Public Disclosure Authorized Ghana Managing the Transitiondocuments.worldbank.org/curated/en/... · Since Oct. 10, 1983, US$1 = 30.00 IBRD/IJDA LNDG (June 30, 1984) Since March 25,

Report No. 5289-GH

GhanaManaging the Transition(In Two Volumes) Volume 1: The Main Report

November 7, 1984

Western Africa RegionPrograms 1, Division B

FOR OFFICIAL USE ONLY

-- ' - - - : -: ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-.-4-'

Document of the World Bank

This report ~has a restnicted distnibution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwise

:-be disdlosed without World Bank authorization.

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CURRENCY EQUIVALENTS

End December Currency Unit

1973-1977 US$1.00 = 01.1501.00 = US$0.8696

1978-1982 US$1.00 = 02.7501.00 = US$0.3636

1983 US$1.00 = ¢30.0001.00 = US$0.0333

1984 (End October) US$1.00 = 038.5001.00 = US$0.0260

Annual Average Exchange Rates

1973 US$1.00 = 01.1601.00 = US$0.8622

1974-1977 US$1.00 = 01.1501.00 = US$0.8696

1978 US$1.00 = 01.5101.00 = US$0.6601

1979-1982 US$1.00 = 02.7501.00 = US$0.3636

1983 US$1.00 = 020.0001.00 = US$0.0500

1984 (Estimate) US$1.00 = 035.0001.00 = US$0.0286

FISCAL YEAR

Prior to 1983 - July 1 to June 30Since 1983 - January 1 to December 31

FOR OMCUL USE ONLY

ABBREVIATIONS

ADB - African Development BankADF - African Development FundAGC - Ashanti Goldfields CorporationCFA - Convertible Franc AreaDFR - Department of Feeder RoadsEEC - European Economic CommunityFAO - Food and Agriculture Organization (United Nations)FPIB - Forest Products Inspection BureauGBC - Ghana Bauxite CompanyGCD - Ghana Consolidated DiamondsGCMB - Ghana Cocoa Marketing BoardGHA - Ghana Highways AuthorityGNTC - Ghana National Trading CorporationGRC - Ghana Railways CorporationGWSC - Ghana Water and Sewerage CorporationILFEAC - Import Licensing and Foreign Exchange

Allocation CommitteeIMPC - Import Programming and Monotoring CommitteeMFEp - Ministry of Finance and Economic PlanningMOA - Ministry of AgricultureMUC - Manpower Utilization CommitteeiMC - National Mobilization CommitteeODA - Official Development AssistancePARDIC - Public Administration Restructuring and

Decentralization Implementation CommitteePIB - Prices and Incomes BoardPNDC - Provisional National Defence CouncilSGMC - State Gold Mining CorporationSUL - Special Unnumbered LicensesTEDB - Timber Export Development BoardUKWAL - UK West Africa ConferenceVALCO - Volta Aluminium CompanyVRA - Volta Region AuthorityWDC - Workers' Defence CommitteeWFP - World Food Programme

IThis doument has a restrked distbution and may be used by recipients only in fth perfornce oftheir ofricial dutiests contents nmy not otherwise be discbod without World Bank autxizationL

GRANA: MANAGING THE TRANSITION

VOLUME I

THE MAIN REPORT

Table of Contents

Page No.

ECONOMIC INDICATORS

SOCIAL INDICATORS

FOREiJORD

SUMMARY AND CONCLUSIONS .............................................. i

CHAPTER I - RECENT ECONOMIC DEVELOPMENTS

Introduction ............................................... 1The Inheritance ................ 1The Reform Program ......................................... 4The Response ............................................... 8Economic Growth .............. 10Savings and Investment ....... ............................. 16The Budget ................................................. 16Money and Credit ........................................... 18Prices and Wages .......................................... 19Balance of Payments ........................................ 20Conclusion ..... .............. . *... ........ . 22

CHAPTER II - MACRO CONSTRAINTS

The Foreign Exchange Constraint ............................ 23Incentives for Cocoa ....................................... 27Liquidity Problems ........ ........................ .......... 29Pricing and Distribution Policies .......................... 30Incomes Policy ............................................. 33Administrative and Manpower Constraints .................... 34Private Sector Environment ................................. 36Budgetary Constraints and Issues ........................... 37Conclusion ................................................. 40

CHAPTER III - SECTORAL ISSUES AND CONSTRAINTS

Agriculture ................................................ 41Forestry ................................................... 43Mining ................................................... *........ 45Industry ................................................... 46Transport ....... 49Energy ........................................................... 53Human Resources ............................................ 55Conclusion ......................... ........................ 58

CHAPTER IV - AID REQUIREMENTS

The 1984 Out-turn ......................... ................. 59Aid Disbursement Delays ................... ................. 61The Outlook for 1985 and 1986 .............................. 61Past Aid Performance . ...................................... 62Recommendations for 1985 and 1986 ..... ..................... 64The Quality of Aid .................................................... 68Technical Assistance .................... ................... 68Aid Coordination ........................................... 69Medium Term Prospects ..................... ................... 70Implications for Policy .................................... 73Implications for Donors ....... ............................ 74

ANNEXURES

Annex A: Selected Policy Changes Since 1983 .... .................... 76Annex B: Foreign Exchange Allocation System ......................... 81Annex C: Development Budget, 1984 ................................... 84Annex D: Aide Memoire on Industrial Restructuring in Ghana:

World Bank: Industrial Sector Mission ................... 85Annex E: National Accounts and Statistics in Ghana .. ................ 101Annex F: Aid Commitments and Disbursements in 1984 .................. 116

MAP

LIST OF TEXT TABLES

Table Page No.

A Ghana's Relative Economic Performance .... ........... 3B Changes in Gross Domestic Product (GDP) and Its

Compositon, 1970-84 ....... ........................ 11C Selected Production Indicators ..... ................. 13D Summary of Government Finance, 1982-84 .... .......... 17E Consumer and Wholesale Prices ....................... 19F Incentives for Cocoa Farmers ..... ................... 28G Balance of Payments, 1982-86 ..... ................... 60H Aid Commitments to Ghana, 1983-1984 . ............... 64I Overall Aid Pipeline, 1982-1987 ..... ................ 65J Medium Term Balance of Payments Scenario ............ 72

t}L4NA

BONlMC INDICAIOR

GNP PER CAPIIA IN 1983: US$320 1/

GMS NATIONAL PR=U=Ct IN 1983 1/ AIUL RATE OF GQOW1H(% Camstant Prices)

Cedis Mi1. Z 1978-83

GDP at Market Prices 189,730 100.0 -2.41Gross Domestic Investmeit 7,758 4.1 -14.39Gross Naticmal Saving 638 0.3 -20.33Current Accont Biarle 7,120 3.8 -Export of Cinods, MBS 11,260 5.9 -6.48Inport of Goods, NPS 17,020 9.0 -9.51

OMU AND LABOR ERE

0utput in 1983 Lgbor Force, 1983Cedis Mil. z 1411. %

Agriculture 101,886 53.1 2.584 57.2Industry 13,372 7.0 0.691 15.3Services 76,671 39.9 1.242 27.5

Total 191,934 100.0 4.517 100.0

Central GovernmentCedis Hl. Z of GOP in 1982 Cedis Mil. 2 of GDP in 1983

Total Revenue and Grants 5,253.2 5.8 10,241.0 5.4Total Experditure and Net Iending 9,220.1 10.2 15,177.5 8.0Overall Deficit (-) -3,966.9 -4.4 4,936.5 -2.6

MEY, CEDIT AMD RU1

1977 1978 1979 1980 1981 1982 1983

M1iney and Quasi-nDney 3,044 5,131 5,944 7,951 12,031 14,839 22,084Bank Credit to Public Sector 3,203 5,636 6,536 8,485 14,046 17,144 22,393Bank Credit to Private Sector 560 739 799 943 1,345 1,562 2,842

(Percentages of Index NAmbers)

Money and Quasi-mmney as % of GDP 27.3 24.4 21.1 19.4 15.7 17.6 11.5General Price Index (1977=100) 100.0 173.1 267.3 401.2 868.6 1062.4 23.7

1/ Staff Estimates.Ortober 1984

GHANA

BALANCE OF PAZM'S ME;MISE EXPORIS (VERAV 1979-1983)

1982 1983 1/(US$N ifla) US$ Mflin Z

Trade Balance -24 -137 Cocoa Beans & Products._ 528.6 69.5Exports f.o.b. 607 440 GoMl 135.3 17.8Iports c.i.f. 631 577 Residual il 31.5 4.1

Timber 28.7 3.8Invisibles (Net) -168 -219 Electricity 9.9 1.3Services -167 -233 8.1 1.1Trasfers -1 14 Did 7.3 1.0

AlU. Otber Goods 10.7 1.4Current Balance -192 -356

Capital Accoutnts Total 760.1 100.0Grants 84 79Official Capital (Net) 113 37 EZICEIAL DEIr, DEBER 1983Private Capital (Net) -5 12Arrears Payments 35 -34 IE*$ li.

Overall Balance 2/ 27 -243 Total nistandLfg andDisbursed M&T. 1,095.1

Gross International Total Outsta slng andReserves (End of Period) 223 128 Disbursed inc. short-temn 1,370.9

DMrSEvICE RAIiD FUR 83 33 %

February 1973 - Jtme 18, 1978 Total Outstanding andUS$1 = 01.15 Disbursed ltZ 23.5

Since Aug. 26, 1978, US$1 = 0 2.75

Since April 21, 1983, US$1 = 024.692

Since Oct. 10, 1983, US$1 = 30.00 IBRD/IJDA LNDG (June 30, 1984)

Since March 25, 1984, US$1 = ¢35.00

Since August 25, 1984, US$1 = 038.50 IRDM

Outstanding & Diuxwrsed 125.31 166.94

Undisbursed 12.97 198.82

Outstandin, ircl.

Undisbursed 138.28 365.76

1/ Provisional estimtes subject to change.

2/ lncludes errors and omissions.

3/ As % of exports of goods and nor-factor services.

