrameworkMemorandum. 105. Selected key measures already implemented in the context of PRSC-2. The Government o f Ghana has already carried out the following actions to implement its reform agenda. Topromote growth, incomes, and employment: 0 Launchpower sector reform,includingthe implementationof the first year of the public-privatepartnershipplan; 0 Complete automation (GCMS/GCNET) of customs procedures to speed up clearance times at Takoradi and Tema ports, where 60 percent of the country's importspassthrough; and 0 Develop and begin implementation of a Cabinet approved Private Sector Development Strategy (PSDS) with an action plan to remove key regulatory and administrativebarriers. To enable the disadvantaged to access basic educational and health services: 0 Establish incentive schemes, including scholarships, to enable girls to complete primary school in depriveddistricts; 0 Extend the fee exemption policy on maternal deliveries to the deprived regions; and 0 Adopt new health recurrent expenditure allocation formula to protect most deprivedareas. 58 To improve governance and public expenditure management: · Begin implementation of the Procurement Bill by establishing the Public Procurement Institutions (Public Procurement Board, Secretariat, Entity Tender Committees, and Tender Review Boards); and · Expand BPEMS to cover Accra sites of the Ministries of Education, Health, Roads and Transport. 106. In addition, the policy statement on public sector reform has been placed on the Cabinet's agenda to be reviewed at a meeting held after May 14. The proposed public sector reform strategy would include policies for public sector pay and employment, with a view to define a time-bound revised reform program. 107. PRSC-3 prior actions. As indicated above, the Bank, the DPs and the Government of Ghana have agreed on a common policy framework for PRSC-3/MDBS- 2005. Thus, the decision as to whether IDA will proceed with the identification of PRSC-3 will be defined by progress satisfactory to IDA in the following areas (and shown in bold in the PRSC policy matrix): To promote growth, incomes, and employment: · Continue power sector reform, including: (i) commencing the implementation of the performance-based ECG Management Support Services Agreements; and (ii) continuing the process of transforming VRA into three separate companies (the thermal company, the transmission company, and VRA Hydro company and other residual functions) by: (a) completing the legal framework, including the passage of revisions to the VRA Act, (b) separating the assets and liabilities, and (c) forming the new legal entities for these companies. · Implement 2004 tranche of the PSDS action plan, including: (i) strengthening of the institutional framework for implementation of the strategy; (ii) completing and beginning implementation of the National Trade Policy; (iii) establishing four (4) Land Registries in the regions; (iv) extending GCMS/GCNet facilities to Aflao and Elubo; and (v) completing the automation of Registrar-General's department. To enable the disadvantaged to access basic educational and health services: · Eliminate all government controlled fees and introduce capitation grants for girls in public primary schools in deprived districts and in all public primary schools for the disabled. · Assess health professional attraction and retention program in consultation with stakeholders and decentralize management of human resources continued, including the identification of options for decentralizing personnel and emoluments. 59 To improve governance and public expenditure management: · Begin implementation of priority areas of public sector reform aimed at improving service delivery capacity of the civil and public service by: (i) finalizing and implementing a professional HR framework; (ii) developing and commencing implementation of a communications strategy; (iii) commencing organizational restructuring of the civil service; and establishing a regulatory framework for subvented agencies and continuing the restructuring of selected subvented agencies. · Deepen payroll management and control by: (i) tightening rules and strengthening systems for control, oversight and enforcement; (ii) developing and implementing systems for capture and management of subvented agencies payroll data; and (iii) clarifying institutional responsibilities for payroll and personnel data base management. · Within the context of existing legislation, develop guidelines and procedures for more comprehensive collation of annual financial accounts comprised of: (i) consolidated fund, (ii) statutory funds, and (iii) funds from donor funded sector projects and programs; · Increase in the 2005 budget, compared to the 2004 budget, the share of non- salary poverty-related domestically-financed expenditures (including HIPC). · Fully operationalizing Public Procurement Institutions within MDAs. · Continuing to have the preparation of the budget informed by the GPRS Annual Progress Report. B. ALIGNMENT WITH THE IMF 108. The PRSC has been prepared in parallel and closely coordinated with the PRGF, following the agreed institutional division of labor with the IMF taking the lead on macro-economic sector issues while the Bank takes the lead on structural and social issues. In a number of areas where the mandates of the two institutions overlap, the work is being coordinated to ensure that consistent advice is provided to the authorities. In this context, the Fund and the Bank recently undertook the review with the authorities of the Expenditure Accountability Assessment Plan (AAP). Future IMF Article IV and PRGF reviews will provide an important input into the assessment of the macro-economic situation of the Bank. Similarly, it is expected that the Fund will rely on the Bank's assessment of structural and social reforms. C. ENVIRONMENTAL ASPECTS 109. The proposed operation has been rated a structural adjustment credit governed under Operational Directive 8.60, and requires only that the operation consider environmental issues in the program document, identifying good practices. 60 110. The Governmentof Ghanais aware of the importancefor povertyreductionto meet the Millennium Development Goals (MDGs) of ensuring environmentalsustainability,and the cross-sectoral nature o f the environment and its direct and indirect linkages to economic growth and poverty reduction agenda have been taken into account in the preparation of the GPRS. The GPRS builds on Ghana's robust environmental institutional framework and considerable capacities to set, regulate and enforce environmental management standards. The main frameworks are the 1991National Environmental Policy, the 1992National Environmental Action Plan, and the 1994 Environmental Protection Agency (EPA) Act. This framework laws give an adequate reflection of the national environmental policy objectives, seeking to reconcile economic development andnatural resourceconservation. 111. The EPA has since the late 1980s adopted environmental impact assessment as a managementtoolto screen undertakingslikely to pose adverseimpact on the environment. Environmental screening and assessment became legal in 1999 with the promulgation of the Environmental Assessment Regulations (Legislative Instrument 1652) and Environmental Impact Assessments (EIAs) are recognized and applied to most development projects. Procedures have been established to screen and evaluate all development projects and programs that have the potential to give rise to significant social and environmental impacts. Under the country's Environmental Assessment Regulations of (Legislative Instrument 1652), an EIA is mandatory for seventeen types of activities classified as critical. These activities include: (i) mining, (ii) petroleum and gas field development and exploration, (iii) construction of dams, harbors and roads, (iv) logging anddisposal of timber. 112. Relation between PRSC and ongoing Bank Sectoral Investment Projects with environmentalimplications. The PRSCsharmonizes with several ongoing Sectoral Investment Operations, leveraging their poverty focus by supporting the implementation of cross-cutting policies, and by ensuring appropriate expenditure allocation (level and structure). Among these projects, there are three that requiredpartial environmental assessments: the FYO1 Agricultural Services Sub-sector Investment Project (AGSSIP), the FY03 Health Sector Support Program Credit 11, and the FY04 Land Administration Project (LAP). In all of these projects, an environmental assessment was carried out and discussed with relevant stakeholders. The conclusion of these environmental assessments was that these projects would have minimum environmental impact and, in the case of the LAP, the environmental impact would even be positive. Inthe case of the AGSSIP, environmental conservation measures were built in to the project to address potentially negative impacts. These measures included (i) promotion of the farming systems andpractices designedto ensure the sustainable use of natural resources, (ii) the creation of a new technical specialist position in natural resources and social monitoring to ensure that researchfindings and packages are environmentally and socially compatible, (iii) the provision of training for pesticide producers, importers and distributors, (iv) a program for improvement of communal grazing areas, and (v) the preparation o f environmental impact assessments for some of the program activities. Inthe case of the Health project, arrangements were made to ensure that programmed interventions relating to the management and disposal of health care waste were environmentally sustainable, with these measures implementedin close collaboration with district, regional andnational officers o fthe EPA. 113. StrategicEnvironmentalAssessments. The Government of Ghana recognizesthe need to better comprehendthe potential and likely risks, impact and opportunities of the GPRS on the 61 social and physical environment, so as to develop corresponding preventive and mitigatiodremediation plans. The Strategic Environmental Assessments (SEAs) have been formulated and introduced as a process tool to evaluate the potential environmental (natural resources management linkage), social (poverty indicators, livelihoods and health impacts and vulnerability impacts on the poor) and institutional (institutional targeted impacts) effects o f the GPRS and any plans or programs that may be from there derived. The findings are then to be used for revisions, prioritization and decision-making for the GPRS at the national, regional and district levels. The SEAs have been applied recently in discussing the GPRS and its poverty reduction-environment linkages with 25 sector Ministries, Departments and Agencies (MDAs), and at the district level to appraise the sustainability o f District Medium-Term Development Plans (DMTDPs). This has resulted in greater number o f district assemblies initiating revisions o f their plans or planning decisions to reflect and include pro-poor and pro-environment activities. These revisions will include incorporating interventions that are likely to contribute to improving people's livelihoods, health and vulnerability levels, institutional performance; supporting sustainable natural resources management options and enforcing environmental regulations and standards. D. POVERTY AND SOCIAL IMPACT ANALYSIS 114. To informthe policy makingprocess, the Governmentof Ghana, with support from its development partners, carried out a series of poverty and social impact analysis (PSIAs). These studies aim at ensuring that, over time, sufficient analysis o f the poverty and social impact o f policies is completed, providing a contribution to the discussions of each subsequent round of PRSCs. The PSIAs focused on four key areas, namely, (i)tackling vulnerability and exclusion; (ii)the economic transformation ofthe agriculture sector; (iii) power sector reforms and setting electricity tariffs; and (iv) decentralization and pro-poor service delivery. The preparation of these PSIAs involved key stakeholders in the elaboration o f terms o f reference and the review o f findings and recommendations. Also, the preparation o f PSIAs was conducted inpartnership with local research teams. 115. Table 19 provides a summary o f the methods and data used, the principal conclusions and the policy options under each PSIA. 62 Table 19. PSIAsPreparedfor MDBS-2004iPRSC-2:Methods, Conclusions and PolicyOptions Methods and Data Used Principal Conclusions and Policy Options The methodsusedwere both quantitative Vulnerablepeopleare affectedby multiple risk vulnerability and and qualitative. The study relied on factors that may affect their level ofvulnerability exclusion statistical data sets such as the GLSS, to the extent that any trigger can leadto a CWIQ, Ghana Housing survey, and downward spiral into extreme poverty. Those at Demographic and Health Surveys. The greatest risk are often small-scale farmers, most fieldwork relying on qualitative data 3 f whom are women, that are proneto natural- gathering,with interviews of beneficiaries disasters, market instability, economic risks and researcher's observations. For the makingthem further disposedto other health and latter, there was no indication of actual social risks. sample size used. The vulnerable and excluded are often ignorant about existing entitlements and rights and, as a result, are unableto take advantagewhere these exist and are easily accessible. This underscores the importanceof knowledge and information disseminationfor both rights and entitlement purposes, and for demandingaccountability from public officials, including local government officials and local elites. There is needfor access to information through the use of appropriate channelsof communication that makes sense to the vulnerable and the excluded, increasingtheir levels of participation and empowerment. There is absenceofearly waming systems for the allocation of resources to deal with natural or man-madedisasters, affecting the poor greatly, The economic The study relied on primary and secondary The agriculture modernization policies directed at transformation of data sources. The primary data collection commercial farmers have only sporadic effectson the agriculture included stakeholder interviews, the poor. For smallholder farmers to take sector questionnaires,village-basedsurvey for advantage ofthe existing business environment in livelihood analysis including wealth agriculture, these farmers needmore information ranking, group interviews, process and knowledge on how to conductbusiness analysis, farming systems analysis and transactionsand engage in contracts. case studies. A total of 582 questionnaires were also administeredto households belonging to differentincome categories. New analysis of existing datasuch as the Electricity access has increasedsignificantly in reform and GLSS4, and preliminary results from the Ghana, reaching almost halfof the population in electricitytariffs 2003 CWIQ. The study also relied on 2003. This meansthat, although electricity prices analysis of utility records, key informant in Ghanaare lower than inneighbouring interviews and limited quantitative survey countries, it will face more constraints inthe next work with specific stakeholdergroups. five years in keeping prices affordable for poorer The total number o f interviews addedto and more rural consumers. 326. Only 1%of the rural poor have access to electricity. However, about 20% o fthose with electricity in rural areas fall underthe poverty line. 63 The study finds that the current tariffstructure implies a higher unit tariff for consumerswith the lowest consumption, and that metering problems probably leadto an overestimation of the number o f consumers being chargedlifeline tariffs. The combination of a lifeline tariff and shared meters, meanthat the distributional impactsof tariff increasesis not easily understoodand that lifelinetariffs are not adequatelytargetedto those leastable to pay. It is estimatedthat, at a minimum, about halfthe lifeline `leaks' to the non-poor. Decentralization Datamethodsused include stakeholder/ The study identifiedcompetition and rivalry and pro-poor beneficiary analysis, and risk analysis. betweengovernmentinstitutions working at the service delivery The study also relied on data from the district, with the line ministries being the most GPRS pilot districts, policy documents, resistantto the decentralizationo f public services. CWIQ, GLSS4, and the poverty map These problems appear to be disrupting the basedon the 2000 population and housing delivery of servicesof programs for the poor. census. Ten districts were selected for the administration of the questionnaires, The study found that the capacity of District totaling 250 interviews. Informationon Assemblies was not always adequate despite the actual sample size ofthe study was not attemptsfor improvement. Problems included available inthe report. understaffing, low qualification, and lack of equipment. E. BENEFITSAND RISKS 116. The benefits to be expected from the proposed PRSC-2 may be viewed in three ways. The main and ultimate benefit is the human progress expected from the growth and service delivery outcomes of the implementation of the program supported by the operation. To the extent that the growth objectives become attainable, especially in the rural sector, including the generation of higher levels agricultural exports, improved employment and income prospects become a reality for a large number of Ghanaians. Similarly, to the extent that the expansion of basic health and education services become possible, the PRSC-2 would contribute to the attainment o f the Human Development Goals o f the GPRS. This includes, in particular, the delivery of such services in the currently deprived areas of the Northern, Upper East, Upper West and Central regions o f the country. Inaddition, there are two intermediate benefits. The first derives from its contribution to closing the external financing gap, thereby, helping maintain macroeconomic stability, which i s one o f the key objectives sought by the Ghanaian authorities as they implement the GPRS. With adequate external funding, the cedi should continue to remain stable, lessening pressures on inflation. The second relates to its generation o f funds to help implement the budget, thereby ensuring fiscal stability and enabling the Government to execute the policies and programs underpinningthe budget, This i s important for the fundingof development support services and social expenditures. 117. There are four risks to the success of the program: (i) government is unable to the sustain its current fiscal stance in the run up to the December 2004 elections; (ii) the macro- financial context may deteriorate and make program implementation difficult as a result o f exogenous shocks such as adverse terms of trade or increasing regional instability; (iii) fiduciary 64 weaknesses may limit the impact of the program; and (iv) capacity limitations may lead to only partial implementation. 118. A first risk to the implementationof PRSC-2 is a change in the government's fiscal stance in the run up to the December 2004 elections. Fiscal stance is definedhere broadly to include transfers to State-owned enterprises as a result of delays in adjusting regulated prices (e.g., electricity, water) and in carrying through with the propose liberalization of the petroleum sector. Acknowledging this risk is important because the fiscal program for 2004 relies on expenditure cuts and additional domestic resource mobilization, including sources of non-tax revenue, to offset the fiscal gap that has emerged as a result of delays in adjusting the price of domestic retail petroleum prices, This risk i s mitigated however by the government's recent track record on fiscal management and the early action in identifying expenditure savings and additional revenuemeasuresto offset price subsidies for retailpetroleumproducts. 119. A second risk is that exogenous shocks, such as unfavorableterms of trade shocks that widen the external financing gap, could disrupt the macro-financialframework. This risk is mitigated however by the excellent relations the government maintains with the Multi- Donor Budget Support (MDBS) development partners, ensuring access to emergency financing incase needed. The partners have pledged their support inthe form ofpredictable and sufficient multi-year financing, as long as the program is implementedwith commitment, and they stand ready to adjust the timing of their disbursements to provide adequate financing as long as the program remains sound. 120. A third risk relates to residual fiduciary weaknesses. Although Ghana has made strides inthe area of probity inpublic resourcemanagement (inthe broader sphere of corruption, Ghana placed 4`h in both the 2001 and 2002 Transparency International ranking of sub-Saharan African countries, behind Mauritius, Botswana, and Namibia), there are residual risks of the misapplication of public funds. This risk is steadily decreasing, with progress made on strengtheningthe regulatory framework for public expenditure management (e.g., the newPublic Procurement Act, the Financial Administration Act, the Internal Audit Agency Act), and in strengthening budget management itself. During 2003, there was an improvement in cash and commitment controls, prompt reconciliation of budgetary and banking accounts, and frequent and timely reporting on budget execution. The implementation o f the NETS system and the rollout of the Oracle Financial Applications System, under BPEMS, to key ministries in 2004 further reduce these risks. Finally, risks are further mitigated by the elevation to national attention of fiscal transparency communications, budget account disclosures, and Parliamentary oversight of resourceuse and development results -all as part and parcel of the GPRS process. 