October 1984

T A B L E 3A PACE 1

GHANA - SOCIAL INDICATORS DATA SHEETGHNA REFERENCE GROUPS (WEIGHTED AVERAGES) /a

HOST (MOST RECENT ESTIMATE) /bRECENT LOW INCOME AFRICA MIDDLE INCOME

1060Žb 197q0 ESTIMATE/1

b SOUTH Of SAHARA AFRICA S. OF SAHARA

AR[A (CTHSUS SQ. US)TOrAL 238.5 238.5 238.5ACRICULTURAL 62.3 b1.4 62.2

l PER CAPITA (US$) 170.0 230.0 360.0 249.1 1112.9

ENERGY COUSIRPMON PER CAPITA(KILOCRAMS OF OIL EQUIVALENT) 72.0 180.0 161.0 62.8 529.0

POPULATOIN AND V-.AL STATISTLCSPOPULATIONMV t-YEAR (THOUSANDS) 6804.0 8614.0 12169.0URBAS POPULATION (S OF TOTAL) 23.3 29.1 37.3 19.2 29.7

POPULATIUN PR'.JECTIOhSPOPULATION Iht YAR 2000 CHILL) 24.2STATIONARY POPULATION (HILL) 83.5POpULATION MHOENTlU 2.0

POPULATIUN DENSLTYPEk SQ. RM. 28.5 3b.1 49.6 32.5 55.8PER SQ. Ot. ACRI. LAND 109.3 140.2 190.2 119.2 111.5

POPULATION AGE STRUCTURE (:)0-lS YIS 44.5 45.8 47.0 45.6 45.4

15-64 YRS 52.9 51.6 50.8 51.5 51.765 AND AMOVE Z.6 2.7 2.7 2.9 2.9

POPULATION GROWTH RATE (2)TOTAL 4.4 2.4 2.9 ^ 2.8 2.8URBAN 9.2 4.6 5.0 6.2 5.2

CRUDE BIRTH RATE (PER THOUS) 50.2 50.2 49.3 48.6 47.0CRUDE DEATH RATE (PER TOWUS) 20.3 16.8 13.0 17.7 IS.ZGROSS REPRO7UCTION RArE 3.4 3.4 3.3 3.2 3.2

FAMILY PLANNINGACCEPTORS, ANNUAL (THOUS) .. 8.3 33.5 /cUSERS (2 OF MARRIED WOMEN) .. .. 10.0 7-*

FOD AND VUTRITION1NDEX Ot FOOD WOO. PER CAPITA(1969-11-1O0) 93.0 101.0 7Z.0 85.8 91.6

PER CAP ITA SUPPLY OFCALOklES (Z OF REQUIRENENTS) 92.0 97.0 88.0 86.4 98.2PROTEINS (CRAMS PER DAY) 43.0 51.0 44.0 49.9 56.7

OF WHICh ANIMAL AND PULSE 13.0 17.0 15.0 /c 18.3 17.0

CHILD (AGES 1-4) DEATH RATE 27.0 21.0 15.0 ** 23.8 18.7

SITLIILIFE EXPECT. AT lIRTIt (YEARS) 44.8 49.9 54.8 * 48.4 51.7INFANT MORT. RATE (PER TNIOUS) 132.0 107.0 86.0 I* I17-5 102.7

ACCESS TO SAFE WATER (2POP)TOTAL *- 35.0 35.0 le 21.8 35.6URRAN .. 86.0 86.0 Ic 61.5 54.1RURAL .. 14.0 14.0 Ie 14.2 27.3

ACCESS TO EXCRETA DISPOSAL(2 OF POPULATION)TOTAL .. 55.0 56.0 le 32.0UR8AN .. 92.0 95.0 7. 69.2RURAL .. 40.0 40.0 7T 24.8

POPULATION PER PIIYSICIAN 21600.0 12910.0 /h 763U.0 /d n* 27477.8 11948.3POP. PCtR NURSING PERSUX 5430.0 If 1070.0 7ir 780.0 T7 .* 3396.2 2248.9POP. PEN dOSPITAL NED

TOTAL 1290.u, 760.0 66U.l0 I E * 1089.0 986.9URBAN 300.0 If 770.0 830.0 77 **** 395.2 368.7RURAL 47590.0 If 890.0 730.0 IT ott. 3094.0 6012.1

ADMISSIONS PER HOSPIrAL BED .. ..

HUSIIIAVERAGE SIZE OF HOUSEHOLD

TOTAL .. 4.7URBAN .. ..

RURAL .. ..

AVERAGE NO. UF PERSONS/ROOMTOTAL .. ..URBAN .. ..

RURAL .. ..

ACCESS TO ELECT. (1 OF DWELLINGS)TOTAL .. ..URBAN .. ..RURAL .. ..

TA BLE 3A PGE 2

GHANA - SOCIAL INDICATORS DATA SHEETGHANA REFErENCE GROUPS (WEIGITED AVZRAGCS) /a

HDST (HOST RECENT ESTIAUT) lbi96ok i RCCNT LOW INCOME AFKICA NIDDLE TN-co

1960!! zESTinATEz SOUTHN or sAHAR AFRICA S. OF SANARA

ADJUSTED ENROLLNIET RATIOSPRIMARY: TOTAL 38.0 64.0 69.0 td 69.2 91.0

MALE 52.0 73.0 77.0 78.8 90.5FEMALE 25.0 54.0 60.07 57.6 73.6

SECONMRY: TOTAL 5.0 14.0 36.0 /d 13.1 17.4tmUL 9.0 21.0 44.0 71 17.6 23.7FiMALE 3.0 8.0 27.0 7 8.3 16.8

VOCATIONAL (X OIP SEWMNLU) 12.6 23.3 3.5 I& 7.2 5.3

PUPIL-TEACHER RATIOPRIIARY 31.0 30.0 27.0 I 46.1 38.6seOwNDARY 16.0 /I 17.0 19.0 25.9 24.3

ADULT LITERACY RATE (Z) 27.0 LI 30.2 .. 44.3 35.6

PASSENGER CARS/THOUSAND POP 3.0 4.6 6.h Ic 3.8 20.7RADIO RECEIVERS/THOUSAND POP 42.7 81.6 162.6 41.9 100.8TV RECEIVERS/TROUSAND POP 0.1 /k 1.9 5.0 2.0 18.5NEWSPAPER (-DAILY GCNERAL

INTERESTV) CIRCULATIONPER THOUSAND POPULATION 30.0 35.1 30.5 5.4 17.2

CINEMA ANNUAL ATTENDAHCE/CAPITA 1.6 2.2 0.4 1.4 0.3

LUDn RnTOTAL LABOR FORCE (THOUS) 2919.0 3421.0 4530.0

FEALE (PERCENT) 42.6 42.1 41.1 36.3 33.8ACRICULTURE (PERCENT) 64.0 58.0 53.0 77.4 57.1INDUSTRY (PERCENT) 14.0 17.0 20.0 9.8 17.6

PARTICIPATION RATE (PERCCNT)TOTAL 42.9 39.7 37.2 41.0 36.3HALZ 50.0 46.6 44.0 52.1 47.6FEMALE 36.0 33.0 30.5 30.2 25.1

ECONOHIC DEPENDENCY RATIO 1.1 1.2 1.3 1.2 1.4

tN.. DISTETmioUPECENT OF PRLIVATE INCOMERECEIVED Y

HIGHEST 52 OF HOUSENOLDS ..

HIGHEST 202 OF HOUSEHOLDSLOWEST 202 OF HOUSENHLDS ..LOWZST 402 OP HIOUEHOLDS ..

5owum MacGI cunaESTIMATED ABSOLUTE rOveRTY INCOmELML (US3 PER CAPITA)

URBAN - *- 307.0 1 168.3 525.3RURAL *- *- 150.O 7 90.8 249.0

ESTLIMATED RELATIVE POVERTY IlNELZVLA. (Ubb fai nteInl)

URBAN *- *- 156.0 Ia 107.7 417.4RURAL .. .. 130.0 7i 65.0 186.0

ESTIMATED POP. BELOW ABSOLUTEPOVERTY ICOIME LEVEL (S)

U1BAN .. .. .. 34.7RURAL .. .. .. . 65.4

NOT AVAILABLENOT APPLtCABLE

N O T C S

/a The group averaps for each indicator are populatLon-weighted aritlhetic meaHi. Coverage of countriem among theindtcators depends on availability of data and is not uniform.

Lb Unlesa otberwvie noted. 'Dot for 1960 refer to any year between 1959 and 1961; 'Data for 1970' betwen 1969 and1971; end data for "NeaL Recent Estimatee between 1980 and 1982.

Ic 1977; /d 1979; le 1975; /f 1962; 4 1978; /h Regiecered, not all practiclng in the country; /i Publiceducation only; T Age 6 and or 7k 1964.

a Preliainary 1984 population censum data mufgeeta a 2i. percent growth race.

** Recent reports indicate that Infant Mortality and Child Nortality ratee lncreamed dramatically mince 19Q2. an aresult of drought. food ahortages. disruption in health services. and come hack of epidemics. Although no figureIs available. it is likely that in 1983-84 IM wee not lover then 120 per thousand and thet child death rate nayhave doubled.

*A* There is no updated lint of etaff available to the Health Service. It is Indicated that the number of Chanalanphysicians peaked at About 1200 eaveral years ago and has aincs declined to about 600. Therefore. theseindicators. based on official estimAtee. are largely theoretical.

A x* Enlang hospital bads are metly non-functional and hoepitals which no longer provide adequate servicee aredeserted. This indicator. based on official entimatee. in theoretical. On the other fond. mever.l of the 402private clinice registered In Chana offer Inpatient beds which are not Accounted for ln official figure.

JUNE 1984

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FOREWORD

(i) This report, GHANA - Managing the Transition, evaluates theinitial response of the economy to the economic recoveryprogram initiated in April 1983, and analyzes the policyimplications of the macro and sectoral constraints that liebehind the supply inelasticities facing Ghana's economy. Thereport assesses the role donors must play and the financialsupport that Ghana will need in 1985, 1986 and beyond, if therecovery program is to succeed.