121. A fourth risk is that implementationcapacity may fall short of the requirementsof the program. This risk is mitigated by the fact that the government continues to build its own capacity, in addition to drawing on the extensive technical assistance being made available by the development partners. The Bank continues to provide advice on structural reforms with a strong AAA program. The IMF continues to offer macroeconomic management advice (including fiscal) via the services of a resident Technical Advisor. And donor support under the MDBS has made critical technical assistance available in areas of policy monitoring and evaluation, with a particular emphasis onhealth andpoverty developments. Schedule 1 Page 1of 36 MINISTRY OF FINANCE & CONOMIC PLANNING P. 0. BOX MB 40 ACCRA REPUBLIC OF GHANA May 19,2004 GHANA SECOND POVERTY REDUCTION SUPPORTCREDIT (PRSC-2) Mr. James D. Wolfensohn President The World Bank Dear Mr. Wolfensohn LElTER OF DEVELOPMENT POLICY 1. Iam writing to request, on behalf of the Government of Ghana, a second Poverty Reduction Support Credit (PRSC-2) from the International Development Association (IDA) to support the programmes and policy measures outlined in our Ghana Poverty Reduction Strategy (GPRS). This letter sets out the actions and activities that the Government will undertake over the medium term to implement its development agenda. Iam attaching a policy matrix we have prepared in collaboration with the World Bank team and other development partners from the Multi-Donor Budget Support (MDBS) group that sets out the contents of this letter in a summary. 2. For the past three years, Ghana has initiated and implemented reforms aimed at halting the downward slide of the economy and kick-starting its growth. This we have managed to achieve as indicated by the key macro-economic indicators, which are pointing in the direction of robust and sustainable development. We have been fortunate to have also had the understanding of the people of Ghana in undertaking these reforms, since some of these have been rather tough and required sacrifices from the ordinary Ghanaian. The Government of Ghana appreciates the support being provided by the World Bank and other development partners during the implementation of these reforms. 3. Currently, the majority of the social indicators are also improving and though they may not always register sufficiently strong positive changes, we are nevertheless confident that we are putting in place measures, which will start Schedule 1 Page 2 of 36 yielding substantial returns in the medium term. As such, we are asking that our citizens and our Development Partners understand this state of affairs and appreciate the time lag inherent in evidencing change in some of these key developmental indicators. The President in his "State of the Nation Address'' delivered in January of this year, re-assured Ghanaians of his government's commitment to the tenets and aspirations of the GPRS for growth and poverty reduction. Indeed, this Government re-iterates its pledge made to Ghanaians in the 2004 budget statement to continue to reduce poverty, create an enabling environment for wealth creation and maintain a sound economy. The attached policy matrix (Appendix 1) presents a capsule of the wide-ranging reforms we have embarked on since we started implementing our agenda for growth and poverty reduction, the Ghana Poverty Reduction Strategy (GPRS). This policy matrix is a harmonised one serving both the requirements of the PRSC and the MDBS arrangements. Completion of actions outlined in the matrix will in large measure enable us to achieve the targets of the GPRS as well as other targets that we African countries, as part of the New Partnership for Africa's Development (NEPAD), have set for ourselves, and the global Millennium DevelopmentGoals. 1.0 Backgroundand Recent Developments 6. The GPRS, fully endorsed by Ghanaians, provides a comprehensive approach to poverty reduction and long-term growth. Prepared through an extensive consultative process with civil society and other stakeholders, the GPRS continues to be the rallying point for all stakeholders in Ghana's development, Ghanaians and development partners alike. Indeed from a position of being viewed with caution as a possible imposition by external agencies, the GPRS has assumed a central role in all actions aimed at moving Ghana onto a development trajectory unprecedented in Ghana's socio-economic history. 7. Other developments in the recent past, which are improving the environment for accelerated development, include the development partnership mechanism currently being nurtured in Ghana through the Multi Donor Budget Support (MDBS) mechanism. The benefits of the MDBS approach as a critical mechanism in aid coordination are becoming increasingly obvious. The preparation of a joint policy matrix supporting the PRSC as the basis of dialogue for programmed reforms between Ghana's major partners, the utilisation of common review meetings and joint planning for use of aid flows as well as joint monitoring and assessment are showing, even at this early stage, significant gains both in human resource use and the critical element of time savings. 8. Past arrangements for administering aid have had the demerit of unnecessarily taxing some of the personnel strategic to implementation by involving them year round in missions due to the differing time schedules of different Schedule 1 Page 3 of 36 development partners. This meant that very little time was available for actual focus on implementation. Drawing from the lessons, we aim to further streamline the dialogue with our development partners to capitalise on these gains. Currently, there are nine partners' involved in the MDBS and we envisage that this number will increase in coming years as more of our partners join this initiative. 9. The Annual Progress Report' (APR) for 2003 has been prepared and provides us with a framework for the systematic review of implementation progress of GPRS programmes and projects. The APR also provides a status report on GPRS-based triggers and targets for assessing performance in the Donor supported programmes such as the Poverty Reduction Support Credit (PRSC), the Multi-Donor Budget Support (MDBS), the Poverty Reduction and Growth facility (PRGF) and requirements for meeting the floating HIPC completion point. 10. In addition, the APR also provides an assessment of our performance with regard to the achievement of the commitments we have made internationally in the Millennium Development Goals (MDGs) to reduce poverty, promote economic growth, equity and security among other things. As reported on last year, Ghana's progress towards attaining the MDGS are represented in the Appendices 2 and 3 below. 11.Below is a brief overview of progress made in 2003. These developments are presented in more detail in the ensuing sections of this letter and in the APR itself. 1.1 TheMacroEconomy 12, The main objective of Government in 2003 was to consolidate the gains made during the 2002 fiscal year. Against this background, the economic policies of Government during 2003 were aimed at strengthening and sustaining economic growth, reducing inflationary pressureswhile ensuring effective implementation of the priority programmes of the GPRS. 13,The key macro economic achievements we achieved were as follows: a. Real GDP growth was higher than expected at 5.2 percent instead of the projected 4.7 percent b. Year-on-year inflation declined to 23.6 percent at end December2003 c. The cedi remained relatively stable depreciating by only 4.7 percent against the US dollar 'The nine development partners in the MDBS are the African Development Bank, Canada, Denmark, Germany, EuropeanUnion, the Netherlands, Switzerland,UnitedKingdomandthe WorldBank. 'Thisis the secondreport inthe series, the first of whichreportedon GPRS implementationin 2002. Schedule 1 Page 4 of 36 d. The overall budget deficit was contained at 3.4 percent of GDP against the targeted 3.3 percent e. Net domestic borrowing by Government registered a net repayment of 0.4 percent of GDP f. Gross foreign exchange reserveswas equivalent to 3.9 months of imports g. Interest rates assumed a downward trend falling from a peak of 35.3 percent in June 2003 to 18.7 percent by end 2003 h. Total tax revenues exceeded expectations, and i. Expenditureswere kept within budget ceilings 1.2 PovertySpending 15. Analysis of poverty expenditures shows increasing pro-poor spending. By the end of 2003, almost 61 percent of the total poverty related expenditures was on basic human development services - primary health care, basic education and safe drinking water. The rest was on employment generating activities, including agriculture, skills training, provision of basic infrastructure (feeder roads and rural energy) and on social welfare, protection of human rights and public safety. 16, Funding from HIPC relief amounted to 4866 billion in 2003; $144 billion of which was used in paying down domestic debt, a strategy designed to ease interest payments, and thereby free Government discretionary funding for the social sector. The remaining HIPC resources of 4722 billion was used for programmes and projects for the medium term, priority areas outlined in the GPRS particularly in the areas perceived to have greater impact on the poor as indicated in the table below: Education 188.64 26.1 Local Government & Rural Devt 147.771 20.5 Roads &Transport 101.257 14.0 17,This sectorally aggregated spending covers significant support to such activities as district mutual health insurance schemes, exemptions for maternal deliveries, feeder roads programmes, water supply and guinea worm eradication programmes. Other interventions include micro credit to poor women, funding for irrigation, household silos, mechanical and solar driers and agro-processing machinery to reduce the drudgery of farmers and add value to Schedule 1 Page 5 of 36 produce and reduce post harvest losses. Local governments also utilised their share of HIPC for education, health, water and sanitation projects. Other poverty reducing projects activities included skills training for street children, sanitation and activities for employment generation. 18. For 2004, 45,456.213 billion representing about 28 percent of total Government expenditure has been allocated for poverty-related expenditures, (up from 27 percent in 2003 and 26 percent in 2002). The total amount, which excludes donor funds but includes HIPC resources, represents an increase of 34.4 percent over the planned poverty reduction expenditures in 2003. For HIPC expenditures, about 41,507 billion of relief is expected of which $301 billion is planned for paying down the interest on domestic debt and the rest allocated to MDAs and District Assemblies for health, sanitation, safe water, education and activities leading to employment generation and provision of productive assets. Emphasis will be placed on programmes leading to equipping the deprived in society with employable skills, alleviating the impact of disasters on victims, the protection of the rights of women and children and growth enhancing projects. 19. In addition, planned (2004 Budget) non-salary poverty expenditures as a share of total domestically-financed poverty expenditures (including HIPC) are targeted to reach 45% up from 36 percent in 2003. Human Development 20. On the human development side, the indicators for 2003 showed mainly positive shifts for education, while those for health showed rather mixed progress. Gross primary enrolments in education continued to improve as did the gender parity in enrolments and even more encouragingly, the greater than average shifts in the deprived northern regions. 21. In the health sector, while output indicators continue to improve, some key outcomes such as under-five mortality showed worrying changes, which are being analysed further for quick interventions to be taken as necessary. Provision of safe water also continued to improve especially for the rural population but also disturbing was the increase in guineaworm disease. Government responded promptly to this situation and increased rapidly, resource provision to the guineaworm endemic areas to reverse the situation. Government continues to subsidise safe water provision in these areas. Support for vulnerable groups also increased over the past year through such initiatives as the Women's Development Fund, which provided financial support for women farmers and women engaged in commercial activities. About 500,000 women have so far benefited from this fund. Other operations on vulnerability include increased support and attention to issues of streetismand child labour. Thisexcludes spendingon cocoaroads. Schedule 1 Page 6 of 36 Governance 22. Good progress was also made in governance with regard to the public sector reforms, decentralisation and public expenditure management. As we stressed last year, good governance is the key factor in making the development process sustainable. In integrating measures for democracy, decentralisation and more inclusive governance, consciously improving public sector performance and strengthening public financial management, Ghana is building a good foundation for a strong and vibrant society, and has become a beacon of hope in a turbulent sub-region. 23. Specifically during the past year, we initiated public expenditure management reforms, which will have far-reaching impacts in the medium to long term. We also made serious efforts to provide strategic direction to our public sector reforms and have made significant progress with decentralisation by strengthening the legislative framework and preparing an action plan for implementation, which has been endorsed by Cabinet. Other actions to strengthen governance include strong efforts to monitor and evaluate our policy agenda and being very frank about detailing out our shortcomings, while making concerted efforts to address these. 24. Further details on all the key developmental indicators are provided in the relevant pillars below. The Reform Programme Measuresfor 2004 - 25. The five priority areas identified as being core to sustaining growth and accelerated poverty reduction in Ghana continue to form the basis of our dialogue with the World Bank and other partners. Government's reform programme, aimed at improving its efficiency in accelerating growth and poverty reduction, especially in the delivery of public services to those most in need (the rural population, those in the deprived districts, the vulnerable and the excluded) continues to rest on these three pillars: a. Promoting Growth, Incomes and Employment b. Improving Service Deliveryfor Human Development c. Improving Governance and Public Sector Management 26. The reform programme, aimed at specific structural and institutional changes and reforms in the above three overarching pillars are inter-linked with each re- enforcing the others. The importance of maintaining a sound macro economy cannot be over-emphasized but we also believe that concerted attention to improving on service delivery for human development is what will ensure that the gains we make are sustainable over the longer term, as does strengthening good governance. Schedule 1 Page 7 of 36 27. The policy reforms under each of the three main pillars are detailed below. 2.0 PromotingGrowth, Incomesand Employment 28. In our previous Letter of Development Policy presented last year, we identified three key issuesthat are inhibiting growth in Ghana. These were: 0 High public domestic debt; High cost business environment; and Stagnation in rural development 29. In response to these challenges, Government's strategy in the promoting growth incomes and employment pillar is three-pronged, aimed at: Increasing the scope of financing development; Improving the environment for business.while protecting the poor; and Improving the performance of the rural sector in the interest of the poor 30. As a result of several policy reforms initiated by government in the implementation of the GPRS and as part of the prior actions under PRSC-2, very significant progress has been made in addressing these issues to promote economic growth and reduce poverty. The progress in 2003 initiatives and the programmes for the current year are described below. 2.1 Increasing Scopefor Financing Development Createa more diversifiedfinancialsector and improveaccess to financialservices 31. It is Government's objective to create a more diversified financial sector and improve access to financial services for long term investments. This we are pursuing through the reduction of the public domestic debt to increase the availability of capital to the private sector, and also through the implementation of a financial sector improvement programme aimed at improving the operating environment and the depth of financial intermediation. 2.1.1 Reducing Public Domestic Debt 32. In 2003, we recorded significant progress in the past year with net domestic borrowing registering a net repayment of 0.4 percent of GDP, against the target of zero net borrowing. This outturn coupled with the decline of year-on- year inflation from about 30 per cent in April 2003 to 23.6 percent at end December 2003, and the reduction of interest rates, especially the benchmark 91-day Treasury bill rate, from 35.3 percent in June 2003 to 18.7 percent by December of same year, has provided more resources to the private sector and at a lower cost. This is reflected in the share of credit to the private sector growing from 47 percent in 2002 to 54 percent in 2003. Schedule 1 Page 8 of 36 33. For 2004, we are projecting a net domestic debt repayment of about 1.4 percent of GDP in line with the objectives of the GPRS to reduce domestic debt and free more resources for the private sector. 2.1.2 FinancialSector Reforms 34. We do recognise that the financial sector is the appropriate channel to deliver `freed` resources to the private sector. Therefore, as part of measures to improve the operating environment and also to deepen operations of the financial sector, the Government has adopted the Financial Sector Strategic Plan (FINSSP) which has four main elements: 0 Strengthening financial market structure and efficiency; 0 Reviewing legislative issuesto improve the operating environment; 0 Strengthening the supervisory and regulatory framework; and 0 Developing capacity to improve outreach and depth of the financial market 35. Most economic activities in Ghana are rural based and with more than 60 per cent of the population living in rural areas and engaged in micro or small enterprises, our focus on micro finance under the FINSSP is strategic for poverty reduction. Government therefore during 2003, took steps to revise the National Framework Paper for Micro-Finance Institutions (MFIs). Within the new Framework are measures to develop a suitable administrative framework and regulatory mechanism for the MFI industry and to promote linkages between formal and informal institutions. 36. As a first step towards implementing this framework, Government is establishing a National Micro-Finance Centre (NAMFIC) to ensure judicious administration of government and donor funds flowing to the sector and enhance the provision of micro-financial services in an efficient, concerted and sustainable manner. The micro credit schemes established to provide financial support to the economically active poor, especially women, to generate economic activity and, thereby reduce poverty are functioning well and making a good impact on the well-being of our rural poor. 37. We are also initiating steps to improve the regulatory environment through an update of various laws such as the Credit Union and Cooperatives Laws. Improving the regulatory environment of the bank and non-bank financial institutions through an ambitious legislative reform programme under the FINSSP is a key focus of government. 38. In 2003, Parliament enacted a new Banking Law and a Payments System Law. The Banking Law is designed to enhance the Bank of Ghana's capability to ensure that commercial banks meet the fiduciary and prudential requirements. The Payments Systems Law is aimed at engendering competition and modernising the payments systems in the country so as to deepen financial Schedule 1 Page 9 of 36 intermediation. 39. We plan to establish a Central Securities Depository system at the Bank of Ghana in order to facilitate the trading of government securities and encourage the development of the secondary market. A Long Term Savings Law is also to be enacted to facilitate the operation of private pensions and housing schemes. Other laws such as the Insurance Law, Bill and Cheques Law, Insolvency Law will be revised and ratified by end of 2005. These measures are designed to increase the savings ratio and increase long term investments. 