(ii) Volume II of this report, Statistical Appendix, presents atime series of key economic data for Ghana since 1970. As theappendix mainly draws on officially published data sources,some of the text tables in Volume I may differ from theStatistical Appendix tables. The text tables are drawn fromdiverse sources, and also include Bank or Fund staff estimateswherever the official data are either inconsistent orincomplete.

(iii) The report is based on the findings of a mission comprisingK. Sarwar Lateef (Chief of Mission), Hari Aggarwal (LoanOfficer), David Cieslikowski (Economist), and Harry S. Shutt(Consultant), which visited Ghana from June 6-22, 1984. Themission was assisted in its work by Mr. Werner Schelzig, whoalso contributed to sections of the report.

SUMMARY AND CONCLUSIONS

1. The Bank's previous economic report on Ghana 1/ provided acomprehensive overview of the performance of the Ghanaian economybetween 1970 and 1982, and an evaluation of the Economic RecoveryProgram launched in 1983. This updating report analyzes the economy'sinitial response to the reform program, focussing specifically on themany areas of progress, the major constraints that appear to be impedingthe success of the program, and the policy adjustments needed to addressthese constraints. The report also assesses the role the donorcommunity should play at this critical juncture for Ghana's economy.

2. Throughout the 1970's Ghana's economy was caught in the gripof a persistent downward spiral due to a combination of weak producerincentives, poor economic management, and declining external aid levelswhich resulted in a steady decline in per capita incomes, high infla-tion, and a diminishing capacity to pay for imports. The policyenvironment was conditioned by political instability, large budgetdeficits, and an incentive framework which, together with an overvaluedexchange rate, discouraged private sector savings and investment,provided inadequate incentives for production and exports, andencouraged trade and snuggling. In the early 1980's, the system wasexposed to three further shocks: a prolonged drought, a strongdeterioration in external terms of trade, and the unexpected return ofabout one -llion Ghanaians from Nigeria. The cumulative effect of thisdownward spiral in the 1970-82 period was an overall economicperformance that compared unfavorably with both the rest of Sub-SaharanAfrica and other smaller low-income countries, and a severe erosion ofthe country's physical, administrative and social infrastructure.

3. Ghana's new government, recognizing the seriousness of theeconomic situation, launched an Economic Recovery Program in April 1983which has been supported by successive IMF Standby Arrangements inAutgust 1983 and August 1984. The program embraces a wide-ranging set ofreforms including movement towards a realistic exchange rate, the estab-lishment of realistic relative prices consistent with the vastlydepreciated new exchange rate, a gradual liberalization of pricecontrols, a restoration of fiscal and monetary discipline, a reductionin the country's external payment arrears, and rehabilitation programsfor key sectors of the economy. These reforms are designed to bringabout balance of payments viability in the medium term while allowingthe economy to return to positive growth within the framework of macro-economic stability. More specifically, the main accomplishments of thereforms to date are:

- Exchange rate policy: The exchange rate was depreciated onApril 22, 1983 from 02.75-US$1.00 to two rates applying tospecified receipts and payments, and resulting in an implicit

1/ Ghana: Policies and Program for Adjustment, Report No. 4702-GH,October 3, 1983.

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weighted average rate of ¢25US$1.00. The multiple rates wereunified at a rate of 030=US$1.00 on October 10, 1983. Sincethen Ghana has pursued a flexible exchange rate policy with aview to keeping the exchange rate constant in real terms. Thecurrent rate of ¢38.50=US$1.00 represents a 1,400 percentdepreciation over an 18-month period.

- Pricing policies: Following the adjustment in the exchangerate, the reforms attempted the establishment of realisticrelative prices. Cocoa producer prices were raised twice from¢12,000 for the 1982/83 season to 030,000 for the 1984/85season. Administered prices of imported goods were adjustedto permit a full pass through of the higher cedi costfollowing successive exchange rate movements. Even in thecase of the two main exceptions to this policy, viz.fertilizer and petroleum, the temporary subsidies that emergedwere phased out on or ahead of schedule, resulting in dramaticincreases in fertilizer and petroleum prices. Tariff rates onmost utilities were adjusted upwards by 100 percent or more.Price controls have been operated with increasing flexibilityand pragmatism, and more recently, a significant degree ofliberalization has been introduced for all but 23 "essential"commodities.

- Incomes policy: To cushion workers from a severe erosion intheir real incomes following the major shifts in relativeprices throughout the economy, wages have been adjusted twice,resulting in a tripling in nominal terms of the minimum wage.Because of high inflation, there has been little or noincrease in wages in real terms.

- Interest rates: A flexible interest rate policy has beenadopted. Nominal rates have been adjusted twice. Real rateshave remained negative, but the government is committed toachie-7ing positive rates in the short to medium term.

- Fiscal policy: The government's recourse to inflationary bankborrowings has been severely curtailed despite the adverseimpact on revenues of the drought and the lower thananticipated import levels. This was achieved through largeand politically difficult expenditure cuts.

- Payments arrears: Despite severe foreign exchange con-straints, substantial progress has bea,n made in improving thecountry's creditworthiness through a marked reduction inexternal payments arrears.

- Rehabilitation programs have been launched for key sectors toensure an adequate supply side response. These are beingsupported by quick disbursing credits from several donors,including the International Development Association.

4. The initial response of the economy to the reforms was consid-erably diluted by a severe drought, which hurt agriculture, cocoaexports, and hydro-electric power production. The drought exacerbated

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an already acute foreign financing crisis, which was only in small partalleviated by the substantial recourse to IMF facilities. Thus, thegovernment's efforts to substantially increase the level of imports in1983 were undermined. Without the stimulus of a strong recovery inimports, rehabilitation programs throughout the economy sufferedseverely and infrastructure constraints became more pronounced. It isall the more creditable that despite these setbacks, the government hasstuck to and expanded the reform program. In the face of severeshortages of food and other essentials, the government continued to miakepotentially unpopular adjustments in the exchange rate and in prices ofsensitive commodities, took tough decisions on public expenditure inorder to hold the line on the budget, and made such other adjustments aswere required to meet the Fund's performance criteria. The wheel offortune has begun to turn in Ghana's favor in 1984. A return to morenormal weather conditions ends several successive years of drought.Food, hydro-electric power, and export production have bounced back, andtogether with the substantial new aid commitments in support of thepolicy reform program provide the basis for recovery in the economy in1984 and 1985.

5. Real GDP grew by 0.7 percent in 1983 despite a 1.5 percentdecline in value-added in agriculture. Cocoa production fell to arecord low level of 158,000 tons due to drought and bush fires, andcontinued relatively poor incentives for producers, even after largeadjustments in producer prices. An acute shortage of food caused adramatic increase in domestic foodgrain prices. Sectors other thanagriculture grew by 3.5 percent in i983, reflecting a modest improvementin capacity utilization, and a rapid growth of services. Based onhighly preliminary estimates, 1984 GDP is expected to grow by 6.7percent in real terms, led b3 a 9.4 percent recovery in agriculture.

6. The low GDP growth and the failure of imports to reach pro-jected levels in 1983 had a depressing effect on revenues, forcinggovernment to substantially reduce expenditures in nominal and realterms in order to try and meet its target for the overall deficit andbank borrowings. The structure of the budget has improved, withrevenues financing an increasing proportion of expenditures, and thedependence on inflationary bank financing declining. Capitalexpenditures, however, remain too low in relation to the rehabilitationneeds in the public sector. With the budget under control, broad moneygrowth has decelerated sharply from an annual rate of change of 57percent in June 1983 to 28 percent in June 1984.

7. Inflation rose from 22 percent in 1982 to 123 percent in 1983,due mainly to the sharp increase in domestic food prices. Inflation hasdecelerated in 1984, as food prices have declined following goodharvests. In August 1984, the annual rate of inflation was down to 23percent. The fact that inflation has been successfully containedfollowing a 1000 percent plus exchange rate movement suggests both thatprices already reflected scarcity values and that fiscal and monetarypolicies have been successful in curbing inflation.

8. Exports fell by 28 percent in 1983 due to the impact of thedrought on cocoa and the infrastructural constraints facing timber andmining exports. Significant financing shortfalls on capital account

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also contributed to the further decline in overall import levels of 8.5percent. Although non-oil imports rose 40 percent, this wassubstantially below the program projections, resulting in contiuuedshortages of raw materials, spares, and equipment. The balance ofpayments picture will be somewhat healthier in 1984, as trade volumesrecover and aid financing rises. However, imports remain substantiallybelow desirable levels (para. 10).

Issues and Constraints

9. The turnaround in policies combined with the recent upturn inthe economy constitute a significant improvement in the overall environ-ment, providing the government its first real opportunity to shiftattention from crisis management to a more sustained attack on theremaining constraints impeding structural adjustment and limiting thesuccess of the recovery program. There are three sets of closelyinter-linked constraints. First, the shortage of foreign exchange dueboth to structural and short term factors inhibiting the growth ofexports and the volume, nature, and timing of external assistance.Second, the cumulative effect on the country's productive and socialinfrastructure of years of low growth, low investment and policyneglect. Third, continuing weaknesses in the policy framework which isconditioning the economy's response to the recovery program.

10. The most severe and binding constraint is foreign exchange.Unless Ghana is able to expand urgently its capacity to import, thereform program will be seriously jeopardized. Farmers need inputs andimplements to produce food and cocoa. Industry needs raw materials andspares to produce the consumer goods that give farmers the incentive toincrease their marketed surplus. The country's infrastructure needsrescuing from near collapse if it is to get vital exports to and throughports and critical imports to final users. Stocks of goods need replen-ishing so producers and distributors do not live from hand to mouth.What is more, the government must be able to show some tangible progresson the ground in terms of improved supplies of essential goods andservices and increased employment opportunities if it is to call on thepeople for more sacrifices and harder work in support of the reformprogram. All this can only come from a substantial recovery in imports,which in 1984 amount to under one-half of 1970 import levels in constantdollars.