2.2 Improving the Environmentfor Businesswhile Protectingthe Poor Expandsupply of energyservices whilepromoting thepoor 40. Ghana's strategy in improving the environment for business has many facets one of which is to expand the supply of energy services and to enhance private sector competitiveness. 2.2.1 Power Sector Reforms 41. In 2003, Cabinet approved the Power Sector Reform programme. As part of measures to ensure the viability of the utility companies, the Public Utilities Regulatory Commission (PURC) implemented the tariff adjustment mechanism in March and October 2003. All of these adjustments had a life-line tariff to protect the poor. Implementation of the adjustment mechanism will be maintained throughout 2004 and beyond. 42. This year, Government has embarked on rigorous implementation of the Power Sector Reforms with a focus on private sector participation in the industry. Some key steps included a Bill proposing amendments to Volta River Authority (VRA) Act 46 and submitting it to Cabinet for review and approval in March -2004. transmission company, thermal company and hydro company. The The amendment sought to transform VRA into three separate companies the Revaluation of Assets and Separation of the Books of VRA have also started. Discussions are on-going to adopt Performance-based Management Services Agreements for the Electricity Company of Ghana. These agreements will come into effect in 2005. 2.2.2 Accelerated Deregulationof Petroleum Industry 43. In late 2003, Government took a decision to accelerate the process of deregulating the petroleum industry. The accelerated deregulation programme is to harmonize all procedures and regulatory framework for the full participation of the private sector in the petroleum sector. The deregulation will allow the private sector to undertake the financing, procurement, distribution and pricing of petroleum products in the country. These measures will eventually reduce the direct and indirect burden that the industry currently Schedule 1 Page 10 of 36 imposes on the budget. The accelerated deregulation programme is planned to be implemented in a phased manner. 44. To ensure successful implementation of the accelerated deregulation programme, the following will be completed during the Transition Phase (2004- 2005): ---- Developmentof Deregulation Policy Developmentof Deregulation Law Establishment of the National Petroleum Authority Harmonization of the Petroleum Taxes/Levies to ensure level - playing fields for all stakeholders Review of Petroleum Pricing Formula 2.3 Implementing 2004Trancheof PrivateSector DevelopmentStrategy EnhancePrivateSector Competitiveness 45. It is the strong wish of this Government to enhance private sector competitiveness. In this regard, we report that the various initiatives introduced by Government over the past three years to reduce the cost of doing business in Ghana are yielding good fruits. A recent World Bank report on the "Doing Business" project shows that between January 2002 and January 2004: 0 The time to start a business fell from 129 days to 85 days (a 34 percent reduction); The cost to start a business fell from 130.8 percent (of per capita GNI) to 84.0 percent (a reduction of 35 percent). 46. These improvements are on account of the simplification of the procedures for the acquisition of relevant environmental and tax certificates. Government has also enacted a new Labour Law designed to amend and consolidate the laws relating to labour, employment, trades unions and industrial relations and to establish a National Labour Commission and provide for maters related to these. 47. Through the operations of the GCMS/GCNET, customs clearance at Kotoka International Airport, Tema Port and Takoradi Port have been automated. Average clearancetime at the airport has been reduced from 3 days to 4 hours. Whilst that of Tema harbour has gone down from several weeks to 2 days. 48. In order to consolidate these gains, a Medium-Term Private Sector Development Strategy (2004 - 2008) was completed and approved by Cabinet in January 2004. A time bound implementation plan to remove key regulatory and administrative barriers in the Strategy and a Steering Committee comprising key stakeholders like the Ministry for Private Sector Development, the Ghana Investment Promotion Centre and the Ministry of Lands and Forestry has been established to oversee the implementation of the Action Plan. We expect to launch the strategy in June 2004 and envisages three main Schedule 1 Page 11of 36 outcomes: (i) growth of Ghana's exports in regional and global markets; (ii) a business-friendly economic and regulatory environment based on market principles and private property rights; and (iii)increased entrepreneurial skill at the firm level. 49. As a first step, the Ministry of Private Sector Development plans to strengthen the institutional framework for the implementation of the strategy through extensive consultationswith all stakeholders. Some of the key activities that are to be implemented this first year include: Business Registrationand Approval; 0 Customs Administration 0 Land Administration 0 NationalTrade Policy; 50. BI siness Registration. The Registrar-General's Department is the prim ! agency for business registration in Ghana and therefore government as part of the PSD strategy has decided to modernise and decentralise its operations to reduce further the cost and time for business registration. In this regard its entire operations are being computerised and this is expected to be completed by mid 2004. Successful completion of the data conversion exercise would drastically reduce the time taken to register a business. The Department is also decentralising its operations to three (3) more offices in the regions to be operational by end of 2004. 51. Government however, plans to conduct a comprehensive review of the whole business registration and licensing regime as part of the PSD strategy. The review is intended to rationalise the process and remove all the administrative bottlenecks to help develop a cost effective regime. 52. Customs Administration. Government will consolidate the operations of the GCNet by extending it to the two main border points, Elubo and Aflao by the end 2004. A Computerized Risk Management System (CRMS) has now been fully implemented by all the four Destination Inspection Companies. The mandatory physical inspection of all high-risk goods has been reviewed and the bulk of high risk goods will be scanned at Tema Port from May 2004 to reduce physical examination by customs. Customs administration will be enhanced further through a review of the Customs Law and the I S 0 accreditation of the operations of CEPS 53. Land Administration. Government has started implementation of the Land Administration Project to develop a sustainable and well functioning land administration system that is fair, efficient, cost effective, decentralized and that enhances land tenure security. 54. Progress to date include the establishment of an Inter Ministerial Committee on Policy and Legal Reforms; establishment of and inauguration of five Customary Schedule 1 Page 12of 36 Land Secretariats; and establishment and gazetting of two land registries in the regions. An Additional two registries are to be established in other regional capitals to further decentralisethe land registration process. 55. National Trade Policy. One of the objectives of the Private Sector Development Strategy (PSDS) is the improvement in the efficiency and accessibility of national markets. Under this objective, Government will undertake broad-based measures to improve the efficiency and accessibility of national markets. The policy is expected to provide a framework to guide government's decisions on domestic trade issues as well as international discussions relating to WTO and ECOWAS. The policy is also to provide guidelines to the private sector for investment decisions. 2.4 Improving Performanceof RuralSector Improve rural sector farm and non-farm growth 56. During the past year, actions taken to improve the rural sector farm and non- farm growth have focused on increasing the income of rural farmers through higher producer price and improvement of yield from their farms in a sustainable way. Consequently, Government took steps to improve the performance of the rural sector through the increase of producer price of cocoa from 67 percent of FOB in 2002 to 69 per cent in 2003. 57. Other measures implemented over the past three (3) years such as disease and pest control exercise have improved the yield of cocoa beans leading to a record production level of 497,000 metric tonnes in 2003, the highest production in about forty (40) years. Production for 2004 is expected to exceed 500,000 metric tonnes, and the producer price will be maintained above the 69 per cent FOB mark. The combined effect of a higher output and higher producer price is expected to increase the income of rural farmers especially in the cocoa growing communities and to reduce poverty further. 2.4.1AgricultureSector Development Policy 58. Additional steps taken by Government to improve growth in the rural sector include the development of the Food and Agriculture Sector Development Policy (FASDEP). The Ministry of Food and Agriculture (MOFA) has, under the FASDEP, developed a rolling three-year strategic plan and a budgeting process linked to the GPRS. To ensure effective implementation of the strategy, MOFA has initiated the process of reorganising and decentralising its Policy, Planning, Monitoring and Evaluation Division (PPMED). 59. Other measures being implemented as part of the plan for 2004 include the recruitment of additional 250 extension agents and the operationalisation of the Research Extension Liaison Committees (RELCs) in all the 10 regions of the country. The RELCs are being established to address agricultural technology Schedule 1 Page 13 of 36 problems of operators at the grassroots. In addition, an Extension Development Fund (EDF) and Farmer-Based Organisation Fund (FBOF) have been established to be piloted in fifteen (15) selected districts across the country. The EDF is to support the private sector in the extension of service delivery to complement the work of the Ministry of Food and Agriculture. 60. The plan also envisages the further development of agriculture infrastructure such as irrigation facilities. Nine (9) existing irrigation facilities are to be rehabilitated during the period. Storage, processing and port facilities are all to be built, rehabilitated or expanded to facilitate the development of agri- business. 2.4.2. Improved Managementof Natural Resources 61. One of the new initiatives being introduced in the reform programme under the PRSC is the adoption of a collaborative forest and wildlife management strategy, which has the aim of removing constraints in the sector and enhancing the flow of benefits to local communities and government and also ensuring sustainable management of natural resources. A key aspect of the strategy is the Plantation Development Strategy, with a national target of planting 80,000 hectares of forest plantation within five (5) years, beginning from the year 2001. A plantation development target of over 50,000ha has been earmarked for 2004. 62. Government has also instituted measures to ensure transparency in the timber industry by introducing a competitive bidding process for logging rights. The first such auction was conducted for teak timber in 2003. The process is to be extended to cover plantation timber and natural timber in 2004 and subsequent years. It is also the intention of government to develop a framework for operationalisation of an effective log tracking system in order to better monitor timber harvesting, processingand exports. 2.4.3 President's Special Initiatives (PSIs) 63. Government's acknowledges the fact that the programmes described above, though recognised as necessary fundamentals for economic growth, may not always rapidly create jobs and generate incomes so as to reduce poverty as envisioned in the GPRS. The PSI has therefore been introduced as a national response strategy to provide direction and facilitate investment through active support to the private sector. The aim is to diversify exports, increase export revenue and create employment for the rural communities where these products are largely produced and thereby reduce poverty. 64. Products that are currently covered the PSI are garment and textiles, industrial starch, oil palm, cotton and salt. The PSIs are owned and managed by the private sector and local communities, with government only acting as a facilitator. The first industrial starch factory has created job opportunities for Schedule 1 Page 14 of 36 about 10,000 farmers and is programmed to export 20,000 tonnes of industrial starch in 2004. Two new factories for industrial starch are to be established. For the PSI on salt, Government will facilitate the establishment of 30 medium scale companies with production capacities of between 50,000 and 100,000 metric tonnes of salt annually. The PSI on textiles and garments is expected to create 35,000 jobs. About 100 factory units are to be built in the Garment Village at Tema to be leased out to local entrepreneurs. 3.0 Improving Service Deliveryfor Human Development 65. Government remains committed to improving on living conditions of all Ghanaians especially those in the deprived areas of the country. To further improve on service delivery for human development, the focus of Government on efficiency while addressing issues of equity in the financing of education and health, to ensure a greater poverty impact of our actions in these areas remains unchanged. 3.1 Education 66. In the area of education our efforts in reducing inequities between the deprived regions and other parts of the country have started yielding results. During the year, an Education Strategic Plan (ESP 2003-2015) was finalised and approved for implementation. The ESP demonstrates a clear commitment of Government to the Education For All by 2015 goal. Though Ghana still faces many challenges especially with regard to quality and management efficiency in delivery of education; in the area of access, we are making some progress. For the first time in many years, Gross Primary Enrolment Ratios (GPERs) have passed the 80 percent mark. Inequalities in access, both on regional and gender lines, are also improving and we are encouraged by the improvements to do even more to ensure that we make firm progress towards both national and international targets. For this year, we aim to strengthen actions in the two main areas as follows: 3.1.1 Increase access, completion and quality in basic education, particularly in the 3 most deprived regions (Northern, Upper East and Upper West) 67. The Education sector, following development of the ESP, is moving strategically towards implementing a sector-wide approach which we believe strongly will enable us further take action on issues of inequities in access and quality in basic education, improve efficiency and equity in financing and the coordination of donor support. Efficiency measures continue to underlie government investments in the sector. 68. During the year 2003, the major objectives of the GPRS of increasing access to and quality of education were met in varying degrees. GPER improved from Schedule 1 Page 15 of 36 79.5 percent in 2001/002 to 81.1 percent in the 2002/03 academic years. For the three northern deprived regions, where GPERs had been in the past lower than the national average, more impressive improvements of between three to six percentage points in GPER were registered. This evidence underlines the emphasis being given to improving access in the most deprived regions. 69. Gender ratios in enrolments also received a boost from the implementation of the incentive schemes, including the provision of scholarships, school supplies and bicycles to enable girls from remote and deprived areas attend school. Food rations to girls who regularly attend school also contributed in large measure to improving participation and retention of girls. On the whole, while the national average for female participation improved by 0.4 percentage points to 47.6 percent, the deprived northern regions registered improvements in gender parity of between 0.3 percentage points to 0.9 percentage points. In fact both Upper East and Upper West regions are now registering gender parity indices of 48%, which exceeds the national average. 70. School mapping which enables the more efficient distribution of resources was completed for 13 more districts, brining the total number to 18. Several more school maps are being prepared using a manual developed to enable district staff themselves undertake school mapping and prepare work programmes to guide implementation. The ultimate aim is for all districts to undertake school mapping to ensure the strategic placement and utilisation of resources in areas of greatest need. The forty deprived districts will be actively supported this year to prepare such work programmes to facilitate the use of programmed funds. 71. The Ghana Education Trust Fund (GETFund) provided almost $9 billion for scholarships for the current year. Of the total allocation, 50 percent of this amount is being allocated to the 40 deprived districts. The allocation formula further indicates that 60 percent of the funds are for primary schools. Of this allocation, 60 percent will support needy girls. 72.To further improve on access, beginning in the 2004/05 academic year, all Government-controlled fees and levies will be abolished in the forty deprived districts to remove the financial barrier to access created by these fees and levies. A Capitation Grant Scheme is being introduced to compensate schools for loss of revenue they face as a result. The grant is targeted at pupils in public primary pupils in deprived districts and in all public primary schools for the disabled. The scheme will work to enhance access to education through reducing demand-side barriers, and the differentiated payment for male and female pupils will encourage schools to be proactive about enrolment, and girls' enrolment in particular contributing towards the 2005 gender parity target under the MDGs. 73. Improvements in quality of education focus on improving pupil: teacher ratios and the provision of core textbooks and other teaching and learning materials. Schedule 1 Page 16 of 36 Pupil teacher ratios in the deprived areas continue to improve in most areas due in part to the teacher retention scheme being implemented. In addition to the material support provided to teachers under the scheme, during the past year, the scheme has been expanded to include revision of the study leave policy for teachers, district sponsorship for training of teachers (with teachers bonded to serve after training in those deprived areas), and the provision of almost 200 units of teacher accommodation units during 2003. Further investments in teacher accommodation are planned. 74. The revision of the paid study leave policy and the expansion of distance education and sandwich courses for teachers have resulted in a drastic reduction in numbers of teachers on study leave from 5,000 to 3,000 in 2003. The revised policy also includes measures to ensure that study leave inordinately favours teachers wishing to serve in deprived areas. 75. Current levels of provision of text books remain low especially for the three most deprived regions, where ratios are between 1.3 and 1.9 core textbooks per pupil instead of the target one child to three core text books. It is intended that pupils, especially those in deprived districts will have their textbooks at the beginning of the academic year, in adequate numbers to meet the targets of each pupil having one textbook in each of the three core subjects by 2005. This is equivalent to a pupil textbook ratio of 1:3. 3.1.2Improve efficiencyand equity offinancing education withattention togreaterpoverty impact 76, The ESP outlined targets and indicators to be used to guide the needed reforms in improvements to access, quality, efficiency in education delivery and in reducing poverty through building on the partnerships between Government, households, schools and local and wider communities to make for improved efficiency in resource utilisation. 77. During the year, Ghana completed its application for international support under the Education for AII/Fast Track Initiative (EFA/FTI) to enable Ghana achieve its medium term education targets and ultimately the MDGs. The application, which lays out a credible plan for achieving of primary education for all by 2015 has been approved. 78. To further bridge the inequities gap for deprived districts, a new pro-poor resource allocation formula for education expenditures has been developed which is being used in the 2003/04 academic year. The increased financial resources to the most deprived districts are expected to improve the quality of education. The formula, which increases the base grant for the 40 deprived districts from 40 percent to 60 percent also considers other factors such as levels of current enrolment, school numbers and disadvantaged criteria. Schedule 1 Page 17 o f 36 79. Non-salary expenditures as a share of total discretionary expenditures currently stand at 4.4 percent but revised estimates are being made to reflect the substantial amounts flowing into the sector's share of expenditures from the HIPC funds and the Ghana EducationTrust Fund (GETFund) as well as from the District Assemblies Common Fund, all of which form part of the actual total non-salary expenditure component of educational expenditures. Budget execution for non-salary expenditures improved tremendously during the past year, up from 63 percent (for administrative, services and investment expenditures combined) to 83.7 percent. 80. The tertiary financing strategy, which was a key element of our strategy for the sub-sector, is currently being revised to allow for wider stakeholder participation and ultimately improve implementation as a result. Meanwhilethe tertiary institutions have revised the fees charged for academic user and residential facilities as a result of which tertiary institutions' internally generated funds have increased significantly. 81.The expected outcomes for the education sector based on the various interventions include an increase in access with national GPER improving from the current level of 81.1 percent to 88.5 percent by 2005 with specific targets for the three most deprived regions. Gender parity is expected to improve especially with the capitation grants and girl`s GPER is expected to increase from 76 percent to 88.5 percent by 2005. This will go a long way in helping Ghana attain the MDGs and the EFA goals as well as our own national priorities. 3.2 Health 82. The key objectives in health within the GPRS are to increase geographical and financial access to basic health services and provide better quality of care in the provision of health services. Bridging inequality gaps in health outcomes therefore, continues to drive the health sector's Second Programme of Work and all other interventions within the health sector. A review of health status of Ghanaians for the past year indicates significant improvements in some areas and some decline in others. In the three areas outlined below, the health indicators discussed provide an overview of the health status of the population. 3.2.1 Bridge equity gaps in access to quality health care services (Northern, UpperEasf, Upper Westand Central) 83. During the past year, Government implemented focused interventions with the ultimate aim of bridging the equity gaps in health care. The programmed activities for 2003 included improving targeting of poor groups and geographical areas, making efforts aimed at redistribution of health workers in favour of deprived areas and the provision of outreach services in deprived rural areas. Schedule 1 Page 18 of 36 84. With regard to the objective of improving the level and distribution of health resources, the Community-based Health Planning Services (CHPS) programme adopted to improve the delivery of basic primary services and community outreach activities recorded some gains these were not as widespread as planned. Out of a total 110 districts, 105 began implementation of the CHPS programme, and some 47 CHPS zones in 11districts were actually completed. Government directed HIPC funds to the rehabilitation of Community Health Nurses Training Schools during 2003; and this year has also allocated 422 billion again from HIPC funds to fund the expansion of health training schools. The seemingly slow progress under the CHPS initiative has however provided some strategic direction to the way forward. 85. The targeted interventions programme for the reduction of under-five and maternal mortality referred to as the high impact rapid delivery programme was implemented in two deprived regions during the past year with significant results, and also perhaps equally importantly, providing us with clear direction on how to better target interventions and mange partnerships for the acceleration of interventions. The two regions actually piloting the scheme demonstrated an increase in immunisation and Vitamin A coverage, increases in antenatal care, improved management of home-based care for malaria and diarrhoea and widespread acceptance and use of Insecticide Treated (Bed) Nets (ITNs), among other things. 86. Emerging lessons, which are planned to feed into the refocusing of the. CHPS programme, will strengthen the thinking on earmarking of funding for accelerating the scaling up of interventions for under-five and maternal mortality reduction. The programme has also highlighted the fact of the sufficiency of potential partners on the ground with skills in delivery of specified high impact interventions to rapidly impact of delivery of services. 87. As part of measures aimed at improving health care delivery in the most deprived districts, the health professionals retention scheme was approved in 2003 and its elements reflected in the 2004 budget. The scheme, which comprises a salary top up of between 15 percent to 35 percent administered to health workers in deprived areas, will be assessed in consultation with stakeholders this year to determine its effectiveness in addressing one of the key shortcomings in improving health care delivery - getting professionals into the field. 88. Additionally, as a part of measures to improve on human resource management to ensure attraction and retention of health professionals, the health sector will explore options for the decentralisation of personnel emoluments while building on its head start it has made with regard to the decentralising human resource management. Currently in the health sector, certain functions such as in- service training, recruitments of non-essential staff, postings of existing staff are managed by agencies under the Ministry. Promotion of nursing officers and staff below that grade below is handled at the district level. Schedule 1 Page 19 of 36 3.2.2 Ensuring Sustainable Financing Arrangements that Protect the Poor 89. The new resource expenditure allocation formula favouring the most deprived regions developed in 2003 was applied in the 2004 budget currently being implemented with the result that resource allocation within the health sector is becoming increasingly pro-poor. The formula, currently only linked to the administrative and service expenditures of the health sector's budget, will be reviewed this year to be cover investment expenditures as well. The refinement of the formula aimed at improving on equity is however receiving focused attention to ensure that deprived regions can utilise the increase in resources efficientIy. 90. Government's commitment to the view that no one should be denied access to essential care at the point of service delivery remains unchanged. In this regard, it is Government's intention is to harmonise the existing exemptions system with the National Health Insurance Scheme (NHIS). The reform of the exemption policy is being undertaken as part of the NHIS. The scheme defines a benefit package that would be covered under the NHIS and those that would be provided free to clients and defines those exempted from payment. As part of transitional arrangements to full implementation of the NHIS, funding for exemptions has been increased. Efforts for identifying the poor for exemptions from user fees and health insurance premia subsidy are being taken forward as a matter of urgency to be implemented this year. 91. The policy of exempting payments for maternal deliveries in four deprived regions was begun late last year and though it is too soon to record much improvement in supervised delivery for these areas, we are confident of its yielding the expected results. Government is, as planned, extending these exemptions to two other regions with high maternal mortality, the Western and Eastern regions. Lessons are also emerging which will change the landscape for the implementation of all other exemptions especially in the reimbursement of exemption funds. 92. Government has taken concrete steps to keep its promise of abolishing the "Cash and Carry" system, and moved forward on its agenda of providing a National Health Insurance System (NHIS) with the passing the NHIS Act by Parliament in August 2003. The establishment of the NHIS and its gradual extension to the entire population will ultimately replace payments at the point of service delivery. It is a longer term mechanism for addressing financial access constraints. 93. An evaluation of the financial implications and management arrangements of the NHIS was undertaken with support from the ILO as part of prior actions for PRSC 2. The evaluation included the projections for scheme financing and costing of the benefits package. The findings (tentative at this date due to Schedule 1 Page 20 of 36 data limitations) suggest that a critical condition for the NHIS is for continued Government financial commitment to the health sector. For the longer term future, the preliminary indications are that Government may have to bear a higher share of the public expenditure bill and/or introduce higher premia. 94. Currently, the legislative instrument for the National Health Insurance Levy (NHIL) has been laid before Parliament and will be effective on August 12004 to begin accumulating resources for a successful launch of the NHIS. The NHIS will be financed through a 2.5 percent portion of formal sector contributions to the Social Security and National Insurance Trust (SSNIT), a levy of 2.5 percent on general goods and services and individual contributions. Additionally, the 2004 budget provides adequate resources to finance expected health expenditures. Government intends to augment these resources in the coming years to enable Ghana achieve its health targets and the health-related MDGs. 95. As required by the Law on the NHIS, the President has appointed a National Health Insurance Council to secure the implementation of the national health insurance policy that ensures access to basic healthcare services to all residents. As part of its prime responsibilities of managing the NHIF, the Council 'will submit annually to Parliament for approval, the formula for the distribution of subsidies to be paid to licensed district mutual health insurance schemes". 96. The pro-poor functions of the NHIS include the requirement that the Council, ",.. in the disbursement of monies from the Fund, make specific provision annually towards the health needs of indigents and prescribe the method for distributing the monies involved". 97. To ensure transparency and accountability, the Law requires the Council to account for revenues raised annually, 'as soon as is practicable after the expiry of each financial year, but within eight months after the end of the year submit to the Minister (of Finance and Economic Planning) an annual report covering the activities of the Council for the year to which the report relates". The Council's annual report will include the report of the Auditor-General, a report on the effect of the National Health Insurance policy on the nation, and a report on the Fund specifying total disbursement, reserve and average cost provided from the Fund to beneficiaries under the schemes. This will be monitored to ensure compliance. 98.The National Health Insurance Law also requires that monies from the NHIS Fund "be paid into such bank accounts as the Accountant General may determine". I n this regard, in May 2004, the Ministry of Finance and Economic Planning directed the Controller and Accountant General to set up a dedicated account at the Bank of Ghana for the NHIS. 99. During year, we also intend to consult with our development partners to review our medium term health expenditure strategy with due consideration for the Schedule 1 Page 21 of 36 work currently on-going on the costing for achievement of the MDGs. The results of these costings will be reflected in the 2005 budget. 100. The ultimate aim for these actions in the health sector is that utilisation of health services in deprived areas will increase, the health status of the population improved and the inequities between regions especially for the deprived regions reduced. With the proposed measures for increasing staff in deprived regions, improved exemption system and financing of recurrent costs, in 2004, we fully intend to point our basic health indicators in the right direction. 3.3 Reducingthe spread of the HIV/AIDS epidemic 101. The HIV/AIDS prevalence in Ghana though low compared to other African countries still faces some key challenges, including the issues of rising prevalence and prevention of new infections. Supported by a $25 million Ghana HIV/AIDS Response Fund (GARFUND), the Ghana AIDS Commission has been coordinating the delivery of specific interventions by Government Agencies, NGOS and other Civil Society Organisations (CSOs) in information, education and communication (IEC), advocacy, peer education, voluntary counselling and testing, capacity building for CSOs, care and support for people living with HIV/AIDS. 102. In 2003, Ghana made good progress in implementing 200 community-based initiatives for the prevention of HIV/AIDS transmission. Emphasis continues to be placed on the most deprived regions and more remote regions. NGOs continue to be mobilised to support communities in the identification, implementation and monitoring and evaluation of HIV/AIDS interventions, especially in communities with limited capacity to carry out the required interventions. 103. A joint review of Ghana's response to the pandemic has recently been undertaken with the objective of identifying achievements, gaps or challenges and opportunities in relation to the strategic intervention areas outlined in the national strategic framework. The recommendations made will be used in to strengthen Ghana's response to HIV/AIDS. 104. For 2004, there will be an acceleration of implementation of interventions for high-risk groups and areas with high prevalence taking into consideration the recommendationsof the joint review. Having regard to the fact that HIV/AIDS prevention is key to achieving sustainable poverty reduction, and given its low costs relative to treatment, Ghana will focus attention on prevention especially with regard to programmes for safer sex particularly among the most vulnerable, reducing mother-to-child transmission and promoting voluntary counselling and testing. Sche.dule1 Page 22 of 36 105. Government will support a scaling up of interventions for People living with HIV/AIDS (PLWHA), orphans and vulnerable children incorporating at least one more area with high prevalence rates. 3.4 Special Programmesfor the Vulnerable and Excluded 106. Within the GPRS special programmes for the vulnerable and excluded include the establishment of systems that provide resources to relieve conditions of extreme poverty and social deprivation. The Ghana programme for addressing issues of vulnerability and exclusion is being addressed in two main ways: through the reform of sector policies to mainstream and reflect the needs of the such groups into general public policy and specific interventions for identified vulnerable and excluded groups in specified locations. 107. As part of specific interventions in addressing vulnerability and exclusion, the Government-initiated national programme for street children is progressing well and reached 1,682 children with an integrated package of services in 2003. Current estimates show that at least 2,500 children will be covered by this package of services by the end of 2004. One thousand of these children targeted for support are those actually "living on the streets" without any family ties or support. Many more interventions are currently being undertaken by NGOs, faith-based organisations and local government institutions proffering one service or other to provide some essential services to such children. 108. An assessment of the pace of implementation of policies to address the needs of the vulnerable began through a review of district development plans in 2003. This review has enabled us assess the extent to which local governments are implementing programmes for vulnerable groups. One clear gap that emerged was the issue of proper targeting of interventions. Currently, a procedures manual is being prepared to enable districts identify and properly target such groups. 109. However, to ensure a coherent approach to addressing vulnerability issues and to harmonise the myriad of actions being undertaken by both Government and non-government actors in this area, Government intends to spearhead the preparation of a comprehensive social protection strategy during 2004. It is the aim that the social protection strategy will enable a sharper focus, improved coherency in strategizing and proper targeting of resources for vulnerable groups. 110. Complementingthe above will be the vulnerability mapping exercise planned for 2005, which will provide useful geographical targeting using information from the Ghana Demographic and Health Survey of 2004 and the forthcoming fifth round of the Ghana Living Standards Survey. Schedule 1 Page 23 of36 3.5 Water and Sanitation 3.51Increaseaccess tosafe waterandsanitation coverage for rural and small townpopulations Ill,Increasingaccesstosafewaterandsanitationiskeytoachievinghealthand reducing poverty. The year 2003 saw a significant improvement in the proportion of the rural population with access to safe water to 46.4 percent up from 41.28 percent in 2002. In population terms, by the end of 2003, seven million rural and small town dwellers had been provided with over 19,000 point source water facilities and about 840 piped water systems for small towns. 112, In the ten most endemic districts with guinea worm cases, coverage data indicates that while five of them have coverage figures above the national average for rural population, the other five are below this mark. The guinea worm eradication programme suffered a setback last year with a resurgence in the Voltaian basin communities with reported figures of around 8,000 people. Government responded quickly by initiating the construction of 245 boreholes. 113, To accelerate reduction to guineaworm eradication, Government continues to fully subsidise the provision of safe water in endemic areas. Significant investments were made in the guinea worm eradication programme in 2003, including from funding the HIPC reliefs. These investments are continuing in 2004 and it is envisaged that these districts will record figures above the national average by 2005 and that significant reductions will be made in guineaworm infestation in endemic areas. 114. On sanitation, the programmed construction of 3,248 household places of convenience was exceeded about three-fold. Similarly construction of 530 institutional places of conveniencewas completed. 115, The coordination of water sector policy has been a source of concern to Government and its partners. Currently, a comprehensive national water sector policy is being developed which will ensure improved coordination, efficiency in funding and better management of interventions. Cabinet is expected to approve it this year to enable implementation to begin. 116, Specific interventions to make for improved development of water include hydro-geological database mapping to make for better targeting of investments; supporting districts, especially deprived ones, to prepare water and sanitation plans to guide investments and strengthening of key actors such as District Assemblies in planning and delivery of safe water and sanitation and monitoring. 117, To further enhance on efficiency and sustainability of systems already in place, attention will be given to improving on regular monitoring investments already in place and strengthening routine maintenance. The target for the Schedule 1 Page 24 of 36 medium term for rural water and sanitation are to reach 55 percent coverage for rural water and 28 percent for sanitation by 2006. 4.0 Improving Governanceand PublicSector Management 118. I n the area of governance, Government has, over the past year, in recognition of the need to address weaknesses in administrative and managerial capacity that could affect its ability to deliver on its development commitments, intensified efforts aimed at: Improving public expenditure management; Strengthening public financial management; Operationalizing the new legislative framework for the system of public procurement; Improving the delivery capacity and performance of the civil service and other public institutions; Strengthening the capacity of key governance institutions and enhancing the participation of civil society in the governance agenda and public oversight functions; and Setting up structures, procedures and arrangements to heighten efficiency as well as accountabilityfor service delivery at the local level. 