11. Even assuming good progress in dealing with the supply prob-lems facing exports, the only way in which imports can be increased inthe short to medium term is through a substantial increase in the volumeof quick-disbursing assistance. Given the present level of debt serviceratios, much of this must necessarily be in a highly concessional form.Although multilateral commitments have risen sharply in 1984, bilateralcommitment authority, while rising, is still grossly inadequate inrelation to Ghana's current needs. Moreover, much of this assistancewas late in coming or was subject to procedural delays at both theGhanaian and donors' end, so that for the first 18 months of the reformprogram, the projected increase in the level of imports did notmaterialize. This situation will need to be corrected urgently in 1985and 1986. The volume and nature of a substantially enlarged aid effortis discussed further below (para. 25).

12. An analysis of macro and sectoral policy constraints andissues points to three conclusions. First, the task of nationaleconomic management during a period of transition between the stabi-lization phase of a reform program and the rehabilitation/developmentphase is both complex and daunting. Good management requires flexibil-ity in rapidly changing circumstances, the ability to learn from pastmistakes, firmness in staying on the course, and the political will topush through unpalatable measures. The government has alreadydemonstrated that it has many of these qualities despite the fact thatit inherited an administration that was weak in policy formulation andimplementation. Tackling these weaknesses and tapping these qualities inadequate measure will be crucial to the outcome of the next two years.Second, it is necessary to move rapidly on several fronts at the sametime. The reform package, while addressing several areas of policyweaknesses, has been less vigorous on some than on others. Demandmanagement has been good, while supply side reforms are only just begin-ning to gain momentum. There is a need for a strategic design thatembraces the key critical areas. The government has recognized thisclearly, and is already widening the areas of its concern. Third, whilethe government is anxious to see results and is seeking bold solutionsto the constraints facing the economy, it is worth emphasizing thatprogress will be a step-by-step process. Reforms will take longer toachieve their goals than the government would like but a healthy dose ofimpatience on its part will ensure that they do not take longer than isabsolutely necessary.

13. From our analysis of the constraints facing Ghana's economyand the policy conclusions inferred from this, it is possible to summa-rize the key ingredients of a strategic design under four headings:(i) an appropriate incentive framework; (ii) a key role for the privatesector; (iii) a medium-term development program; and (iv) institutionalreforms.

Incentive Framework

14. Exchange rate policy. Despite the massive (1400 percent)devaluation of the cedi, the currency remains overvalued resulting in aflourishing parallel market in foreign exchange and the continued needfor costly quantitative controls. This is due to the huge imbalancebetween the demand and supply for foreign exchange at the currentunusually low levels of exports and aid receipts. There is a reluctanceto move to a rate which approximates an equilibrium rate, and whichwould enable the government to liberalize imports. This reflects theunderstandable concern that prevailing supply constraints wouldsignificantly delay the benefits from such an exchange rate movement,while increasing the degree of adjustment required and worsening thealready excessive hardships imposed on the poor from the further sharpchange in relative prices. While the present policy of maintaining aconstant real exchange rate reflects caution, it is providing strongdisincentives to exporting and to cocoa production. There is,therefore, a need for a more ambitious approach which seeks, throughmovements in the real rate, to reach the goal of an equilibrium rate ina two-to-three year period. As exports recover and aid flows begin toincrease in 1985 and 1986, the extent of the adjustment required will besubstantially less (in real terms) than is implied by the current

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differential between the parallel and official rate. Moreover, itshould be possible in this interim period to make significant progresstowards removing some of the supply bottlenecks which will help reducefurther the extent of the required adjustment.

15. Import policy. In this interim period, a major objective ofpolicy then would be to minimize the costs of the present import licens-ing regime and reduce the number of administrative decisions. Thegovernment has already begun to introduce a number of changes vhich aredesigned to address some of the weaknesses in the system, such as delaysin processing license applications, the failure to establish priorities,and the overprogramming of imports. An interministerial technicalcommittee will help reduce procedural delays. Setting prioritiesthrough the establishment of a core import program will ease pressureson the licensing system, ensure that priority imports are realized, andreduce overprograuming of imports. This is provided a substantialelement of automaticity is established for the licensing of corecategory imports, and that the core is sufficiently small and does notpreempt all of the government's free foreign exchange resources. Theabove reform cannot be implemented successfully without a steady flow ofexport and capital receipts together with an initial injection offoreign exchange into the system to enable the Bank of Ghana to support,without interruption, the high priority imports. Donors should assistin this area. Further measures are needed, however, to reduce theburden on the licensing system in such a tight foreign exchangesituation. The government needs to consider establishing a safety valvefor obtaining foreign exchange legally outside the licensing system.One possible safety valve could take the form of an auction of importlicenses initially covering raw materials, spares, and equipment forselected sectors, and to be eventually financed by holders of foreignexchange abroad (remittances which currently fund Special UnnumberedLicenses Imports and export retention scheme surpluses). However, sincea number of technical issues will need to be examined before decidingwhether such a system will work and produce the desired results, thegovernment should undertake a study which also draws on the experienceof other developing countries in this area. In addition, governmentneeds to tax away the substantial rents being realized by importers.This would help reduce the demand for imports.

16. Liquidity Problems. A significant factor in the slow growthof imports has been the failure of some importers to obtain the cedicover needed to establish letters of credit. Goverm ent departments andpublic corporations, facing tight budgetary constraints, lacked thecedis needed to finance imports or pay for import duties. Banks werealso initially cautious about increasing overdraft or lending limits bythe margins required because of a reluctance to accommodate customerswho, after years of stagnation and poor financial performance, were, inthe banks' view, not creditworthy. Thus, some private sector importersfound their access to credit had not risen sufficiently to match theincreased cost of imports. Creditworthiness problems could be greatlyeased by encouraging a one-time revaluation of assets to reflect thesubstantially higher replacement cost of assets. Such a revaluationshould be exempted from possible wealth or capital gains taxation. Amajor remaining problem is the imbalance between the demand for andsupply of credit in a situation of negative real interest rates.

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Government is committed to attaining positive real interest rates in theshort to medium-tern. This will ensure a more careful use of scarceresources and, once confidence in the banking system is reestablished,encourage the growth of financial savings.

17. Price and distribution controls. The management of scarcityhas been a major concern for policy makers in Ghana. Extensive pricecontrols-motivated by an understandable concern to protect the erosionof real incomes-have served to distort relative incentives away fromproduction in favor of trade, deprived government of vitally neededrevenues, contributed to high operating costs because of delays inapproving price changes, and reduced access to credit, as banks took adim view of the impact of controls on the ability of their clients toservice their debts. Recognizing this, the government has introduced asignificant degree of liberalization which marks a substantial stepforward. However, its impact could be enhanced by a wider disseminationof information on the government's intentions in this area. Thisundoubtedly risks a political backlash, but efforts to communicate theshift in policy discretely to the key actors need to be strengthened.Similarly, distribution controls designed to ensure a more equitableregional and social distribution of selected commodities have also had asimilar disincentive effect on production. As supplies of essentialcommodities improve, the use of price and distribution controls shouldbe minimized, and wherever possible totally eliminated. Donors canassist in this process through commodity and program assistance designedto boost supplies of essentials.

18. Agricultural pricing. Although the incentive framework foragriculture has improved substantially following the reforms, thereremain significant distortions in relative incentives for differentcrops. The distortion is most dramatic in the case of cocoa where thedrought-induced inflation eroded the real value of the very largeincreases in the nominal producer price. As a result, the real producerprice fell in 1983/84, and improved only moderately in 1984/85. In realterms, the price is currently 43 percent of its 1970/71 level. As aproportion of the current f.o.b. price at the official exchange rate,the producer price is only 34 percent; at the parallel rate it is only11 percent of the f.o.b. price, which provides a substantial incentiveto smuggling. Returns to cocoa are also substantiafly below returns tocompeting crops. There is, therefore, the need for a major adjustmentof the cocoa price in the 1985/86 season. The required adjustment wouldbe about threefold to restore cocoa's relative attraction forreplanting, and just under twofold to restore its attractiveness forrehabilitation. Such increases would require an adjustment in the ex-change rate if revenues from cocoa to the budget are to be protected. Areduction in the now excessive operating costs of the Ghana CocoaMarketing Board is in any event necessary. In addition, replantingsubsidies seem highly desirable to help, along with higher prices, torestore farmer confidence in the future of cocoa. Prices for industrialcrops are insufficient to provide incentives to growers, and there is aneed to liberalize the controlled prices of end products using theoutput from these crops as raw materials. Food prices are subject tosubstantial fluctuations with changes in output, and while there is anunderstandable desire to introduce a measure of stability in theseprices, the government needs to ensure that it does not intervene in a

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manner that strains its financial and managerial capacity. Whilefertilizer subsidies have been r.ghtly removed, supplies to farmers havebeen inadequate and untimely. Privatization of fertilizer distributionis a high priority.

19. The government has moved strongly and determinedly to removethe petroleum product subsidies which emerged following the devaluationthrough substantial adjustments in product prices. However, petroleumproducts prices, expressed in dollars at the official exchange rate,remain substantially below those in most other developing countries. Inaddition, given present scarcities, there are substantial rents beingrealized by those who are able to buy these products at controlledprices. A fuel tax would absorb these rents and help curb consumptionof an extremely scarce resource.

Role of the Private Sector

20. The new government is increasingly recognizing the importantrole the private sector needs to play ir the recovery program is tosucceed. A determined effort has been made to improve private sectorconfidence and this is slowly beginning to have an impact. However,signals remain mixed, and significant segments of the private sectorremain unclear on the government's evolving position. Further effortsshould include: (i) greater awareness within government of the adverseconsequences of conflicting signals; (ii) a clear policy statementsetting out the role government envisages for the private sector basedon a careful evaluation of the possibilities for selective privatizationin key areas; the investment code now under preparation should be givenearly approval; (iii) clarifying the role, functions, and limitations ofthe Workers' Defence Cominttees; and (iv) wider publicity to theliberalization of price controls.