4.1 PublicExpenditureManagement/Fublic FinancialManagement 119. Government continues to make progress in managing public expenditure. Operationalization of laws passed in the areas of financial administration, internal audit and procurement has begun and Government has deepened its efforts with regard to budget management. Towards this end, the following have been put in place: The process for the implementation of the Financial Administration Act (FAA) started with the Minister of Finance and Economic Planning issuing Administrative Instructions as required under the Law. MDAs are in the process of reacting and submitting details of accounts required of them. A committee has been set up to prepare relevant operational manuals The draft Financial Administration Regulations (FAR) have also been submitted to Parliament and the FAR committee is in the process of aligning the draft accounting manual to the FAA and the provisions of the FAR. The 2000 and 2001 MDAs Audit Reports have been submitted to Parliament. The 2002 Audit Report, which is in draft form, will be submitted by end May 2004. The Controller and Accountant-General has submitted the MDAs 2003 accounts to the Auditor-General. Members of the Board of the Internal Audit Agency (IAA) have been nominated and approved by the President and await concurrence of the Council of State. Inauguration of the IAA's Board is currently planned to take place in June 2004. The position of Director-General has been advertised. The Director General is expected to be at post by the end of Schedule 1 Page 25 of 36 July 2004, and the recruitment of Deputies to be completed once the Director General comes on board. The process of standardization of MDA budget activities is in progress on a pilot basis next year starting with the Ministries of Health and Education. We expect to complete the standardization by March 2005. Activities are to be standardized as per National Accounts Classification which is consistent with the Government FinancialStatistics (GFS) The preparation of monthly (commitment and expenditure) budget execution reports and reconciliationwith Bank of Ghana is in progress Preparation of quarterly reports on poverty expenditures is also being done. 120, I n addition, BPEMS has actually been configured and set up in the Controller and Accountant-General's Department the Ministry of Finance and Economic Planning and the Accra-based operations of the Ministries of Education, Health and Roads & Transport. Reorganization of management of BPEMS programme is being undertaken through mainstreaming of its administrative processes and project implementation. 121. Payroll Management Initiatives are being undertaken through implementation of the. The public employment census was finalised and attention is currently focused on management and control of the payroll of central administration and subvented agencies. Preliminary indications were that subvented agencies are overestimating their wage bill and are now required to prepare monthly payroll reports. Government is beginning to achieve savings through this exercise. The longer term objective is to restart the Integrated Personnel and Payroll Data System - Phase two (IPPD 2) to bring all government employees under one payroll system. This action will be aligned with the broader Public Sector Reform agenda that is expected soon. 122. Government has also prepared a Short Term Action Plan for Public Financial Management to guide actions in 2004 - 2005. We further plan to develop guidelines and procedures for a more comprehensive collation of annual financial accounts comprising (i) Consolidated Funds, (ii) Statutory Funds, and (iii) Donor FundedSector Project/Programme Funds. 4.1.1PublicProcurement 123. Since the Public Procurement Law (Act 663) was passed in December 2003, we have made reasonable progress towards its operationalization. Standard tender documents, regulations and awareness and training materials have all been prepared, and the process for establishing of the Public Procurement Board, its supporting Secretariat, the various entity tender committees and tender review boards is well underway. 124. Members of the Public Procurement Board (PPB) have been nominated and approved by the President and await concurrence of the Council of State. Inauguration of the PPB is currently planned to take place in June 2004. Schedule 1 Page 26 of 36 Advertisements have also been published inviting applicants for the position of Chief Executive. The Chief Executive is expected to be at post by the end of July 2004. Chief Directors, Heads of MDAs, Directors of Administration and Finance Officers have all gone through the dissemination process in preparation for setting a dateline for the application of the Law. Service managers will be required to implement the Law as part of Government policy. It is anticipated that all procurement entities will be fully operational by the second quarter of 2005. 125. An education and awareness programme, begun before passage of the Law, is being deepened to ensure that in addition to those required to have the skills to discharge various responsibilitiesunder the Law, civil society groups and the media are provided with tools to assist in the monitoring and evaluation of procedurescarried out under the Law. 126. Provision has been made in the 2004 Budget and from HIPC resources under governance for the funding of public procurement institutions, and Government intends to ensure that access to information on public procurement is made widely available. I n addition, we will ensure that training in public procurement is institutionalized. CivilService Capacityand PerformanceLevel 127. Government's concern that there had not been the desired impact of past efforts in public sector reform (undertaken over a period of fifteen years or so) led to the decision taken by H.E. the President in March 2003 to give ministerial oversight and coordination responsibility for the country's public sector and institutional reform initiatives to the Senior Minister. The findings of an independent review commissioned reinforced the view that the various reform programmes had failed to deliver adequate results, especially in relation to the time that had elapsed and the resources expended on them. 128. In 2003, Government embarked on a process aimed at refocusing its strategy for reforming the public sector. The way forward in this redesign effort was developed under the guidance of the Senior Minister and set out in July 2003 in a paper - "Public Sector Reform: The "Next Steps" - that was shared with the principal sponsors of the Ghana programme. That document laid out the approach and resource requirements for the six-month exercise of developing a 'road map' for a re-designed Public Sector Reform programme. I n line with the plan, an Advisory Group comprising experienced and knowledgeable Ghanaian practitioners from the private and public sectors was established, and has guided the work of a team of technicians recruited into a Secretariat - the Public Sector Reform (PSR) Secretariat to assist in the redesign effort. Schedule 1 Page 27 of 36 129. The Advisory Group includes many public officials and service providers whose formal positions and responsibilities already make them key players in the eventual implementation of a re-designed reform programme. 130. The Group is spearheading the development of a 'home grown' product, which will reflect the practical possibilities and limitations of the local environment taking into account international experience. 131, Lessons we have learned from efforts undertaken over the past decade and a half or so have convinced us that: 0 There is a need to ensure deep and sustained commitment at the topmost level of the political establishment to pursue change and reform, and that overall management and coordination of the reform process should be provided at Ministerial/Cabinetlevel; 0 The detailed programmes of reform should be designed and driven from within the agencies that are to be transformed, not from the outside, and that the principal implementers of reform and all those affected by reform should have a sense of buy-in and common ownership of the programme; 0 While there can be significant "quick wins", reform should be viewed and implemented within a long-term perspective, provided, however, that each phase of the process is targeted to specific and monitorable advances; and 0 There should be a shared national vision based on a participatory, consultative process in order to commit stakeholders to long-term transformation. 132. The emphasis of our work has been on addressing, as a matter of urgency, the deterioration in analytical and implementation capacity of the civil service and other public institutions. We recognize that a great deal of practical improvement is needed in the way that day-to-day tasks are carried out within the civil service and the public institutions. Accordingly, under the reformulated public sector reform Government plans to ensure that in the first phase, actions are undertaken to bring about the urgently required technical and mechanical improvements. 133. We intend to pursue activities that will remove the impediments to the civil service properly playing its role as Government's 'Secretariat and Think Tank'. We propose to start at the very top of the service and to put in place a senior tier of leadership that will accept responsibility for the performance of the workforce under its command. I n this regard, over the past several months we have worked on inter alia: Developing structures, processes and procedures for putting in place the senior leadership tier - a highly motivated executive class at the apex of the Service structure to provide strong, effective and inspiring leadership in all the key areas and act as change agents to drive the reforms from within; Schedule 1 Page 28 of 36 Reviewing the organization and structure of the Civil Service with a view to providing role clarity for the administrative, technical and political structures supporting Government's work; 0 Developing a strategy for professionalizing the Service's human resource function, including designing recruitment systems and mechanisms for the evaluation of performance, all geared towards bringing about strengthened career management and development; and 0 Developing competency based in-service training and structures for the evaluation of training programmes that will ensure improved service delivery on a continuous basis. 134. Government has initiated action in three other areas dee'med critical to the success of our reform efforts. In the immediate short term Le. mid-2004 to mid-2005, we plan to: 0 Develop and begin implementing a strategy for ensuring effective communication of the reform programme to all stakeholders, thereby engendering buy-in and ownership; 0 Develop an effective performance related pay policy which provides options to enhance competitiveness and improve employer image in the Service; and 0 Take steps to make identified Subvented Agencies self-sufficient, thereby reducing the burden on the central fiscus 135. Cabinet will shortly detail its perspective and program of action for a renewed public sector reform agenda and programme based on the elements outlined GovernanceInstitutions 136. Ghana continues to strengthen the institutional framework for maintaining the rule of law and our commitment to reducing fraud, corruption, waste and abuse continues as we pursue activities that will help to bring about increased transparency and accountability. I n this regard, Government has carried out a number of activities, including: Facilitating broad consultation on the Freedom of Information and Whistleblower Bills their finalization, of which took into account inputs received from the process. Inaugurating an in-country Peer Review Council for the Africa Peer Review Mechanism (APRM). This body set up earlier this year is comprised of independent eminent persons and will lay the foundation for opening up our governance mechanisms to scrutiny at the highest levels within the context of NEPAD. Carrying out a national Voter Registration Exercise Schedule 1 Page 29 o f 36 137. Government considers it important to build upon the work done with regard to increasing civic participation in the governance agenda. Government continues to increase resource flows to the area of governance in the belief that helping to strengthen the interface between governance institutions and civil society will foster greater accountability. We are, however, eager to ensure that resource increases are translating into improvements particularly with regard to the institutions involved. To this end, Government is embarking on a study that will enable us refine the mandates and responsibilities of key governance agencies involved in combating corruption. 138. Government will as a result of efforts in this area put in place a legal and institutional framework that ensures effective feedback. The National Inter Agency Poverty Monitoring Group on 'good governance, vulnerability and socially excluded' is one of such bodies. Decentralization 139. As far back as 1988, Government initiated reforms of the local government system and began implementing a comprehensive decentralization policy with the aim of putting in place an efficient, decentralized government machinery to build and support participatory development at the local level. 140. The strategies for implementing Government policy have thus far focused on establishing and empowering local government structures, demarcating administrative boundaries and promoting local participation at the various levels of decision-making. Areas of emphasis as Government moves forward with this process will include strengthening decentralized departments at the regional and district level in order to facilitate coordinated development and the efficient utilization of resources, promoting participatory development planning and the active involvement of communities and service providers in the determination of needs and the implementation of programmes, and the creation of an enabling environment to promote public-private partnerships in the provision of services. 141, We continue to make progress towards providing the environment in which sub-national authorities, particularly District Assemblies, would become more autonomous, more responsive to local needs and technically and financially capable of expanding and improving service delivery. Ultimately, Government's goal is to ensure that the centre retains responsibility for policy formulation, and oversight and to assign responsibility for programme coordination and monitoring to Regional Coordinating Councils and programme implementation to District Assemblies. Thus, we are placing great emphasis on strengthening District Assemblies to enable them become the focal points for development at the local level. 142. As you are aware, the Local Government Service Act was passed by Parliament last year and its operationalization is one of the key activities Schedule 1 Page 30 of 36 currently being pursued as Government pushes forward with implementation of the Cabinet-endorsed National DecentralizationAction Plan. With the imminent establishment of the Local Government Council and the development of guidelines and the detailed modalities for the consolidation of regional and district entities, we envisage move this process forward considerably. 143. We have learned valuable lessons from the pilot district composite budgeting exercise undertaken in three districts last year which will inform our strategies for enhancing capacity for planning and managing and monitoring social, special and economic development. Government will expand the exercise to at least 25 districts in the upcoming year. 144. The institutions charged with moving the process forward, namely the Presidential Advisory Committee on Decentralization, the Decentralization Secretariat of the Ministry of Local Government & Rural Development and the Inter-Sectoral Working Group are coordinating their efforts and Government will ensure that as this process moves forward, alignment with the broader public sector reform agenda takes place. Monitoring And EvaluationOf GPRS 145. The need for monitoring and evaluating the impact of implementing policies, programmes, and projects has become even more critical as Ghana searches for ways to maximise the use of its limited resources. Policy makers are increasingly looking for evidence to support decisions and for assessing the value-added to national development for the resources utilised. This support for evidence-based policy decision-making has also been demonstrated by growing enthusiasm of key stakeholders for the Poverty and Social Impact Analysis (PSIA), which are being undertaken and the keen participation of stakeholders in the National Intra-Agency Poverty Monitoring Group meetings. 146. The monitoring and evaluation plan of the GPRS was developed in 2002; its implementation began in 2003. Work is still being undertaken to strengthen data collection and analysis processes in order to provide an effective evaluation of the GPRS implementation on a timely basis. 147. During the year, two new surveys were conducted by the Ghana Statistical Services (GSS) - the second Core Welfare Indicators Questionnaire (CWIQZ) Monitoring Survey, and the Ghana Demographic and Health Survey (GDHS). The two surveys have enriched the information available to effectively assess the impact of the GPRS implementation on the poor. 148. The CWIQ survey covered both income/consumption and non-income poverty, the results of which has provided a comprehensive baseline for assessing the outcome and impact of GPRS in the future since it essentially reflects the situation at the beginning of the full implementation of the GPRS. Schedule 1 Page 31 of 36 149. The 2003 Ghana Demographic and Health Survey (GDHS) combined data collection with testing for the human immunodeficiencyvirus (HIV); and testing for anaemia for women aged 15-49 and children under age 5. The data from the GDHS has tremendously enhanced the information available on the HIV/AIDS epidemic, infant mortality rate and child malnutrition in Ghana. New features present in the 2003 GDHS that were not present in previous demographic health surveys also include collection of information on female and male circumcision, malaria and mosquito nets usage, haemoglobin and HIV testing. Challenges 150. The challenges faced in M&E are in two main areas namely human and funding capacity constraints. Data quality is a major challenge, especially in terms of consistency and ease of access from the different MDA sources. Specifically the issues we are having to grapple with include: Accuracy and timeliness of data coming from primary and secondary sources m Lack of motivation of staff in the MDAs and Districts m Difficulty in institutionalising the collection and provision of data Infrequent national outcome/impact surveys by GSS due to inadequate resources Challenge of reporting on several indicator/trigger achievements for a number of programmes and initiatives such as the GPRS-Medium Term Priorities, PRSC, MDBS, HIPC and MDGs. GPRSM&EInstitutionalArrangements 151, The M&E institutional arrangements have been designed to facilitate active participation of stakeholders to ensure that policy recommendations are relevant and actually contribute to policy formulation and resource allocation that are geared toward the reduction of poverty and wealth creation. 152. The following initiatives have been established and are operating in support of the National Development Planning Commission (NDPC) Monitoring & Evaluation activities for the GPRS: National Intra-Agency Poverty Monitoring Groups NIPMG chaired by representatives of MDAs, m GPRS Strategic Environment Assessment, GPRS DisseminationCommittee; and PSIA Technical and Advisory Committees. NationalIntra-Agency Poverty Monitoring Group (NIPMG) 153. The GPRS M&E plan proposed the establishment of poverty monitoring Schedule 1 Page 32 of 36 groups at the national, regional and district levels. Five groups based on the GPRS thematic areas have been established at the national level currently. These groups are inter-sectoral and include both governmental and non- governmental representatives selected for their knowledge of the thematic area, (PPMED's, Development Agency staff, Ghana Statistical Service and knowledgeable researchers). A process is underway to fully include civil society representation. 154. Some of the main functions of the poverty monitoring groups include the following: 0 Highlighting the importance of monitoring and evaluating the GPRS within the relevant MDAs 0 Providing data towards an update of the selected indicators and policy interventions. 0 Reviewing and validating data, as well as policy recommendations. 155. Since the inauguration of the NIPMG in mid 2003, the monitoring groups' deliberations have helped to deepen the involvement of MDAs in the GPRS M&E process. Members have had the opportunity to comment on the APR and have provided significant inputs to baselines, targets and indicator achievements. These meetings have been useful in discussing results of data collected and the validation of analysis contained in the APR. 156. While a lot of support has been received for the Poverty Monitoring Groups at the national level, there is however the need to strengthen the process by including civil society. During the year, key representatives of civil society organisations (CSO) will be involved in various forums to ensure effective representation of civil society in the M&E process. 157. To deepen the GPRS M&E process, the institutional arrangements are to be rolled out to the regions within the coming year with the setting up of regional poverty monitoring groups with membership from government, NGOs and CSO at that level. 158. Dissemination of the GPRS is being undertaken and will include disseminating the content of the APRs as they are prepared annually. A communication strategy, targeting various stakeholders at the national, regional and district levels has begun. To facilitate dissemination, a simplified version of the BPRS has been prepared and this has been translated into local languages. Schedule 1 Page 33 of 36 CONCLUSION 159. Government's commitment to accelerating growth and reducing poverty are expressed in the measures we have outlined in this letter. We are currently consolidating the gains we have made over the past few years and striving towards a higher growth path as evidenced in our expansion of policy actions in the reform programme to cover raising agricultural productivity and ensuring prudent natural resource management. Our continued focus on human development and our emphasis on strengthening governance as evidenced by the public sector reforms indicate our commitment to achieving the aims of our agenda for growth and prosperity. 160. Though this year is an election year, we will continue to pursue prudent developmental policies that have enabled us attain our present healthy socio-economic status, Government's responsiveness to special needs of the different communities and the different sectors of the economy will be maintained and our commitment to ensuring equity and the rule of law remains unchanged. 161. The implementation of the reform programme presented in this letter remains the responsibility of the various Ministries, Department and Agencies as part of their normal functions in the production and delivery of public goods and services. The coordination of the programmes and activities remains the responsibility of the Ministry of Finance and Economic Planning. We are putting in place measures to strengthen inter-sectoral coordinationto ensure that we make good progress in implementation and respond quickly to any gaps that may arise. 162, On behalf of the Government of Ghana, Iwish to thank IDA for the programme assistance provided under various projects approved this year. Itrust that this request to support our reform programme through the PRSCwill receiveyour favourableconsideration. Yours SinceTely ,~ (1 Won. Yaw Oka'fo-Maafo, M,P.V Minister of Financeand Economic Pfanning Appendix 1:Will the MillenniumDevelopmentGoals (MDGs) be Met? The link between the MDGs & GPRSTargets Status at a Glance as at December 2003 *ERADICATE EXTREME POVERTY AND HUNGER Indicators: - Proportion of population below the poverty (national basic needs) 32 39 line Prevalence of (Inderweiglir Children -_ 35.8 I '1MDG2 ACHIEVE UNIVERSAL PRIMARY EDUCATION - Likely to be achieved I Target: Achieve UniversalAccess to Primary Education by 2015 I Indicator: GrossPrimary Enrolment Ratio 88.5 81.1 MDG3 PROMOTE GENDER EQUALITY AND EMPOWER WOMEN - Target: Eliminate Genderdisparity in primary & secondaryschools I Indicator IRatio of females in primary scliool 88.5 77.7 I MDG4 REDUCE CHILD MORTALITY BY TWO-THIRDS BY 2015- Notontrack Target: Reduce U5 Mortality by two-thirds by2015 ! Indicators Under-five Mortality Rate 95 111 Infant Mortality Rate 50 64 Zmmunisation coverage 90 .. 91.1 MDG5 IMPROVE MATERNAL HEALTH Notontrack . Target :reduce the maternal mortaliv rate by three-quarters by the year 2015 Indicators: Proportion of land area replanted and covered byforest 65000 25691 Proportion of population with access to safe water source 75.2 ~ MDGS DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT- Likely to be Target: Deal Comprehensively with Debt and make debt sustainable in achieved the long term Indicator: Debt service as a percentage of GDP I17.2%I 34.1 Appendix 2 Ghana's Progressin Attaining the GPRSTargets within the context of the Millennium DevelopmentGoals Ghana's progress with achieving the MDGs and the link een the targets of the GPRS and ultimately the eight MDGs is set out in Appendi le 1above. Below is a short overview of our progress (or lack of it) in three key MDGs, gender parity in enrolments, and the reduction of child and maternal mortality. As is evident below, progress towards the MDGs is mixed. On the one hand, though we are improving on gender parity in primary enrolments especially with regard to the most deprived regions which are evidencing increases above the national average, in other targets of the MDGs we are yet to evidence appreciable changes and in others we stand a risk of not meeting some MDGs without taking quick corrective action. The MDG of reducing maternal mortality by three-quarters is being seriously tackled through the new policy of exempting maternal deliveries for the most deprived regions. The rationale for this policy was that the high maternal mortality rates were unacceptable and that poor women were particularly disadvantaged in having access to adequate delivery services. A review undertaken recently indicates that though funds to reimburse facilities for exempted deliveries were in most cases flowing from District Assemblies to the health districts and individual facilities, it was as yet too early to assess any impact. Reducing maternal mortality remains a key MDG that Government wishes to address hence the extension of exemptions for delivery to two additional regions. In terms of under-five mortality, our most recent Ghana Demographic and Health Survey (GDHS) indicates that both infant and child mortality have increased by 12 and 3 percentage points respectively during the last five years. In addition, and alsc perhaps as a contributory factor to the rising child mortality, is the increase in proportion of children underweight of about 10 percentage points from 25 percent tc 35.8 percent between 1998 and 2003. Worth mentioning is the fact that the incidence of child malnutrition is highest in the relatively food-rich areas of Ashant (46 percent), Western (36.9 percent) and in the capital region, Accra (40.4 percent), while the more deprived northern regions seem better off, at least as far chilc nutrition is concerned. This may in part be due to the school-based nutritior programmes and other nutrition programmes run in the deprived north of the country. These factors possibly give us strong pointers as to the means of addressin< the problems of both child malnutrition and ultimately under-five mortality ir achieving the relevant MDGs. Appendix 3 Table 1:KeyMacroeconomicIndicators 2000 2001 2002 2003e 2004p 2005p 2006p National Income and Prices (YOchange) Real GDP 3.7 4.2 4.5 5.2 5.2 5.0 5.0 Real GDP per capita 1.2 1.6 1.9 3.1 3.1 2.9 2.9 Nominal GDP 31.9 40.2 28.3 35.4 18.9 18.9 12.5 GDP deflator 27.2 34.6 22.8 27.6 13.0 7.1 6.2 Consumer Price Index (annual average) 25.2 32.9 14.8 26.7 10.2 6.0 5.0 Consumer Price Index (end of period) 40.5 21.3 15.2 23.6 7.0 5.0 5.0 External sector (YOchange) Exports, f.0.b. -3.5 -3.6 10.2 20.1 8.1 7.0 6.2 Imports, f.0.b. -15.2 2.6 -4.1 20.1 10.5 7.7 5.5 Export volume 1.0 -1.3 -2.1 -6.8 10.8 6.2 6.3 Import volume -26.0 10.0 -6.8 6.9 5.2 10.5 6.0 Investmentand saving (YOof GDP) Gross investment 24.0 26.6 19.7 23.2 23.1 23.8 24.0 Private 14.8 13.8 13.6 14.0 13.8 14.2 14.6 Public 9.2 12.8 6.1 9.1 9.3 9.6 9.5 Gross national saving 15.6 21.3 20.2 24.9 23.5 23.3 23.8 Private 14.3 16.1 19.0 19.2 15.7 13.0 13.2 Public 1.3 5.1 1.2 5.7 7.8 10.3 10.6 Foreign Savings Including official transfers 8.4 5.3 -0.5 -1.7 -0.4 0.5 0.2 Excluding official transfers 10.3 3.1 5.5 3.5 4.1 4.2 3.6 Governmentbudget(% of GDP) Total revenue 17.7 18.1 18.0 20.8 23.3 23.0 22.6 Grants 2.1 6.9 3.1 4.7 4.2 3.4 3.1 Total expenditure 27.7 32.7 26.1 29.4 29.0 25.8 24.8 Overall balance (including grants)' -9.7 -9 -6.8 -4.9 -1.3 -0.3 -0.1 Domestic primary balance 2.6 3.8 2.0 2.1 1.8 2.4 1.6 Divestiture receipts 1.2 0 0.0 0.6 0.5 0.0 0.0 Net domestic financing 8.5 2.3 4.8 -0.1 -1.4 -2.6 -2.5 Source:International Monetary Fund, and Ghanaian authorities. e) Estimates. p) Projections. 1) After arrears clearance. I I s8 U I; zu U w*a 0 d 0 d rd a 0 Y a v) I 1 I- -0 .-BM -0 -88 u 0 a .e C 8a m m * i a U 1 Schedule 3 Page 1of 3 QUANTITATIVE MONITORING INDICATORS POLICY OUTCOME INDICATOR DATASOURCE BASELINE AREASUPPORTED BY PRSC REPORTING ImDrove access to PRSC-2 BOG 54% oftotal Annual financial service Increasedcredit to the domestic credit in privatesector Creditto the private 2003 sector as ashare of domestic credit PRSC-3 BOG Annual Creditto the private sector as ashare o f domesticcredit PRSC-4 BOG Annual Creditto the private sector as ashare o f I domesticcredit Expand SUDD~Vof PRSC-2 energy services economicallvwhile Increasedavailability of Reduce subsidies MoFEP 450 billion cedis in Annual protecting the Door electricity 2002 Reduce system loss PURC 26% in2002, the Annual target for 2006 is 23% PRSC-3 Reduce subsidies MoFEP Annual 1 Reduce system loss PURC Annual PRSC-4 Reduce subsidies MoFEP Annual Reduce system loss PURC Annual EnhancePrivate Increasedprivate PRSC-2 Sector investment Competitiveness Reducedtime for MoJ Ghana 126 days in Annual - businessregistration 2003 PRSC-3 Reducedtime for MoJ Annual businessregistration PRSC-4 Reducedtime for MoJ Annual businessregistration ImDrove rural PRSC-2 sector farm and 2003 real increase non-farm growth Increase real per capita Real per capita food MOFA in per capitafood Annual ~ foodproductionby 2% production productionequaled per annum 3.2 ercent Schedule 3 Page 2 of 3 POLICY OUTCOME INDICATOR DATASOURCE BASELINE FREQUENCY AREASUPPORTED FOR BY PRSC REPORTING PRSC-3 Realper capita food MOFA Annual production PRSC-3 Realper capitafood MOFA Annual production Improve Increasedforest PRSC-3 manapementof coverage from 2,000 natural resources hectares in 2002 to Forest coverage MLF In2003: 20,000 Annual 50,000 hectares in2006 hectares PRSC-4 Forest coverage MLF Annual Improved Increase of actualnon- PRSC-2 efficiencvand salary recurrent equity of financing expendituresas a share Actual MOE non- CAGD and MOE 2002- 5.3% Annual educationwith of total education salary recurrent actualexpenditure attention to preater recurrentexpenditures expenditures as a returns povertv imDact from 5.3 percent in percentageof 2002 to 5.5 percent in budgeted MOE non- 2005 salary recurrent expenditures PRSC-3 Actual MOE non- CAGD and MOE Annual salary recurrent actualexpenditure spending as a returns (audited percentage of accounts) budgeted MOE non- salary recurrent education expenditures PRSC-4 Actual MOE non- CAGD and MOE Annual salary recurrent actualexpenditure spending as a returns(audited percentageof accounts) budgetedMOE non- salary recurrent education expenditures Schedule 3 Page 3 of 3 OUTCOME INDICATOR DATASOURCE BASE LINE FREQUENCY AREASUPPORTED FOR BYPRSC REPORTING PRSC-2 ~~~Bridge equity gaps ~ in access to aualitv Improvements in health care maternalandchild Ratioof population MOH annual 2002 ratioof 4nnual (MOH) services healthinthe most per nurse in the four reports and GDHS iopulation per nurse byearly ieprived regionsas deprived regions inthe four deprived [GDHS) measuredby a -egions:2,000: 1 reductionin infant Ratioofpopulation mortality rate and an per doctor inthe four 2002 ratioof increase in supervised deprived regions populationper ieliveries (as aproxy ioctor inthe four for maternalmortality): % supervised MOHannual ieprived regions: deliveriesby region reportsandGDHS 20,000: 1 Supervised Deliveries- 49% PRSC-3 Ratio o fpopulation MOHannual Annual (MOH) per nurse inthe four reports and GDHS 4-yearly deprived regions (GDHS) Ratioofpopulation MOH annual per doctor inthe four reports and GDHS deprivedregions % supervised deliveriesby region PRSC-4 Ratioof population MOHannual Annual (MOH) per nurse inthe four reports and GDHS 4-yearly deprivedregions (GDHS) MOH annual Ratioof population reports and GDHS per doctor inthe four deprivedregions % supervised deliveriesby region Increasedutilization of PRSC-2 financin healthservices by the arrangements that poor Amount ofmoney MOHFinancial 2003 -- 17 billion Annual rotect the Poor spent on exemptions Report cedis total PRSC-3 Amount of money MOHFinancial Annual spent on exemptions Report PRSC-4 Amount of money MOH Financial Annual spent on exemptions Report Schedule 4 Page 1of 1 Ghana PRSCandMillenniumDevelopmentGoals - MDG Goal and PRSCMeasures PRSCExpected PRSCMonitoring Targets Outcome [ndicators Goal 2: Achieve Increaseresourcesfor educationgoingto Increase innon-salary Executionrate ofnon Universal Primary depriveddistricts(PRSCI-3) expendituresas share of salary recurrent Education total expendituresfrom :xpenditures ofthe Implementteacher retentionscheme in 5.3% in2002 to no less :ducation sector budget Target: Ensurethat by most depriveddistricts (PRSC2-3) than 5.5% in 2005 2015, all children will be able to completeafull Ensuretimely deliveryof textbooks for NationalGPER increases courseof primary primary schools in most deprived areas from 80 to 88.5% (2002- schooling (PRSC2-3) 2005) Goal 3: Promote Provideincentives (scholarships)to From2002 to 2005, girls' Gross Primary Gender Equality and enable girls to complete primary school in GPER increases from 76% EnrollmentRate empower women deprived districts (PRSC2) to 88.5% (GPER) Target: Eliminategender Eliminateall governmentcontrolledfees disparity in primary and for primary school pupils in deprived secondaryeducation, areas (PRSC3) preferablyby 2005, and to all levels of education by no later than 2015 Goal 4: ReduceChild ImplementCommunity-basedHealth Increasedutilization of Outpatientvisit per Mortality PlanningandServices(CHPS), with healthservicesinmost capita indeprived priority to most deprivedregions(PRSC1- deprivedregions regionsincreasedfrom Target: Reduce by two 2) in0.48 2002to 0.6 in thirds, between 1990and 2006 2015, the under-five Implementhigh impactrapiddelivery mortality rate programfor U5MR andMMR within 4 most deprivedregions(PRSC1-2) Reformexemptionsystemto provide subsidies for the poorest(PRSC1-4) Goal 5: Improve ImplementCHPS, with priority to most Increaseinsupervised % superviseddeliveries Maternal Health deprivedregions (PRSC1-2) deliveriesfrom 49% in 2000 to 55% in2005 Target: Reduce by three Implementhigh impact rapid delivery quarters, between 1990 programfor U5MR and MMR within 4 and2015, the maternal most deprivedregions (PRSCI-2) mortality ratio Adopt exemptionpolicy for deliveriesin 4 most deprivedregions (PRSCl-4) Goal 6: Combat Implementcommunity initiatives to HIViAIDS prevalencerate HIV/AIDS prevalence HIV/AIDS, malaria, prevent HIV transmission andprovide for pregnantwomen aged rate for pregnant and other diseases care to PLWHAs, AIDSorphans and 15-24maintainedbelow women aged 15-24 families inmost deprivedregions 5% in2005 Target: Havehaltedby (PRSCI-2) 2015 andbegunto reversethe spreadof ImplementHIViAIDS interventionsfor HIVIAIDS highrisk groups andinhigh prevalence I areas (PRSC3-4) GHANA SECONDPOVERTYREDUCTIONSUPPORT CREDIT Annexes ANNEXES: Annex 1: Status Report on Triggers for the HIPC FloatingCompletion Point Annex 2: Technical Annex to the Framework Memorandum-MultiDonor Budgetary Support (MDBS) Annex 3: Country at a Glance Annex 4: Country Economic Indicators Annex 5: Key Social Indicators Annex 6: Key Exposure Indicators Annex 7: Ghana- IMF-WorldBank Relations Annex 8: Ghana- Status of World Bank Group Operations Annex 9: Timetable ofKey ProcessingEvents Annex 10: FundRelations Note Annex 1 Page 1of 2 STATUSREPORT TRIGGERS ON FOR THE HIPC FLOATING COMPLETIONPOINT Box 1. Ghana: Status ofTriggers for the HIPCFloatingCompletionPoint I Triggers Status PRSP.Preparationofafull PRSPandsatisfactory Met. The full PRSP was finalizedand sent implementationfor at least one year, as evidencedbythejoint to the IMF and IDA inFebruary2003 and staff assessmento f the country's annualprogressreport. discussedby the IDA and FundBoardsin May2003. The 2003 PRSPAnnual ProgressReportwas completedinMay 2004 andthe Joint StaffAssessment submittedto the Boards inJune 2004. Macroeconomicstability. Continuedmaintenanceof Met.A new-threeyear PRGFarrangement macroeconomicstabilityas evidencedby satisfactory was approvedinMay2003 andthefirst implementationofthe PRGF-supportedprogram. reviewcompletedinDecember2003.The secondreview is plannedto be completedin June 2004. Use of budgetary savings. The use of budgetarysavingsfrom Met. Thetrackingsystemis inplaceand interimdebt servicerelief havebeenused inthe priority areas and HIPC reliefis additional to budgetary monitoredinthe framework for povertyreductionexpenditures. spending,mostlyonbasic infrastructureand Informationonthe use of these savingsandon poverty social sectors.The 2003 PRSPAnnual expenditureshas beenpublishedintime to beconsideredin a Progress Reportprovides informationon public review o f GPRS implementation, as input to the annual useo fthe resourcesandon poverty-related progressreportonthe GPRS. The increaseintotal spendingon expenditures. these prioritiesmust equalor exceedHIPCrelief(less reliefused for domestic debt reduction) during the interimperiod. Governance 0 Procurementreform. Regulatory and oversightbodyto Met. InDecember2003, ProcurementAct implementnew procurementcode has beenestablished. was passedby parliament.Membersofthe Public ProcurementBoardwere appointedb! the Presidentandtheir inaugurationis plannedfor June 2004. The positionof Chief Executiveo fthe Secretariatof the Boardhas alreadybeenadvertisedand selectionis expectedto be completedbythe endofJuly 2004. MOEFPhas already instructedpublic procurementbodiesto form EntityTender Committees. Internal audit. Operational internal audit capacityhas Met. Existingpositionsare fully staffed, beenestablishedthroughfull staffingof existinginternal but quality o f internal audit remainsweak. audit positions. InternalAudit Act, approved inDecember 2003, aimsto improvequalityand managementofaudit function.Membersof the InternalAudit Agency (IAA) Board were appointedbythe Presidentandtheir inaugurationis plannedfor June2004. The positiono fDirectorGeneralo fthe IAA has already beenadvertisedand is expectedto be filled by the endo fJuly 2004. Public expenditure management 0 Reportsoncash expenditures and commitmentsby Met. New cash managementand MDAs, classifiedby function, have beenpublished commitmentcontrol systemimplementedin monthly inthe government gazette, following all ministriesby end-December2003. New implementationof new reportingsystem. reportingsystem implementedand reports are published inthe monthlygazette. Annex 1 Page 2 of 2 A computer-basedfinancial managementinformation Met. The system has been configured and systemto underpin the new expenditure reporting set up at the MOF, CAGD and the Accra- systemhas been installed on a pilot basis inthe Ministry basedoperations ofthe ministries ofhealth, of Finance, CAGD, and at least two key sector education, and roads and transport (albeit ministries. with partial functionality). The system will be rolled out to another four MDAs by early 2005. Decentralization o f government functions Devolution of responsibilities to local districts, as Met. Local GovernmentServicesAct was evidenced by (i)submissionto Parliamentof a local passed by ParliamentinDecember2003. service bill to enable the decentralizationof human District composite budgets preparedinthree resourcemanagementto local authorities; and (ii) pilot districts (Dangme East, DangmeWest, development ofDistrictComposite Budgetsinpilot and Akwapim North). districts. Education The primary gross enrollment rate for girls has increased Met. Inthe 2002/2003 academic year, the from 72 percent in2000 to 74 percent. primary gross enrollment rate for girls reached almost 78 percent. Health The percentageofhouseholds with access to safe water Met. Ruralwater coverage is estimatedat has increasedfrom 40 percent in 2000 to 46 percentin 46.4 percent in2003. rural areas. Recurrent health expendituresat district and lower level Met. Estimated share of recurrenthealth governments haverisen from 42 percentofthe total expendituresat district and lower levels recurrenthealth budget in2000 to 45 percent. reached49.6 percent in2003. Energy Sector An automatic price adjustmentmechanismhas beenput Not met. Pricing formula was put in place inplace and implementedmonthly to reflect changes in in2003 but has not been implemented.A international market prices in local currency inthe new regulatory regime that will give petroleum sector, and includes all taxes incorporated freedomto oil marketing companiesto set into the adjustmentformula at end-March2002. prices (according to a prescribedformula), and that credibly removesgovernment influenceover pricingdecisions, will be announcedby Cabinet in June 2004. The new regime is expectedto becomeeffective on February 15,2005. A strategy for achieving full economic pricing inthe Met. Strategy establishedand implemented electricity sector, including lifeline pricingto ensure since August 2002. affordability for low income users, has been implemented, Annex 2 Page 1of4 TechnicalAnnex to the FrameworkMemorandum-MultiDonor BudgetarySupport (MDBS) ArrangementbetweenGovernmentof Ghana and BilateralDPs African DevelopmentBankand EuropeanCommission 1. MDBS PROGRESSASSESSMENTFRAMEWORK (PAF) 1. The six BilateralDevelopment Partners(DPs),~'EuropeanCommission (EC) and African Development Bank (AfDB) will initially continue to focus their assessment o f progress on five key reform areas consideredcritical for the successful and efficient implementation of the Ghana Poverty Reduction Strategy. These areas are: public finance, the budget process, decentralisation, public sector reform and governance. Provided progress has been achieved inthese five central areas, the focus of the assessment and dialogue will gradually shift to sector issues and other cross cutting issues closely related to poverty reduction policies. In the sector areas output'outcome indicators will be usedfor assessing progress. 