The Development Program

21. The government's recent decision to integrate its recoveryprogram into a broader and more comprehensive rolling medium-termdevelopment program beginning in 1986 provides a welcome opportunity toaddress a number of key issues.

- Resource mobilization: Although there has been a modestimprovement in the ratio of revenues to GDP, the current levelof 8 percent of GDP is too low both in relation to pastperformance and present needs even assuming a relativelylimited role for the public sector in the economy. Given adetermined effort, it should be possible over the medium termto double this ratio; a beginning can be made by taxing awaythe high rents produced by controls and shortages, and overtime by gradually eliminating the parallel market throughrealistic pricing and the removal of unnecessary controls.Immediate measures should include higher taxes on imports andpetroleum products.

- Administrative and manpower resources: The developmentprogram needs to tackle on a high priority basis the severeadministrative and manpower constraints facing Ghana's

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economy. A major component of the program will need to be anincomes policy. The minimum wage in the public sector isgrossly inadequate to feed, house and clothe a family; seniorcivil servants are, in relative terms, even worse off. Largeupward adjustments in minimum wages are inevitable, but to beconsistent with fiscal and monetary discipline they must beaccompanied by a manpower plan and redeployment policies (nowunder preparation) which identify personnel who are redundant,establish selective retraining programs, and provide generoustermination benefits to encourage redundant workers to leavethe public sector. Senior civil servants' emoluments shouldbe adjusted to at least partially restore competitiveness withthe domestic private sector.

- Operations and maintenance (O&M) expenditures: The lowprovisions for O&M in the budget, and in public corporations,is a major explanation for the poor state of the social andeconomic infrastructure. This will need to be correctedthrough higher provisions for OEM, through training in O&Mpractices in government departments and public corporations,and through rehabilitation programs.

- Capital expenditures: The capital budget comprises a largenumber of ongoing activities both aided and non-aided, andmostly small in scope and size, the original rationale forwhich may no longer be relevant to Ghana's present circum-stances. In 1983 and 1984, the capital budget has beensubject to frequent cuts, as the revenue position deteriorat-ed. In the short term, there is a need to identify a coreprogram of capital expenditures that emphasizes: (i) comple-tion of older ongoing projects where these are still relevant;(ii) acceleration of high priority aided projects to ensuregreater utilization of the aid pipeline; and (iii) redesigningprojects with a view to addressing specific infrastructurebottlenecks and emphasizing rehabilitation and maintenanceover the creation of new capital. For the medium-term devel-opment program itself, there is a need to develop soundsectoral strategies with three main objectives: ti) removinginfrastructure bottlenecks to growth of production andexports; (ii) rehabilitation of key export sectors; and (iii)formulating well-targeted and cost-effective programs that arevital for the long term development such as population,education, health and agricultural research. WLile the Bank'seconomic and sector work has necessarily focussed on theimmediate issues of the reform and import programs, over thenext year, the Bank will be working with the government to putmore emphasis on macro and sector specific issues relating tothe capital and development budget.

22. Some of the main elements in sector strategies for the keysectors are set out below:

AgriculLure. Improvements in agricultural pricing policiesand fertilizer distribution are clearly the highest prioritiesin this sector. Goals of self-sufficiency in individual crops

need to be based on a careful review of comparative advantage.The results of this review will need to be integrated into theMinistry of Agriculture's development plan for the mediumterm. The coordination needed between policy, planning, andimplementation would be greatly facilitated by an AgriculturalPolicy Committee.

Forestry. The government's present strategy for timberprovides a reasonable basis for future development providedincentives improve and foreign exchange constraints ease. Thekey components are rehabilitation of timber mills, managementreform for public corporations, and a restructuring ofmarketing organization and procedures.

Mining. Rehabilitation programs underway for gold need to bestrengthened and extended to other sub-sectors, includingmanganese, bauxite and diamonds. Corporate plans need to bedeveloped in the medium term for key public sector corpora-tions in mining, including financial and managerial reforms.Substantial investments are required as well as urgent actionto rehabilitate the Western railway and port capacity atTakoradi which is restricting movement of bauxite andmanganese exports.

Industry. Recovery of the industrial sector, which is plaguedwith extremely low capacity utilization, is dependent onprogress in policy reforms at the macro level and increasedimports, as discussed above. Key elements in the sectorstrategy must include a shift in incentives towards exportsand towards greater utilization of domestic inputs, a morevigorous role for the small-scale sector, rationalization oflabor laws, increases in real wages, an improvement in thebusiness climate for the private sector, and management reformfor public corporations in manufacturing.

Transport. Transport constraints are holding back the produc-tive sectors of the economy. The substantial rehabilitationneeds of the sector include replacement and rehabilitation ofroad vehicles, accelerated road rehabilitation, maintenance,urgent repairs to the Western railway line and rehabilitationof the railways stock, and replacement equipment and dredgingfor the ports. In addition to the support provided underseveral ongoing projects, foreign exchange requirements forthe sector for the next three years are likely to exceed $800million. Such investments will need to be accompanied byefforts to improve management through higher salaries andtechnical assistance, increased real wages, and a transportpolicy plan that better defines the relative roles of thepublic and private sectors and, within inland transport, therole of road and rail transportation. A medium-termrehabilitation program for ports is under preparation andneeds urgent donor support.

Energy. A strategy for this sector would include substantialinvestments in offshore oil exploration, rehabilitation of the

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petroleum refinery, rehabilitation of power transmission anddistribution to reduce losses, and coal and gas based thermalplant. Pricing policies and conservation programs will needto be strengthened to restrain energy demand.

Human Resources. In the health sector, the immediateobjective should be halting further deterioration of the fewessential services still functioning, while at the same timeestablishing basic infrastructures essential for developingfuture programs and restoring the credibility of the healthsystem. This is equally true of education. As the governmentclearly recognizes, there is a need to shift emphasis toprimary education, with an overall sector plan that isrealistic and within current implementation capacity.

Institutional Reforms

23. The government needs to take advantage of ongoing or proposedstudies to initiate on an urgent basis the preparation of detailedcorporate plans incorporating programs designed to revitalize managementand labor, and rehabilitate plant and equipment for key corporationsincluding those in the mineral and timber sub-sectors, and keyinfrastructure agencies such as the highways, railways, and portsauthorities.

24. Planning and monitoring functions of the Ministry of Financeand Economic Planning (MFEP) and line ministries, and the InternationalEconomic Relations division which is charged with aid coordination, needstrengthening. The statistical base will also need to be urgentlyimproved to enable closer performance monitoring and control (Annex E).

Aid Requirements

25. As indicated above, one of the keys to a successful recoverylies in a substantial increase in import levels not merely to addressrehabilitation needs throughout the economy but to remove constraintsthat are holding back the recovery of exports. In the short run, thiswill only materialize if quick disbursing concessional aid flows risesharply. Based on tentative balance of payments projections for 1985and 1986, and likely disbursements for the aid pipeline and the newcommitments of $415 million in 1984, we recommend new aid commitments ofabout $460 million in 1985 and $500 million in 1986. Given theconstraints on multilateral resources, this will entail more thandoubling bilateral commitments over 1984 actuals of $120 million.Nevertheless, this constitutes a minimum level of effort, and one thatdonors should attempt to exceed to the extent possible.

26. Reaching this level of commitments will not by itself ensurethe level of disbursements required unless sufficient attention is paidto the composition of aid. Roughly three-fourths of all aid should bein the form of quick-disbursing import support either in the form ofprogram/sector loans or food and commodity aid. Project aid should beheld at a relatively modest level, and should focus on rehabilitationneeds in high priority sectors such as agriculture, energy, transport,and health. The aid provided should be on highly concessional terms,

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and where possible, untied. Technical assistance should focus onstrengthening macro and sectoral planning and policy analysis capabilityand the strengthening of management and technical staff in key exportsand economic infrastructure corporations/government departments.

27. With a sudden increase in assistance to Ghana, aid coordina-tion will play a crucial role. At the level of the Paris forum, thereis a need to monitor aid flows to ensure that these are of the level andcomposition appropriate to the pace of the program. At the local level,aid coordination should aim at minimizing wasteful duplication,focussing on key development issues and encouraging individual donors toplay a "lead role" in particular sectors.

28. In sum, in less than two years, the government has wrought amajor transformation in the country's overall economic environment.Policy weaknesses that previous governments had chosen to ignore or hadlacked the political courage to tackle are being addressed for the firsttime in the most trying circumstances. A severe drought, an unantici-pated foreign exchange crisis, and the resultant high inflation havegreatly complicated the management of this period of transition. Theinevitable pressures to reverse or dilute the reforms have been firmlyresisted, no doubt at considerable political costs. That progressremains inadequate is partly a reflection on the size of the task athand, which has been greatly magnified by the more recent "shocks" tothe economy. It is also in part due to a reluctance to move faster thanthe government considers politically and administratively realistic. Inmaking this judgement it must take account of the considerable bureau-cratic inertia that it faces and a political environment in which thereis a strong residual belief in controls and a distrust of the profitmotive that inspires the many confusing and conflicting signals to theprivate sector. Taking account of all these difficulties, it is, to saythe least, highly praiseworthy that so much has been achieved thus farand that the government remains committed to addressing the long andtough agenda for further action that remains ahead of it. This isclearly an outstanding case among Sub-Saharan African reform programs.Given this strong commitment to reform, it would indeed be tragic ifthis experiment were allowed to fail for lack of adequate externalsupport and Ghana's economy were permitted to slip back down the drearyslope of decline. In the present international economic environment,donors will undoubtedly face difficulties in reapportioning commitmentauthorities within stagnant or even shrinking aid budgets. Yet, indegree of difficulty, what is being asked of donors today is far lessthan what donors have asked of Ghana-and what Ghana has alreadyachieved. A year ago, donors were supportive but somewhat skeptical,and in many cases somewhat cautious in their financial support. Theprogram was then in its early stages, and the government's commitment toseeing it through was only partially tested. This year will test theextent to which the donor community will be able to do its part torespond. This is important not only for the reform program. OtherAfrican countries are watching Ghana's experience with great interest.It is in effect a bellweather of how serious donors are about supportingmajor Sub-Saharan reform efforts.