2. The Ghana Poverty Reduction Strategy (GPRS) Policy Framework, the GPRS Monitoring & Evaluation Plan, and the World Bank's Poverty Reduction Support Credit (PRSC) will be usedas the reference points for the determination of the ProgressAssessment Framework (PAF) and for dialogue betweenthe Government and all DPs participating in the Multi Donor Budgetary Support (MDBS) program, including observers. MDBS DPs aim to align their PAF closely to the equivalent framework of the PRSC. 3. Each year, a set of 6 to 8 triggers will be defined. The exact wording of the triggers will be agreed betweenthe Government of Ghana and the bilateral DPs, EC and AfDB3' to ensure a full and common understanding. Attainment of these triggers will determine the performance payment. 4. Each year, a subset of 8 to 12 targets will be equally defined and included in the PAF. The targets serve the purpose of fostering the policy dialogue and assess GPRS progress in a wider perspective. 5. The triggers and targets will be proposed by the Government o f Ghana, early in the 3rd quarter of the year preceding the budgetary year. Agreement on the triggers and targets should be reachednot later than midDecember ofthe year preceding the year to which the PAF applies. 38Canada, Denmark, Germany, the Netherlands,Switzerland, andthe UnitedKingdom. Annex 2 Page 2 of 4 2. DISBURSEMENT MECHANISM 6. MDBS bilateral and multilateral DPs are expectedto deliver two tranches annually: 1) a base payment in the first quarter of each budgetary year; and, 2) a performance payment inthe second half of the year. Although DPs may have some variations intheir respective approaches to disbursement, it is intended that the split between the performance tranche and the base tranche will be on a 50150 basis. 7. Disbursement of the base tranche payment will be determined by the IMF board's approval of the annual IMFPRGF review in the year previous to the Ghana budget execution year. 8. Unless otherwise agreed, there will be two parts to the performance tranche payment. For 2004 the performance tranche payment (50%) will be split on an equal basis between (a) public finance management (25%) and (b) governance (including public sector reform and decentralisation) (25%). Disbursemento f either part of the performance tranche payment will be made uponsatisfactory assessment of achievement of all triggers withineither subset a, or subset b. The disbursementmay bemade once the triggers are satisfactorily fulfilled. 9. Deviations from the mechanism outlined in paragraphs 6 - 8 by individual donors must be defined by their bilateral agreements and made known to all signatories to the Framework Memorandum. 10. Although not directly linked to any specific disbursement, a generally positive assessment of the identifiedtargets is essentialfor the long-term continuation of budget support. 11. Instalments will be deposited in a foreign exchange account in the name of the Government held at the Bank o f Ghana. Within 48 hours the Bank of Ghana will credit the Cedi equivalent (using the Central Bank (buying) exchange rate on the date of `purchase') to the Central Treasury Account and will be used as budget revenue. In the event interest accrues on the foreign exchangeaccount, this will be addedto the Central Treasury Account. 12. The Bank of Ghana will immediately acknowledge receipt of the foreign exchange funds, inwriting, to the respective DP and the Ministryof Finance and Economic Planning (MoFEP). The Ministry of Finance and Economic Planning will acknowledge receipt o fthe Cedi equivalent on its Central Treasury Account, inwriting, to the respective DP and to the Chair of the MDBS group. 3. DIALOGUE AND REPORTING 13. In principle, the World Bank, African Development Bank, European Commission and participating Bilateral Development Partners commit to coordinate reporting, dialogue and review, and appraisal missions as articulated in the underlying principles of the Framework Memorandum signed on June 30,2003. Annex 2 Page 3 of 4 14. Regular dialogue between the signatories to the Program is essential for continued DP commitment to the MDBS.The Quarterly mini-Consultative Group meetings serve as a platform to inform all DPs about progressmade ineconomic and monetary terms and for policy dialogue. 15. Core events inthe MDBS-dialogue will be the review and appraisal sessions. There will be a minimum of two such sessions per year. Timing of these sessions will be linked to the Ghanaian budgetary and policy cycle. The first session will normally take place during the second quarter and will examine progress towards the triggers and targets. Based on this assessment, a decision on the performance tranche will be taken. This session will be guided by the annual report on the implementation of the GPRS (see the table below); the quarterly reports on expenditures (see table below); a selected-flows audit (see paragraph 17 below); and the annual budget statement. Inorder to ensure a fully informed dialogue, the Government o f Ghana will submit the above-mentioned documentation to the DPs, through the MDBS Chair, at least two weeks prior to the sessions. The second session will normally take place inthe second half of the year andwill determinethe PAF for the subsequent year. 16. The sessions will be undertaken through a sub-group of the Mini-Consultative Group, chaired by the Minister of Finance and Economic Planning, and including representatives of the Government and the MDBS DPs (including World Bank and DP observers). The GoG and DPs will produce regular monitoring reports to inform the policy dialogue. The reports will include the following: Reporting Responsibility QuarterlyDP-reportsto the Government on disbursement(programme, sector and DPs project) andprojectionsof disbursements for the nexttwo quarters Quarterlyreports on macro-economic developments, to assess progress onthe GoG implementationo fthe frameworkagreedbetweenthe Government, the IMF andthe World Bank, with a lagof no more that 8 weeks after the endof each quarter. (PRSCpara. I13) Quarterlyreports on budget expenditures with breakdownby Ministry, Department GoG andAgency with a lago fno more that 8 weeks after the end of each quarter. These reports will also present the breakdownfor Items 1-4 o fthe Ghanaianbudget. (PRSCpara. 113) A joint Aide Memoirefrom the Reviewand Appraisalsessions reportingonthe GoG andDPs ProgressAssessment Framework andtriggedtargets Selected-flows audit (inadvance ofthe first reviewand appraisal session) GoG (GAS) Annual report (not later than May) on progressonthe implementationofthe GPRS GoG Annex 2 Page 4 o f 4 4. AUDIT The following audit arrangements will be established: 17. The Ghana Audit Service (GAS) carries out an independent annual external audit of the Government Accounts. The annual audit report by the GAS shall be presented to MDBS DPs as soon as it becomes available. The audit reports will be discussed as part o f the annual review and appraisal mechanism 18. In addition, an audit o f selected flows in the government accounts will be undertaken annually at an early stage to assess general progress in Public Finance Management in Ghana. This selected-flows audit will be carried out inadvance o f and bepresented to the first o fthe two yearly MDBS review and appraisal sessions. 19. For the audit of selected flows GAS will contract assistance from an internationally recognized audit company. The MDBS DPs would finance this audit. The terms o f reference for this selected external audit and a shortlist of audit companies would be jointly prepared and agreed by the GoG, GAS and the MDBS DPs. The GoG and the MDBS DPs would endorse the selection o f auditors. 5. CO-ORDINATION STRUCTURE 20. The chair of the DPMDBS group rotates on an annual basis. Inaddition, certain DPs either have or will be identifiedas leads to co-ordinate sector discussions with GoG and World Bank counterparts on the areas covered inthe PAF. This arrangement should preferably reflect the structure ofthe Comprehensive Development Framework (CDF) thematic groups. 21. Furtherharmonizationo fboththe MDBS structure and the interlinked sector processes is envisaged with the objective o f ensuringthat MDBS inthe future will be the pivotal point ina network o f sector dialogues, guided by the Government o f Ghana, where cross cutting issues can be raised. The MDBS structure should addvalue to andbe informedby sector processes. The MDBS will not repeat discussions that have been handled at the sector level. The MDBSwill, however, discuss sector issues especially where sector structures are seen to be weak or non existing. 22. The Ghanaian budgetary and policy cycle remains the most important determiningfactor in timingo fthe sessions. Itis envisaged that by 2006 all bilateral andmultilateral DPs are able to follow these cycles as far as programmatic support i s concerned. Inaddition, MDBS bilateral and multilateral partners endeavour to carry out their sessions inlinkage with the World Bank PRSC and IMF mission calendars. 23. This technical annex may be revised annually andwill accompany the PAF for the next budgetary year. Annex 3 Page 1of 2 Ghana at a glance 6/3/04 Sub- POVERTY and SOCIAL Saharan Low- Ghana Africa Income Developmentdiamond' 2002 Population, mid-year(millions) 19.9 688 2,495 Lifeexpectancy GNI percapita (Atlas method, US$) 280 450 430 GNI (Atlas method, US$ billions) 5.5 306 1,072 T Average annual growth, 1996-02 Population(%) 2.6 2.4 1.9 Laborforce (%) 2.4 2.5 2.3 GNI Gross Most recent estimate (latest year available, 1996-02) per PnmaV capita nrollment Poverty (% ofpopulationbelow nationalpovertyline) Urban population(% of totalpOpUlatiOnJ 37 33 30 Lifeexpectancyat birth (years) 55 46 59 I Infant mortality(per 1,000live births) 57 105 81 Child malnutrition(% ofchildren under5) 25 Access to improvedwater source Access to an improvedwater source (% of population) 73 58 76 Illiteracy(% ofpopulation age 75+) 26 37 37 - Gross primaryenrollment (% ofschooi-age population) 80 86 95 Ghana Male 84 92 103 Low-incomegroup Female 76 80 87 KEY ECONOMICRATIOS and LONG-TERMTRENDS 1982 1992 2001 2002 I I Economicratios' GDP (US$ billions) 4.0 6.4 5.3 6.2 GrossdomesticinvestmentiGDP 3.4 12.8 26.6 22.3 Exportsof goods and servicesiGDP 3.3 17.2 45.2 42.4 Trade Grossdomesticsavings/GDP 3.7 1.3 8.6 5.9 GrossnationalsavingsiGDP 3.5 3.6 23.0 18.4 Current account balance/GDP -2.7 -5.9 -5.3 0.5 Interestpayments/GDP 0.7 1.3 1.3 1.2 Total debtiGDP 36.8 69.6 126.8 119.1 Total debt serviceiexports 15.5 28.2 12.9 6.0 Presentvalue of debtiGDP 74.3 50.1 Presentvalue of debtiexports 162.0 116.4 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowth) - GDP 4.7 4.2 4.2 4.5 4.9 Ghana GDP percapita 1.7 1.6 1.6 1.9 2.2 Low-income orow Exportsof goods and services 6.8 8.5 0.0 -1.7 3.8 STRUCTURE of the ECONOMY 1982 I992 2001 2002 (% of GDP) Agriculture 57.3 44.8 35.9 36.0 Industry 6.2 17.4 25.2 25.4 Manufacturing 3.6 9.3 9.0 9.0 Services 36.4 37.8 38.9 38.6 Privateconsumption 89.8 86.6 83.3 82.7 General government consumption 6.5 12.1 7.9 11.4 importsof goods and services 3.0 28.8 64.7 54.5 1982-92 199242 2001 2002 (average annualgrowth) Growth of exports and imports(Oh) L Agriculture 2.1 3.8 3.7 4.1 6o T Industry 7.1 3.8 4.8 6.3 40 Manufacturing 7.3 1.2 6.1 0.0 20 Services 7.3 4.8 4.5 4.4 0 Privateconsumption 4.7 4.5 4.9 9.1 -20 General governmentconsumption 4.5 3.8 2.3 -4.4 Gross domesticinvestment 7.1 2.0 23.9 -17.6 Imports of goodsand services 7.4 8.3 7.7 -4.4 _ _ ~ ~~~ Note: 2002 data are preliminary estimates. *The diamondsshow four key indicatorsin the country (in bold)comparedwith its income-groupaverage. if data are missing,the diamondwill be incomplete. Annex 3 Page 2 of 2 Ghana PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (% change) Consumer prices 22.3 10.0 32.9 14.8 ImplicitGDP deflator 27.9 11.2 34.6 22.8 l - Government finance (% of GDP, includes current grants) Current revenue 6.0 18.5 25.0 21.1 97 98 99 a0 01 Current budget balance -3.2 4.2 5.1 1.2 Overall surplus/deficit -6.1 -7.7 -5.0 GDP deflator +CPI TRADE I 1982 1992 2001 2002 (US$ mi//ionsJ Export and import levels (US$ mill.) Total exports (fob) 986 2,380 2,681 Cocoa 302 381 463 Timber 114 189 182 Manufactures Total imports(cif) 1,589 3,781 4,099 Food 38 Fuel and energy 162 257 275 Capital goods 277 Export price index (1995=100) 85 78 81 Import price index (1995=100J 103 99 96 Terms of trade (1995=100) 83 79 85 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ mi//ions) Currentaccount balanceto GDP (Oh) Exportsof goods and services 711 1,105 2,399 2,613 l 2 T Importsof goods and services 813 1,845 3,437 3,355 0 Resourcebalance -103 -740 -1,038 -742 2 Net income -89 -106 -108 -129 4 Net currenttransfers -1 255 863 902 -6 Current account balance -107 -377 -283 30 8 -10 Financingitems (net) 106 253 483 128 -12 Changesin net reserves 1 124 -200 -158 -(4 Memo: Reservesincludinggold (US$ mi//ionsJ 344 636 Conversionrate (DEC,/ocaWS$) 21.4 437.1 7,170.8 7,932.7 EXTERNAL DEBT and RESOURCEFLOWS 1982 1992 2001 2002 (US$mi//ions) Composition of 2002debt (US9 mill.) Total debt outstandingand disbursed 1,484 4,460 6,734 7,338 IBRD 131 87 6 5 IDA 125 1,631 3,172 3,471 0:59%: 5 Total debt service 111 318 314 211 IBRD 16 21 4 2 IDA 1 14 59 30 Compositionof net resourceflows Official grants 84 216 366 193 Official creditors 58 309 269 128 Private creditors 14 45 154 -23 Foreigndirect investment 16 23 89 50 Portfolioequity 0 0 0 0 World Bank program Commitments 0 375 171 148 A IBRD E. Bilateral Disbursements 24 170 193 99 B IDA -- D Other multilateral . ~ F Private Principalrepayments 8 15 37 12 C-IMF G* Short-term Netflows 16 156 156 88 Interestpayments 9 20 25 20 Nettransfers 7 136 130 67 DevelopmentEconomics 6/3/04 Annex 4 Page 1o f 2 GHANA:COUNTRYECONOMICINDICATORS Actual Estimate Projected Indicator 1999 2000 2001 2002 2003 2004 2005 2006 2007 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 37 36 36 36 36 35 35 34 32 Industry 25 25 25 24 25 22 22 22 22 Services 38 39 39 40 39 43 43 44 46 Total Consumption 94 92 91 94 92 90 91 90 89 Gross domestic fixed investment 22 24 27 20 23 23 24 25 24 Government investment I O 9 13 6 9 9 I O 10 9 Private investment 12 15 14 14 14 14 14 15 15 EXPOI~S (GNFS)~ 32 49 45 42 40 38 37 36 35 Imports (GNFS) 50 68 65 54 52 51 so 49 47 Gross domestic savings 6 8 9 6 8 10 9 I O 11 Gross national savings' 10 16 21 20 25 24 23 23 23 Memorandum items Gross domestic product 7,710 4,978 5,309 6,160 7,620 8,595 9,390 10,167 11,035 (US$million at current prices) GNI per capita (US$,Atlas method) Real annual growth rates(%, calculated from 1975 prices) Grossdomestic product at market prices 4.4 3.7 4.2 4.5 5.2 5.2 5.0 5.0 5.0 Gross Domestic Income 2.3 2.8 4.9 5.9 5.8 5.2 5.1 5.1 5.1 Real annual per capita growth rates (%, calculated from 1975 prices) Gross domestic product at market prices 1.7 1.0 1.6 1.9 2.5 2.5 2.3 2.3 2.3 Total consumption 2.0 -0.8 1.7 3.2 1.7 -0.3 2.6 2.5 2.5 Private consumption 4.2 -4.1 2.3 6.3 1.o 9.9 3.2 2.3 2.5 Balance of Payments (US$ millions) EXPO& (GNFS)~ 2,488 2,440 2,399 2,613 3,074 3,279 3,484 3,674 3,825 Merchandise FOB 2,005 1,936 1,867 2,057 2,471 2,672 2,859 3,035 3,153 Imports (GNFS)~ 3,841 3,362 3,437 3,355 3,979 4,365 4,725 4,974 5,201 Merchandise FOB 3,252 2,759 2,831 2,714 3,259 3,607 4,155 4,336 Resourcebalance -1,353 -922 -1,038 -742 -905 - 1,087 -3,915 1,242 -1,300 -1,375 Net current transfers 620 650 863 902 1,194 1,265 1,318 1,364 1,424 Current account balance -896 -419 -283 30 127 34 -81 -91 -104 Net private foreign direct investment 63 65 88 so 75 69 57 61 66 Long-term loans (net) Ofticial 180 344 298 128 303 97 113 106 1I 9 Private Other capital(net, incl errors& ommissions) Change in reservesd 204 96 -200 -158 -675 -100 -181 -188 -196 Memorandum items Resourcebalance("?o f GDP) -17.6 -18.5 -19.6 -12.0 -11.9 -12.6 -13.2 -12.8 -12.5 Real annual growth rates ( YR75 prices) Merchandise exports (FOB) 3.5 -26.3 -6.2 15.2 29.5 13.2 15.1 9.7 8.0 Primary 4.7 5.1 -6.7 10.7 33.1 Manufactures Merchandise imports (CIF) 12.8 -0.7 3.1 5.2 -7.6 Annex 4 Page 2 of 2 Ghana: Country Economic Indicators (Cont'd) Actual Estimate Projected Indicator 1999 2000 2001 2002 2003 2004 2005 2006 2007 Public finance (as % of GDP at market prices)e Current revenues 18.0 19.8 25.0 21.1 25.5 27.4 26.7 26.0 25.7 Current expenditures 16.4 18.5 19.9 20.0 20.0 19.4 16.1 15.2 14.9 Current account surplus (+) or deficit (-) 1.6 1.3 5.1 1.2 5.5 8.0 10.6 10.8 10.8 Capital expenditure 9.8 9.2 12.8 6.1 8.9 9.1 10.1 10.1 10.1 Foreign financing 3.1 1.7 5.4 0.3 1.5 1.0 1.0 1.2 1.7 Monetary indicators M2/GDP 19.3 19.5 20.7 24.2 22.3 22.3 22.1 22.1 Growth o f M2(%) 19.8 33.4 48.4 49.6 40.9 19.6 13.0 12.4 Private sector credit growth / 32.9 37.3 91.7 84.0 40.4 24.0 19.4 16.5 total credit growth (%) Price indices( YR75 =loo) Merchandise export price index 104.3 90.3 105.1 109.1 124.3 Merchandise import price index 142.3 120.9 149.2 153.8 181.6 Merchandise terms o ftrade index 13.3 74.7 70.4 70.9 68.5 Real exchange rate (US$/LCU)f 82.9 53.5 52.8 56.0 56.0 56.0 56.0 Real interest rates Consumer price index (Yochange) 12.4 25.2 32.9 14.8 26.7 10.8 6.0 5.0 5.0 GDP deflator (% change) 14.0 27.2 34.6 22.8 28.6 13.0 8.1 6.0 6.1 a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequitedtransfers excluding official capital grants. d. Includesuse o f IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase inUS$/LCU denotesappreciation Annex 5 Page 1of 1 GHANA KEYSOCIAL INDICATORS - Latest single year Same regionlincome group Sub- Saharan Low. 1970-75 1980-85 1996-02 Africa income POPULATION Total population, mid-year (millions) 9.8 12.7 19.9 688.0 2,495.0 Growth rate (% annualaverageforperiod) 2.6 3.3 2.6 2.4 1.9 Urban population (% ofpopulation) 30.1 32.3 36.7 32.9 30.5 Total fertility rate (births per woman) 5.0 3.5 POVERTY (77 of population) Nationalheadcount index 39.5 Urbanheadcount index Rural headcountindex INCOME GNI per capita (US$) 310 350 280 450.0 430 Consumer price index (1995=100) 0 8 480 Food price index (1995=100) INCOMElCONSUMPTlONDISTRIBUTION Gini index (1999) 39.6 Lowestquintile (% of incomeor consumpfion) 5.6 Highestquintile (?Aof income or consumpfion) 46.6 SOCIAL INDICATORS Public expenditure Health (% of GDP) 1.4 2.5 1.1 Education (% of GDP) 4.7 3.4 2.8 Socialsecurity and welfare (% of GDP) Net primary school enrollmentrate ("A of age group) Total 58 Male Female 52.0 Access to an improvedwater source (% of population) Total 73 58.1 76 Urban 91 82.7 90 Rural 62 46.4 70 Immunizationrate (% under 12months) Measles 57.8 59 DPT 52.9 61 Child malnutrition (% under 5years) 25 Life expectancy at birth (years) Total 51 55 55 45.8 59 Male 45.1 58 Female 46.6 60 Mortality Infant (per fhousandlive births) 102 83 57 104.8 81 Under 5 (per thousandlive births) 172 142 100 164.2 121 Adult (15-59) Male (per 1,000population) 519.9 311 Female (per 1,000 population) 461.3 259 Maternal (per 100,000 live births) Birthsattended by skilled healthstaff (%) This table was producedfrom the CMU LDB system. 05/05/04 Note: 0 or 0.0 meanszero or less than haifthe unit shown. Net enrollment ratio8exceeding 100 indicate discrepancies betweenthe estimates of school-age populationand reportedenrollment data. Annex 6 Page 1of 1 Key Exposure Indicators -Ghana Actual Estimate Projected Indicator 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total debt outstandingand 6,979 6,625 6,734 7,338 disbursed(TDO) (US$m)a Net disbursements (US$m)a Total debt service (TDS) 420 397 226 192 (US$m)a Debt and debt service indicators ("4 TDOiXGSb 271.1 268.0 216.6 216.9 TDOIGDP 90.5 133.1 126.8 119.3 TDSiXGS 16.7 16.1 9.3 7.3 ConcessionaVTDO 68.5 71.2 68.8 10.5 IBRD exposure indicators(%) IBRD DS/public DS 2.1 2.3 1.6 0.9 Preferredcreditor DSjpublic 38.2 35.4 60.7 52.2 DS (?h)c IBRD DSKGS 0.4 0.4 0.2 0.1 IBRI>TDO (US$m)d 18 9 6 5 Ofwhich presentvalue of guarantees (US$m) Share of IBRDportfolio ("A) 0 0 0 0 IDA TDO (US$m)d 3,099 3,130 3,172 3,471 IFC (US$m) Loans Equity and quasi-equity IC MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteeddebt, private nonguaranteed,use of IMF credits and net short- term capital. b. "XGS" denotesexports of goods and services, including workers' remittances. c. Preferredcreditors are defined as IBRD, IDA, the regionalmultilateral developmentbanks, the IMF, and the Bank for InternationalSettlements. d. Includespresent value of guarantees. e. Includesequity and quasi-equity types o fboth loanand equity instruments. Annex 7 Page 1of 5 Ghana: IMF-WorldBankRelations (As of April 30th,2004) A. Partnershipin Ghana's DevelopmentStrategy 1. Ghana's development objectives are stated in the Ghana Poverty Reduction Strategy (GPRS) approved by the Government in February 2003. The broad objectives of the GPRS are to create an environment favorable to private sector-led growth and sustainable poverty reduction, and to create room within the Government's budget for increased expenditures on education, health, and other priority services. The GPRS outlines five pillars focused on: (i)achieving macroeconomic stability; (ii)stimulating employment and production; (iii) improving access to basic social services; (iv) strengthening the protection of the vulnerable and excluded; and (v) improving public sector performance and governance. After the first year implementation of the GPRS, an Annual Progress Reportis currently being finalized. 2. The Bank and Fund teams are closely coordinating their policy advice to the Ghanaian authorities. There is collaboration interms of common objectives andjoint support to implementation of Ghana's GPRS, includingthroughjoint assessments suchas the recent "HIPC Expenditure Tracking Assessment and Action Plan (AAP)", assessment of progress towards the completion point under the Enhanced HIPC Initiative, and update of the findings of the 2000-2001 Financial Sector Assessment Program (FSAP). 