CHAPTER I - RECENT ECONOMIC DEVELOPMENTS

Introduction

1.01 The Bank's previous economic report on Ghana 1/ provided acomprehensive overview of the performance of the economy between 1970and 1982, and an evaluation of the government's Economic RecoveryProgram launched in 1983. This updating report analyzes the economy'sinitial response to the reform program, focussing on the substantialprogress that has been made as well as on some of the remainingconstraints that appear to be impeding the success of the program, andidentifying specific actions needed on the part of the government andthe donor community to address these constraints. Chapter I of thisreport reviews recent economic developments during the stabilizationphase of the recovery program; Chapters II and III examine macro andsectoral constraints that must be addressed to consolidate the progressalready made and shift the emphasis of the recovery program fromstabilization to rehabilitation. Chapter IV analyzes balance ofpayments prospects in the short-to-medium term and makes specificrecommendations on the volume and nature of external assistance thatGhana will need to sustain the momentum of the reform program.

The Inheritance

1.02 Throughout the 1970s, Ghana's economy was caught in the gripof a persistent, and seemingly almost irreversible downward spiral. Thecombination of weak producer incentives, poor economic management, anddeclining external aid levels, resulted in a steady decline in percapita income, persistent high inflation, and a declining capacity topay for imports.

1.03 Political instability was the inevitable consequence of thiseconomic downswing, and it, in its turn, aggravated the poor managementthat lay at the root of Ghana's difficulties. Large budgetary deficits,necessitated in part by the need to support a sprawling, inefficientpublic sector, and the related uncontrolled domestic credit expansion,led to a marked acceleration in inflation. Given the reluctance on thepart of successive regimes to adjust to external and internal shocks,the fixed nominal exchange rate became grossly overvalued, shiftingrelative incentives away from exports, particularly cocoa, into importtrade. The ease of smuggling supported a flourishing black market in

1/ Ghana: Policies and Program for Adjustment, Report No. 4702-GH,October 3, 1983.

foreign exchange, and diverted exports and price-controlled imports toneighboring countries. The deterioration in export performance causedby these factors, combined with a growing disenchantment on the part ofaid donors with Ghana's policy performance and its political instabili-ty, caused a perpetual foreign exchange crisis that pushed successivegovernments into increasingly restrictive import regimes. Thus, whatwas once an economy with ample imports became starved of the main fuelfor its support.

1.04 The erosion of the central government's tax base due todeclining exports and imports, and the related decline in economicactivity, resulted in severe reductions in real terms in recurrent(including operations and maintenance) and capital expenditures. Thus,the combination of foreign exchange shortages and declining publicexpenditures contributed to a marked deterioration in what was once afairly well developed economic and social infrastructure. This in turnfurther reduced the country's productive capacity.

1.05 Successive governments have tended to respond to the politicalbacklash from inflation and shortages with controls and rationing.Extensive price and distribution controls and widespread resort toadministrative price setting and allocation mechanisms have only wors-ened scarcities (by eroding the incentives to produce and save), dimin-ished the capacity of public sector entities to maintain the level andquality of services, and created a vast parallel black market with itsrelated evils of corruption, smuggling, and tax evasion. Declining realwages, political instability, and reduced economic opportunities haveled talented and skilled Ghanaians to seek greener pastures abroad,depriving the country of badly needed managerial, administrative, andtechnical skills with which it was once relatively well endowed.

1.06 To make matters worse, the economy was subjected in the earlyyears of the present decade to three additional "shocks". First, aprolonged and severe drought that created the worst food shortages sinceIndependence. Second, a sharp deterioration in external terms of trade,following the increase in petroleum prices and a softening in prices ofGhana's major exports (cocoa, gold and manganese). Third, the suddenand unexpected return of over one million Ghanaians from Nigeria,placing a severe strain on the food and unemployment situation.

1.07 The cumulative effect of this downward economic spiral andthese "shocks" is evident from the key economic indicators in Table Awhich compares Ghana's performance with low income Sub-Saharan Africa asa whole, and the smaller low income developing countries in general,(i.e., other than China and India).

- Ghana's GDP declined by 0.5 percent per annum between 1970-82.which compares unfavorably with the much better performance inthe 1960s, and with the positive growth rates recorded by thecomparator groups in the 1970s. All sectors of Ghana'seconomy experienced negative growth in this period.

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Table A.: GtWES RElIAV2 E B=%UC PM*WC a/

Low Ilom All Smllpr Low Ircme All SwalerSUb-S9a IAM Ir M Su-Sabaran Low

Ghana Africa Frnmnesh b/ C2am Africa Fccmaes bl

Growth of Productioa (Z p.a.) 1960-70 197082{:llP 2.2 4.0. 4.5 -. 5 1.8 3.4Agriculture - - 2.7 -0.2 1.6 2.3Imlurtzy - - 6.6 -2.4 2.3 4.0)£oufacturxing - - 6.3 -1.5 0.5 3.2Services - - 4.2 -7.5 4.3 4.5

Growth of Agric. Productim (Z p.a.) 2.6 3.1 - -0.2 0.7 -Grzth of Per Capita Food

Productica (Z p.a.) 0.3 1.0 - -3.1 -1.2

Grcth of Qxinptimand Investmet CZ p.a.)

Pblic Captim 7.2 4.8 4.6 5.7 5.0 4.2Private onsmp,ric 1.7 3.6 3.2 -0.4 3.0 3.3Gross Dcwestic lIwestment -3.1 5.2 4.6 -5.1 2.6 3.2

Growth of opulatimn (2 p.a.) 2.3 2.4 2.5 2.6 cl 2.8 2.6Avera Annual Rate of anflatimn 7.5 2.6 3.2 39.5 10.8 11.7

Structure of Denmi (% of CDP) 1960 1982Pubic Gonxsmptim 10.0 11.0 10.0 7.0 12.0 11.0Private C (mmptlm 73.0 77.0 82.0 92.0 84.0 86.0Gross D aestic Investnt 24.0 15.0 13.0 1.0 9.0 13.0Gross D astic Savngs 17.0 12.0 10.0 1.0 4.0 5.0Earts of gaids and

m factwr services 28.0 21.0 17.0 2.0 9.0 11.0

Bafet Z of QG) 1972 1982Central ovr. Expenditure 19.5 22.2 21.0 10.1 16.6 17.6Central Govt. Current Revenmes 15.1 17.0 18.4 4.2 10.0 16.7Overall Deficit -5.8 -4.8 -4.4 -6.2 -5.5 -5.0

ercbazdiise Trade (Z p.a.) 1960-70 1970-82Exports 0.1 6.0 5.7 -4.7 -2.5 0.2Imports -1.5 6.2 5.8 -4.8 0.0 0.7

1970 1982Term of Trade (1980-100) 109 - - 61 - 87

Debt Service as Z of Goods & Services 5.0 4.9 5.7 6.8 12.4 9.9

Total Recorded Net Flow of Resourcesper capita ($) - - - 12.6 26.1 -

of wbich: __ - - - 11.6 21.4

a/ For data camarabiflty and coverage, see 'Tecnical Notes" in the two sources used.b/ i.e., Chxi m a and axia.cJ Based cn prelIminary 1984 census results.

Swrces: The World Bank. Wrld Developmqt port, 1984The World BaL Tmds Sustained De pent, A Joint Pragra of Action for Sub-Sabaran Africa,

Volume II, hAugst 1984

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- With Ghana's population growing at 2.6 percent per annum, thedecline in per capita income and per capita food productionwas even more marked.

- Ghana's gross domestic investment declined steadily in the1960s and this decline accelerated in the 1970s, causinginvestment as a proportion of GDP to fall from 24 percent in1960 to 1.0 percent in 1982.

- Governmenn revenues declined from 15 percent of GNP in 1972 to4 percent in 1981, a much sharper decline than other lowincome countries; as a consequence the cutback in governmentexpenditures in Ghana was also much sharper, but insufficientto reduce the large budgetary deficits.

- Inflation averaged 40 percent per annum in Ghana between1970-82 as against an average of 11-12 percent for other lowincome countries.

- Ghana's exports declined steadily in the 1970-82 period, andits relative performance was much poorer vis-a-vis the com-parator groups. With lower net resource transfers to Ghana,imports were also reduced sharply, resulting in a lower debtservice burden than for other countries. Ghana's terms oftrade fell by 39 percent between 1980 and 1982 as against 13percent for all small low income countries.

The Reform Program

1.08 The Provisional National Defence Council (PNDC), which came topower under the leadership of Flt. Lt. Rawlings on December 31, 1981,recognized the seriousness of the economic situation. Early in 1982 itestablished a National Economic Review Committee which was entrustedwith the task of assessing the economic situation and developing aprogram of national economic recovery. Following discussions with anIMF staff team which was invited to Ghana in Ju_y 1982, the governmentdeveloped a program of far-reaching reforms which was unveiled with the1983 budget in April 1983. The reforms were supported by an IMF StandbyArrangement, covering a one year program period ending June 30, 1984.Ghana made all the scheduled purchases amounting to SDR 238.5 millionupon meeting the Fund's performance criteria and successfully completingthe reviews. In addition, Ghana made a Compensatory Financing Facilitypurchase of SDR 120 million at the beginning of the program. A SecondStandby Arrangement for SDR 180 million (equivalent to 88 percent ofGhana's quota) covering an 18 month program period (July 1984 - December1985) was approved by the Fund's Board on August 27, 1984.

1.09 When the Consultative Group for Ghana met in Paris in November1983-after a 13 year interregnum-the government was nearly half waythrough the First Standby. While donors welcomed the measures alreadyannounced in April 1983, which marked a major beginning towards the pathof economic recovery, there remained some understandable skepticism

about the government's ability to meet the stringent requirements of thestabilization and reform program. Yet, despite strong internalpolitical pressures, and a severe drought that significantly increasedthe extent of adjustment required, the government took the additionalmeasures required to meet the program's objectives.

1.10 The overall aim of the recovery program is to bring aboutbalance of payments viability in the medium term while allowing theeconomy to return to positive growth within the framework of macro-economic stability. The principal accomplishments of policy reform 1/have been the following:

(i) Exchange rate policy: A key element in the program has beenthe reform of the exchange system. On April 22, 1983, amultiple exchange rate system was established and the exchangerate was depreciated from 02.75 = US$1.00 to two rates,¢23.375 and 029.975 applying to specified receipts and pay-ments transactions; and resulting in an implicit weightedaverage rate of ¢25 = US$1.00. On October 10, 1983, the tworates were unified at a rate of ¢30 = US$1.00, implying a

- -further depreciation of 21.5 percent. Since then Ghana hasbeen pursuing a flexible exchange rate policy with a view tokeeping the exchange rate constant in real terms. This hasnecessitated two further adjustments in relation to the USdollar to 035 on March 26, 1984 and ¢38.50 on August 22, 1984.Thus, over an 18 month period, the cedi has depreciated byover 14 times.

(ii) Prices and incomes policy: A related component of the programis the establishment of realistic relative prices and incomesin the context of the large movements in the exchange rate:

- Cocoa producer prices were raised by 67 percent from 012,000per ton to 020,000 per ton in April 1983, and by a further 50percent to 030,000 per ton in May 1984. However, the gainsfor producers from the nominal price change have been eatenaway by an unexpectedly high level of inflation in 1983. Theadequacy of the cocoa price is now under review and a newprice will be announced in May 1985 for the 1985ia6 crop (seeparas. 2.11-2.13).

- Administered prices of imported goods and services have beenadjusted to permit a full pass through of the higher cedi costfollowing successive exchange rate movements, thus eliminatingconsumer and price subsidies. There were two exceptionsdesigned to cushion temporarily the impact on costs for keyproducers and consumers: the subsidy on fertilizers was

1/ See also Annex A.

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retained until April 1984 when fertilizer prices were raisedninefold to ¢450 per bag. In the case of petroleum, atemporary subsidy was allowed to emerge as petroleum priceswere raised gradually till the subsidy was eliminated, aheadof schedule, in March 1984. Petroleum product prices wererevised as follows: regular gasoline prices have risenfivefold from ¢11.30 per imperial gallon '_n April 1983 to ¢56in September 1984; kerosene prices have risen sevenfold from¢5.00 per gallon to 035; and gas oil (diesel) prices haverisen over fivefold from ¢8.50 to 046.0.

Tariff rates for the major utilities were adjusted upwards inApril 1983 to reflect the cost structure at the new exchangerate. Road transport tariffs rose by 165 percent, railwayfreight tariffs by 380 percent and passenger fares by 100percent. Water rates in urban areas rose by 150 percent.Telecommunication rates rose by 325 percent for domesticservices and 127 percent for external services. Postal ratesrose 365 percent. Electricity tariffs were initially adjustedby 40 percent in April 1983, and then in January 1984 by 500percent, from an average price per kwh of 10.31 pesewas to 50pesewas.

Price controls. Following the devaluation of April 1983,importers and domestic producers were permitted to adjusttheir prices periodically to reflect the higher cost ofimports and increases in wages and other costs. In December1983, further action was taken to enhance the flexibility andreduce the scope of price controls. Price caps were removedon imported maize, rice and sugar, and these prices wereraised to equal the prices of domestically produced products.Price controls were limited to 23 items whose prices requiredCabinet approval. For all other prices, a reference pricesystem was introduced. This has now been further modified toenable producers to set their own prices based on their ownestimate of production costs with the Prices and Incomes Board(PIB) independently establishing reference prices merely toprovide guidelines to producers.

Wages and salaries. With effect from May 1, 1983, the minimumwage rate was raised from 012 to 025 per day. This resultedin an increase in wages on average by about 60 percent for thecivil service, and 25 percent for other sectors. With theacceleration in inflation in 1983, real wages declined fur-ther, necessitating a second wage increase of, on average, 40percent in April 1984. The government's policy is to increasereal wages, which are abysmally low, while containing theimpact on the budget through redeployment policies. Anexperiment in redeployment is underway at the Ghana CocoaBoard where reducing the size of the staff could enable anincrease in real wages for those who remain.

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- Interest rates. A flexible interest rate policy has beenadopted with a view to achieving positive real interest ratesin the medium term. On October 10, 1983. all interest rateswere raised by 3-5 percentage points. Savings rates wereraised from 8 to 11 percent, and lending rates from 14 to 19percent. On August 23, 1984, a further two percentage pointincrease was announced for all rates. Further adjustments areforeseen in 1985 since real rates remain negative.

(iii) Fiscal policy. The restoration of fiscal discipline was amajor component in the stabilization program. The govern-ment's net recourse to the banking system has been severelycurtailed-despite the adverse impact on revenues of thedrought and lower than anticipated import levels--throughlarge expenditure cuts. For the medium term, fiscal policyobjectives include increased domestic resource mobilization tosupport larger outlays on operations and maintenance expendi-tures and an increase in public investment in support of therecovery program.

(iv) External payment arrears. Such arrears had accumulated to$601 million at end April 1983. The government is committedto a phased reduction of these arrears as an essential elementin reestablishing the country's creditworthiness. Substantialprogress has already been made in this direction, and aftervaluation and other adjustments, outstanding arrears, a yearafter the reforms, stood at $286.6 million, a decline of $315million of which $85 million represented net cash payments.

Cv) Rehabilitation programs for key sectors. Rehabilitationprograms have been drawn up for key sectors including cocoa,gold, timber and mining as part of the government's 1984-86Recovery Program. 1/ These programs include sector specificmeasures designed to ensure an adequate supply response byimproving incentives and management, and providing adequateinputs and replacement capital. The key export sectors arebenefitting from export retention schemes which enableexporters to retain a certain percentage of their foreignexchange earnings to import essential raw materials, spares,and equipment. Management contracts are being negotiated in

1/ See: Republic of Ghana: Economic Recovery Program, 1984-1986,Report prepared by the Government of Ghana for the meeting of theConsultative Group for Ghana, Paris, November 1983. Government ofthe Republic of Ghana, Accra, October 1983.

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selected public corporations and institutional reforms areunderway in others. 1/

The Response

1.11 It is still a little too early to judge the response of theeconomy to this major dose of policy reform. Data on 1983 are stilltentative, and those for 1984 are scanty. Some of the reforms will, inany case, take time to make an impact, while others have yet to bepursued vith sufficient vigor. The program itself is far from complete.As the government is painfully aware, there are no magic wands. Theagenda for action is long, and the path ahead tedious and difficult. Itwill take a continuation of the determination and persistence that thegovernment has shown so far to reverse those long years of neglect.

1.12 To adequately appreciate the extent of the government'sachievements in the post-Reform period, it is necessary to take a fairmeasure of the odds it was up against in the first 12-15 mouths of thereform program. Several factors worked against the program in thisperiod:

- The drought that struck hard in 1981 and 1982 persistedthrough 1983, severely depressing output, both directlythrough its adverse impact on agriculture, and indirectlythrough its effect on energy availability and the foreignexchange position. Output of cocoa, the country's majorforeign exchange earner, fell to an all time low; severe foodshortages developed, necessitating emergency imports; waterlevels in the Volta River's Akosombo and Kpong reservoirs fellto all time low levels.

- This decline in hydroelectric power production coincided witha substantial and unforeseen decline in petroleum imports.The latter was due both to the fact that a severe foreignexchange shortage forced reliance on short/medium-term creditsto finance petroleum imports, some of which largely failed tomaterialize, and to an accident at the refinery which disrupt-ed output for several weeks. Thus, energy supply constraintsseverely impeded recovery prospects.

- Foreign financing in support of the reforms failed to materi-alize on the scale and speed anticipated at the inception ofthe program.

1/ These programs are being supported by three IDA Credits, a $40million Reconstruction Imports Credit, cofinanced with the AfricanDevelopment Fund and some bilateral donors, a $76 million ExportRehabilitation Credit and a $17 million Export RehabilitationTechnical Assistance Credit.

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1.13 All these factors undermined the government's efforts tosubstantially increase the level of imports in 1983 and 1984. Withoutthe stimulus of a strong recovery in imports, rehabilitation programsthroughout the economy received a severe setback and the key targets ofthe Recovery Program were not realized. All in all, though, it is allthe more impressive that the government stuck to and expanded the reformprogram in the face of these adversities. As indicated above, despiteconcerns about its inflationary consequences, the exchange ratecontinued to be adjusted to maintain a constant real exchange rate.Administered prices were adjusted following each exchange rate movementto prevent budgetary subsidies from emerging; in particular, petroleumsubsidies were eliminated ahead of schedule. Price controls weresignificantly relaxed. The budget was kept under strict control,despite a severe erosion of the revenue base from the lower thananticipated levels of economic activity, through unpopular expenditurecuts. Net domestic credit expansion was kept well within Fund ceilings.Significant progress was made in reducing outstanding external paymentarrears despite the very tight foreign exchange situation. Thus, allperformance criteria established under the IHF Standby Arrangement havebeen met. Moreover, the government did not permit its preoccupationwith short-term stabilization to delay action on its medium-termdevelopment objectives. A number of initiatives were taken to developsector investment and policy strategies, with some initial resultsalready in evidence for gold and timber.

1.14 Luckily, Ghana's fortunes have taken a turn for the better inthe second half of 1984. Preliminary data reveal that this is the firstupswing that Ghana's economy has experienced since 1978. The weatherprovides the major explanation for this improved performance. The nearnormal rainfall patterns in 1984 have resulted in a sharp recovery inagricultural production, and the consequent decline in food prices sinceMay 1984 is providing much needed relief. Energy availability has alsoImproved, as water levels rose in the Akosombo and Kpong reservoirs, andas petroleum imports returned to more normal levels. About one-half ofthe one million returnees from Nigeria are believed to have re-migrated.The response of donors to Ghana's recovery program in 1984 has also beenencouraging (see para. 4.10 and Annex F). While much remains to be doneto accelerate disbursements, commitments, particularly from multilateralsources, have risen impressively, and Ghana now needs to build on themomentum this has generated.