3. The completion of the GhanaPoverty Reduction Strategy (GPRS), created the momentum for a significant group of donors to align their assistance under a common Multi-Donor Budget Support (MDBS) framework agreed with the Government of Ghana (GoG) in June 2003. The GoG and development partners (DPs) consider the MDBS as the basis for support to the implementation of GPRS through the budget. B. The World BankGroup Country AssistanceStrategy and Portfolio 4. The new Country Assistance Strategy (CAS) for Ghana (FY 04-07), preparedjointly with the International Finance Corporation (IFC) was discussed by the Bank's Board on March 16th,2004. The Country Assistance Strategy (CAS) was designed to support the GPRS in a manner that could effectively help the country achieve its development objectives. It complements the interventions of other donors and focuses on three main pillars: (i)sustainable growth and job creation, (ii) service provision for human development, and (iii) governance for empowerment. The Bank Group strategy, described in the CAS, aims at helping the Government to: (a) maintain progress made in achieving macroeconomic stability inrecent years, while pursuing acceleratedgrowth policies through improved investment climate and harnessing sources of growth; (b) develop further the level of human capital through improved human development services delivery, and (c) promote good governance and public sector reforms. The CAS for Ghana was prepared after broad consultations with Government and key stakeholders, including through regional meetings with civil society, the private sector and others. A Annex 7 Page 2 of 5 mid-term review is foreseen to be undertaken together with other development partners, aiming at furtherprogresson harmonizedresponses to Ghana's poverty reduction strategy. 5. The new CAS defines the Bank's contribution to the achievement of the government's desired results, in particular achieving an annual average rate of economic growth of at least 5 percent inthe period through 2007, and reducing poverty levels from 40 percent in 1999 to 32 percent in 2007. Public expenditure management, including at the district level, is to be strengthened to help increase the share of poverty-related spending to about a third of domestically-financed expendituresby 2007 and bringing domestic debt down from 26 percent of GDP in2002 to the GPRS target of 14.8 percent o f GDP in2005, and further increasing the share of private sector borrowing. Moreover, from 2002 to 2007, the following results are also expected to be achieved: removing constraints to private sector development by reducing the time required for land registration from an average o f four years to four months and for businessregistration from 120 days to 30 days and by providing more reliable and cost effective road, energy and financial services; capping at 5 percent, the prevalence of HIV among pregnant women; increasing Gross Primary Enrollment Rates (GER) inthe 40 most deprived districts from about 71 to 89 percent, and the rate for girls from almost 66 to 89 percent; and increasing immunization coverage from 80 to 90 percent, and the proportion of births attended by skilled health personnel from 45 to 55 percent. 6. Overall development partner coordination in Ghana is strong. The Bank group's strategy in Ghana emphasizes deepening its collaboration with other development partners through the Multi- Donor Budgetary Support (MDBS) framework, partnership programs such as the Health SWAP and other sector programmatic support, and further deepening harmonized approaches in areas such as analytical work, fiduciary underpinnings and meeting and mission management. The MDBS provides a framework for policy dialogue and decisions linkedto progress inthe implementation of the GPRS. 7. The Bank's cumulative commitments to Ghana as of April 30th, 2004, amount to US$4.6 billion, and total 141 operations. As of April 30th, 2004, the portfolio contained 20 active projects totaling US$972.1 million, of which US$548.9 million remains undisbursed. The portfolio i s diverse interms of sectoralpriorities and lending instruments. It consists of one single-tranche Poverty Reduction Support Credit and Grant (PRSC) to provide continued support to policies and reforms aimed at achieving the objectives of the Government's poverty reduction strategy, complemented by major programs inhealth and education, agriculture, roads, community water and other infrastructure inbothm a l and urban areas. Annex 1 summarizes the World Bank operations inGhana. The overall performance o fthe portfolio is satisfactory, though implementation inseveralprojects is lagging. 8. Under the new CAS, the FY04-07 lending program will cover quick disbursing programmatic lending in the form of PRSCs, sector-wide operations to support human development, investment in infrastructure and other support to private sector development, and several projects to support community and local government based programs in water, sanitation, infrastructure and services provision. Projects in FY04 include Land Administration ($20 myapproved in July 2003), the Education Sector Project (US$78 m, approved in February 2004), and the Second Urban Environmental Sanitation Project (US$62 m, approved later inApril 2004). The PRSC 2 (US$125 m), and the Community-Based Rural Development (US$50 m), Urban Water (US$103 m) and Small Towns Water Supply and Sanitation (US$25 m) projects are prepared for approval in July 2004. Projects for FY05 will include PRSC 3 and support to two regional projects, the West African Gas Pipeline andthe West Africa Power Pool. Annex 7 Page 3 of 5 9. Non-lendingservices include updates on the core diagnostics, as well as targeted analyses to strengthen the analytical base for the assistance program supported by the FY04-07 CAS. During FY04, this work includes a CFAA update, a CEM on public policy, growth and poverty, a Financial Sector Assessment Update, a Energy Policy Note, and a report on strategic purchasing of priority health services under the new National Health Insurance Scheme. In addition, a Public Expenditure Review (PER) is being carried out in collaboration with the government and development partners. The first Poverty and Social Impact Assessment inthe power sector in Ghana, focusing on electricity tariffs, and the Diagnostic Trade Study will also be completed soon. For FY05, planned non-lending services include an Investment Climate Assessment, a Country Portfolio Performance Review, the annual PER, and analytical work on youth and employment, decentralization, urban policy, forestry and telecommunications. C. IMF-WorldBankCollaborationin SpecificAreas 10. The Bank and Fund teams are closely coordinating their policy advice to the Ghanaian authorities. There is collaboration interms of common objectives andjoint support to Ghana's GPRS and HIPC processes, and also indetermining structural conditionality. 11. Areas in which the Fund leads. In general, the IMF leads the policy dialogue on macroeconomic policies, including overall fiscal and monetary policies. The IMF has supported Ghana's poverty reduction efforts through several arrangements under the Poverty Reduction and Growth Facility (PRGF). The Government had requested a new three-year arrangement for 2003-05, under the PRGF, andthis was put inplace inMay 2003, following discussionsby the Fund's Board of Executive Directors. Reforms under the PRGF center aroundmeasuresto substantially raise revenue to make room for increased poverty-related spending and development needs, strengthen public expenditure management, further reform of energy and utility pricing, and use appropriate monetary policy to deliver on the single-digit inflation target. The first review under the three-year PRGF arrangement was completed inDecember2003. 12. Areas in which the Bank leads. The World Bank leads the policy dialogue on economic reforms in a number of sectors. These are: infrastructure, including roads, community water and sanitation, and urban and local government development; agriculture and rural development; human development; andprivate sector development. e Infrastructure. Infrastructure accounts for about 55 percent of commitments, and comprises several operations. The on-going Road Sector Development SIL has the objective of achieving sustainable improvements in the supply and performance of road transport services in a regionally equitable manner. The Bank Group's engagement in energy has grown to include ESW and PSIA, a key component in the PRSC policy matrix to support power sector reform, investment lending to support operational efficiency, IFC investmentin generation and preparations for support to the West African Gas Pipeline and Power Pool. Dialogue on water and sanitation policy is pivotal to underpin the major new investments in urban, small town and community water. Inview of their importance for the delivery of reliable and cost-effective services, key policy issues inthe roads, power and water sectors are also part o f the PRSC-supported policy agenda. Based on new developments in Annex 7 Page 4 o f 5 government's approach to telecommunication, the Bank Group has re-engaged in dialogue on sector strategy, policy and regulation. a The Agriculture and Rural Development strategy emphasizes increasing agricultural productivity and diversification, deepening financial intermediation in rural areas, and rehabilitating land, forest and wildlife resources in a sustainable manner. In addition to cross-cutting issues tackled inthe context of the PRSCs, two ongoing IDA operations (10 percent oftotal lending) are supporting this agenda, the presently restructured Agriculture Services Sub-sector Investment(AgSSIP) APL and the Rural Financial Management Services SIL. There are also two GEF projects in support of the natural resource management agenda and preservation o f biodiversity. The Community-Based Rural Development Project will build on the closed Village Infrastructure Project to further a more comprehensive approach to rural based economic growth and poverty reduction. a InHuman Development, there are five projects that account for 23 percent of total lending. The Board approved the financing for the Education Sector Project inFebruary 2004. Twelve months earlier, it approved the Health Sector Support Program prepared using a sector-wide approach (SWAP). Inaddition, Bank support addresses issues in adult literacy, the prevention and treatment o f HIV/AIDS, and by developing newapproaches to service provision for poor and marginalized groups. PRSCs complement existing sector focused operations, leveraging their poverty focus by ensuring improved expenditure allocation (level and structure) and by addressing some o f their financing implications for the poor (e.g., removal o f school fees for girls in under-served areas and for disabled pupilsacross the country, and implementation o ffee exemptionpolicy for maternal deliveries). a IDA'Sassistance inPrivate Sector Development is provided by three investment credits (10 percent o f commitments). The Trade and Investment Gateway SIL, presently being retrofitted to respond to new policy approaches by government, seeks to attract a critical mass o f export-oriented investors to Ghana, to accelerate export-led growth and facilitate trade, while the now closing Public Enterprise Privatization Technical Assistance has aimed to improve the business environment through policy and regulatory reform inkey sectors, including energy and telecommunications. The recently- approved Land Administrationproject will help develop sustainable, fair, efficient and decentralized land administration system in order to increase land tenure security. Inaddition, the PRSCs support reforms aimed at tackling the high cost business environment, promoting trade facilitation and encouraging financial intermediation. Further Bank Group support to private sector development and financial sector reform i s under active dialogue with government. 13. Areas of Shared Responsibility. The IMF and World Bank staff maintains a close collaborative relationship insupporting the Government's structural reforms, inthe areas o f budgeting, expenditure and financial management, public sector reform and privatization, and the financial sector, as outlined below. Bank support to Governance and Public Sector Management i s mainly provided in the context o f the PRSC and through the programs supportingdecentralization. 14. Budgeting, public expenditure management (PEM) and control. A February 2004 joint Bank-Fund assessment o f the Government's capacity to track poverty reducing expenditures confirmed encouraging progress compared to the 2001 evaluation and highlighted the need to substantially improve budgetary management. That assessment informed the identification o f priority PEM actions being supported by the PRSC. IMF technical assistance missions and a resident advisor Annex 7 Page 5 o f 5 provide technical advice to Government on budget formulation, monitoring o f budget execution, and expenditurecontrol. 15. Public sector reform. The Fundclosely follows public service reforms through their impact on macroeconomic aggregates (wage bill, overall government expenditure) and discusses the macroeconomic trade-offs the government faces in supporting a large public sector. Building on lessons learned, the Government i s inthe process o f defining its public sector reform strategy which i s expected to focus on the basic needs o f running government, and shift away from the technology driven, all encompassing reform programs of the past. The Bank's support to implementation o f the Government strategy will take place in the context o f PRSC and by investment projects at the sector level, includingthose aimed at supporting the Government's decentralization agenda. 16. Public enterprise reform and divestiture. The Fund closely monitors the financial position of large public enterprises, mostly in the energy and financial sectors, due to their importance for public finances and macroeconomic stability. Bank assistance is provided through several projects, including the technical assistance project to support public enterprise reform and divestiture o f public enterprises selected by the government for privatization. Bank dialogue in the energy sector, pursued through the Energy ESW and the PRSC, emphasizes the unbundling o f VRA and private-public participation options for ECG. 17. FinancialSector. InJuly 2003 ajoint IMF-Bank mission carried out a mission to update the 2000-2001 FSAP. The FSAP Update confirmed some progress in the financial sector associated to improved macro-economic stability, emphasized the diversity o f financial institutions comparedto the overall small size o f Ghana's financial sector, and acknowledged the existence o f strong international connections and local skills able to compete on equal terms with international institutions. Despite this potential, the Update concluded that the financial sector i s held back by an overall weak financial intermediation compared to other Sub-Saharan African countries due to various key problem areas such as inefficiencies of the dominant Ghana Commercial Bank (GCB) contributing to a lack o f competition and innovation, the crowding out o f the private sector, lack o f long-term capital available due to poor allocation o f pension resources, continued lack o f level playing field for providers o f financial services, and the need o f further implementation o f the legislative agenda. Several o f the FSAP Update recommendations will be dealt with by the Government's comprehensive Financial Sector Strategic Plan (FINSSP), recently approved. The PRSC supports implementation of key actions envisaged by the FINSSP, which could also possibly be supported by a Bank investment credit. InDecember 2003, the IMF publishedthe Financial System and Stability Assessment. Annex 8 Page 1of 1 Status of World BankGroup Operations Active Portfolio, as o f 29 April 2004 (inmillions of U.S.dollars) Credit Fiscal Number Year Sector IDA Undisbursed C26820-GH 1995 Ghana Thermal Power 175.6 22.1 C28360-GH 1996 UrbanEnvironmental Sanitation 71.0 0.1 C28770-GH 1996 Public Enterpriseand Privatization 26.4 3.7 CN0200-GH 1997 Village Infrastructure 30.0 3.5 C20412-GH 1998 Forest Biodiversity (GEF) (a) 8.7 6.1 C31140-GH 1999 Trade Gateway and Investment 50.5 23.7 C31190-GH 1999 Public Sector Management 14.3 0.0 C32370-GH 1999 Community Development 5.O 2.3 C32460-GH 1999 NationalFunctional Literacy 32.0 21.7 C32820-GH 2000 Community Water I1 25.0 8.9 C33300-GH 2000 Urban 5 10.8 1.o C33740-GH 2000 RuralFinancial Services 5.1 4.3 C34050-GH 2001 Agricultural Services 67.0 51.0 C34580-GH 2001 AIDS Response 25.0 14.0 C35540-GH 2002 Road Sector Development 220.0 197.8 (250723-GH 2002 GEFNorthernSavanna (a) 7.6 6.7 C35540-GH 2003 Health Sector Program Support I1(b) 89.6 79.7 C37430-GH 2003 Promoting Partnerships w/Trad. Autho. 10.0 4.9 C38170-GH 2004 LandAdministration (c) 20.5 21.1 C38650-GH 2004 Education Sector Project 78.0 76.3 Total (number of credits: 20) 972.1 548.9 Source: World Bank. a) Grant. b) Grant elementamountsto US$33 million. c) Undisbursedamountsare greater than IDA credit amountsdue to exchangerate fluctuations. Annex 9 Page 1of 2 GHANA SECOND POVERTY REDUCTION SUPPORT CREDIT Timetable of Key ProcessingEvents Time takento preparethe Credit 5 months Project Preparedby World BarWGovemment Concept Review Meeting February 9,2004 ROC Meeting April 6,2004 Appraisal April 12-28,2004 Negotiations May 14,2004 BoardPresentation July 1,'2004 Effectiveness July 2004 Project Completion June 2005 Amex IQ Page P o f 2 FUNDS1XEEATPONSNOTE EXTERNAL RELATIONS DEPAI?TMENT Press Release No. 03/222 lniemalional Monetary Fuiid December 17,2003 700 19th Street, NW Washington, D.C. 2043 1USA Ih4FCompletes FirstReview UIPCICI' (Clrhilnii's PRG17 At-raiigement mcl Approves US$3S.S MillionDisbursenieiit The Executive l3oardofllie InternationalMonetary h i i d (alrF) today completedthe first review o f Ghana's economic perfonnance under a Poverty Reduckion and Growth Facility (PRGF) arrangement. 'l'lie coinpletion oftlie review inaltes iininediately available to Ghana itlim o u n t equivaleiit to SDR 26.35 niillion (about US$38.5 million) under the arrangement. Ghana's llu-ee-year 1'RGF arrangement was approvedon M a y 9,2003 (See Press Kelcnse Nu. 03/66) for SDR 184.5 inillion (about US$270 lnillion). So far, Ghanahas drawn SDR 26.35 million (about US$38.5 million). The PRGF is the IMF's concessioiial facility for low-income counlries. PRGF-suppoiled program are based on country-owned poverty redtictioii strategies adopted ina participatory process involviugcivil society and developinent partners, and articulated ina Poverty Reduction Strategy Paper (PRSP). This is intended to eiisure that each PRGF-supported program i s consistent with a coiiiprehensive framework for macroeconomic, structural, and social policies lo foster growth andreduce poverty. PRGF loans carry an annual interest rate o f 0.5 percent, and are repayable over 10 years with a 5 %-year grace period on principal payments. Followingthe Executive Board's discussion 011Ghana's request, Shigeinitsu Sugisalti, Depuly Managing Director aiidActing Chair, stated: "The authorities are to be coiimended for their successulconduct o fmacroeconomic policy in 2003. The economy is 011a steady growth path, fiscal discipline has beenrestored, and official resei-ves have exceeded targets. The fiscal framework for 2004 andthe inedium term will support the objective o freducingthe domestic debt-GDP ratio by at least halfover the three-year program period. Steadfast inipleinentation o f the aiithorjties' monetary targets should bring about single-digit inflation inearly 2004. As a result, prospects for achieving the medium-term Annex 10 Page 2 o f 2 macroeconomic and economic reform objectives set out intheir poverty reduction strategy are good. "The authorities are committed to steadfast implementationo fwell-prepared structural reforms, which will be further developed early next year. An immediateprioritywill be to continue to adjust prices to achieve full cost recovery for petroleum, electricity, andwater. Although the planned divestiture of the Ghana CommercialBank (GCB) was suspended, the authorities are taking welcome steps to strengthen its financial management and operational efficiency. "Successful implementation o f Ghana's poverty reduction strategy over the coming year will depend on avoiding further losses inthe energy andutility companies, and liberalizingpetroleum prices as intended inmid-2004. It will also be vital that the authorities remainresolute intheir commitment to counter pressures to raise government spending in2004, an election year. Achievement o f these objectives will help to consolidate the progress already made under the 2003-2006 PRGF-supportedprogram. This, together with action on the remaining policy triggers under the enhanced Initiative for Heavily IndebtedPoor Countries and continued strong program implementation, will help pave the way for Ghana to reachthe HIPC completion point around mid-2004," Mr.Sugisaki stated. Contact: Mr.HughBredenkamp Division Chief West Africa, Division 3 (202) 623-8881