1.15 The turnaround in policies combined with the recent upturn inthe economy constitute a significant improvement in the overall environ-ment in which Ghana's key economic actors function. This provides thegovernment ics first real opportunity to shift attention from crisismanagement to addressing some of the key constraints that appear to beimpeding progress under the recovery program. The most criticalconstraint is the lack of foreign exchange to finance imports, which isa function of the current unusually low levels of foreign exchangeearnings and the availability of external financial support of anappropriate volume, nature, and timing. A second set of constraints ispolicy induced, and reflects the need for further measures in the areas

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of exchange rate policy, the foreign exchange allocation system, pricingand distribution controls, and the climate in which the private sectoroperates. A third set is the result of the cumulative effect of yearsof neglect of the country's physical, human, and administrativeinfrastructure. Addressing these constraints will be a high priority asthe government recasts its recovery program in light of its initialexperience, and integrates it into a medium-term development program.

Economic Growth

1.16 Real GDP growth for 1983 is estimated at 0.7 percent(Table B). Although this is lower than earlier projections, it reversestwo successive years of decline in output, which has left 1983 GDP inreal terms some 10 percent down, and 1983 per capita GDP 17 percentdown, over 1980 levels. The 1983 performance reflected mainly the 1.5percent drought-induced decline in agriculture (a sector which accountsfor 53 percent of GDP). Sectors other than agriculture, taken together,grew by 3.5 percent, reflecting mainly a rapid growth in services and amarked improvement in capacity utilization in transportation. Non-oilimports, despite a 37 percent increase, remained substantially belowmore normal levels, and this, together with the power and petroleumshortages, accounts for the continued low levels of capacity utilizationthroughout the economy. Highly preliminary official estimates project arecovery in agriculture in 1984, which together with accelerated growthin manufacturing should permit a 6.7 percent growth of GDP in 1984.This would still leave real GDP some 4 percent below 1980 levels.

1.17 Agriculture: 1/ Cocoa production in the 1983/84 crop yearfell to a record low of 158,000 tons, some 12 percent below the 1982/83level and 47 percent below the 1979/80 level of 296,000 tons. This poorperformance, which has now pushed Ghana below the Ivory Coast and Brazilin world cocoa production, reflected the combination of several factors.The severe drought for three successive years depressed yields andresulted in bush fires that have destroyed over a quarter of a millionacres of cocoa trees. The poor conditions of roads, an acute shortageof petroleum products, and a truck fleet grounded by lack of tires andspare parts further exacerbated the situation by making the evacuationof even the rather low volumes of cocoa very difficult. Inputs, such asfertilizer, sprayers and insecticides, continued to be in short supplythrough much of 1983 due to severe foreign exchange shortages; the lackof wage goods in the countryside also acted as a disincentive toproducers of cash crops. The input supply situation has Improved in

1/ For a fuller discussion of issues and constraints, see paras.3.02-3.03.

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Table B: CHANGES IN GROSS DOMESTIC PRODUCT (GDP) AND ITS COMPOSITION 1970-84

Composition (percent shares ofGDP at current prices)

1970 1980 1981 1982 1983

Agriculture 46.5 59.7 54.2 58.2 53.8Agric. & Livestock 28.1 47.6 45.2 48.5 46.3Cocoa 14.0 5.5 3.9 3.5 2.6Forestry, Logging & Fishing 4.4 6.6 5.1 6.2 4.9

Industry 22.5 9.3 8.8 7.1 7.1Mining & Quarrying 1.7 1.1 0.5 0.4 0.2Manufacturing 11.4 5.6 5.8 3.4 3.4Electricity, Gas & Water 1.0 0.5 0.6 0.6 0.2Construction 4.1 2.1 1.9 2.7 3.3

Transport, Storage & Communication 4.3 2.7 3.1 2.8 3.1

Other Services 26.7 28.3 33.9 31.9 36.0

GDP at Market Prices 100.0 100.0 100.0 100.0 100.0

Rates of Growth(Per cent per annum at constant1975 prices)

1970-80 a/ 1980 1981 1982 1983 1984 b/

Agriculture -0.3 2.2 -2.6 -6.7 -1.5 9.4Agric. & Livestock 2.1 0.1 -0.8 -9.2 -2.5 15.0Cocoa -6.7 9.5 -4.4 -5.0 -8.0 -2.0Forestry, Logging & Fishing 1.2 3.6 -9.1 4.7 6.6 2.8

Industry -1.8 -1.9 -14.5 -16.7 -2.7 3.5Mining & Quarrying -6.8 -3.1 -7.3 -8.4 -10.1 4.1Manufacturing -0.5 -1.4 -19.3 -20.5 1.7 5.0Electricity, Gas & Water 8.4 12.9 11.9 -8.1 -38.0 -9.9Construction -10.6 -7.4 -4.8 -9.3 1.1 1.0

Transport, Storage & Conmunication 0.5 -13.2 6.8 1.1 7.3 3.0

Other Services 0.5 -2.3 0.6 -6.7 5.5 3.7

GDP at Market Prices -0.3 -0.2 -3.2 -7.7 0.7 6.7

Meworanda Items:

GDP at Market Prices Constant(1975) e Million - 5,428 5,256 4,850 4,884 5,212

GDP at Market Prices Current0 Million - 41,578 74.258 90,738 189,730 274,080

Implicit GDP Deflator (Z change) 35.3 47.9 84.4 32.4 107.6 35.4

a/ Least squares growth rate. b/ Tentative official estimates.

Source: Central Bureau of Statistics.

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1984 with increased foreign exchange availabilities, 1/ but offtake hasbeen disappointing. This is largely because incentives for cocoagrowers continue to be inadequate despite successive increases inproducer prices (see para. 2.11-2.13). Improved weather conditions areprimarily responsible for an anticipated recovery in cocoa production in1984/85 to about 190,000-200,000 tons.

1.18 Output of food (Table C) and industrial crops fell in 1983,reflecting below average rainfall of between 15-25 percent, and thedamage inflicted by bush fires, which went out of control in the exces-sively dry conditions. Cereals production, at 308,000 tons was 43percent below 1982 levels. Starchy staples production in 1983, at 3.6million tons, was 18 percent below 1982 levels. Data on industrialcrops is not available. The shortfall in output resulted in dramaticincreases in wholesale prices of key commodities. The average wholesaleprice of maize, for instance, at 36,700 cedis per ton was nearly fivetimes the 1982 level, and at the official exchange rate five times theworld price. Prices of yams rose fourfold, and cassava prices more thandoubled. Wholesale prices of agricultural and livestock products roseby 124 percent in 1983 over 1982. The food component of the consumerprice index rose by 145 percent in 1983 over 1982. The average, howev-er, conceals the 234 percent point to point increase in food pricesbetween June 1982 and June 1983, when food prices peaked. By December1983, the annual rate of increase had dropped to 128 percent. Agri-culture and livestock output is expected to recover in 1984 with im-proved supplies of inputs and a near normal rainfall. Prices of foodhave fallen by over 15 percent between December 1983 and August 1984,although they remain substantially above 1982 levels.

1.19 The depreciation of the cedi, and the goverment's decision topermit timber exporters to retain 20 percent of their export earnings toimport equipment and spares, has given forestry strong financial incen-tives. Forestry, logging, and fishing output recorded a 6.6 percentincrease in 1983. However, exports of timber have been significantlybelow projections. This partly reflects the continued profitability ofsmuggling, and partly the constraints facing exports (port and transportcapacity, continued shortages of spares and equipment, etc.). 2/

1.20 Mining and Quarrying. As with timber, the exchange ratedepreciation has greatly improved the financial viability of the mining

I/ From the EEC's Stabex Credit, IDA's Reconstruction Imports andExport Rehabilitation Credits, and from a new scheme that permitsthe Cocoa Marketing Board to retain 10 percent of its foreignexchange earnings to finance essential imports.

2/ See paras. 3.04-3.06.

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Table C: SELE= PRUJLI( INDICAKlUD('0) nmtric tns, ud1ess odmwe ini0cated)

1970 1980 1981 1982 1983

CereaJs 858 674 725 543 308maize 482 382 378 346 172Rice 49 78 97 36 40Millet 141 82 ' 119 76 40Gunxea Cor 186 132 131 86 56

Starey Stapler, 6,077 4,349 4,114 4,431 3,649Cassava 2,388 2,322 2,063 2,470 1,721Ccomyan 1,136 643 631 628 720Yan 909 650 591 588 866Plantain 1,644 734 829 745 342

Cocaa/ 403 258 224 179 158

*-q)ut Of logs 1,560 600 550 410 663Oatput of sawn timber 360 210 190 150 279

mdg

Index of uderajl pzoduction (1977-100) - 73.8 68.2 59.9 50.2Gold ('000 fine troy ouuces) - 353 341 331 280Dlamicds ('000 carats) 2,550 1,149 837 684 339H.asrese 392 250 223 160 173Bancite 337 225 181 64 70

Electricity Generation (million kwh) 2,920 5,309 5,382 4,973 2,548of which:

Exports 2,012 3,759 3,775 3,530 1,227VALiO 2,012 3,319 3,303 3,009 763Nei&tors - 440 472 521 464

Dhomestic Com^ntia 908 1,550 1,607 1,443 1,351

Cnude 011 Imports - 1,030 1,158 1,106 422

a/ Paicases by GMB.

Source: Govermuaent of Ghem".

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sector. 1/ However, for a variety of reasons, output of gold anddiamonds has continued to decline in 1983 (by 15 percent and 50 percentrespectively), while manganese has shown an 18 percent increase, andbauxite 9 percent (Table C). The shortage of spares and equipment, andmanagement weaknesses appear to be the main constraints. Manganeseproduction has also been constrained by the depletion of oxide oredeposits, and as with bauxite, by the virtual collapse of the railwaysystem. In the case of bauxite, some 70,000 tons have accumulated atthe production point and cannot be evacuated because equipment and trackconditions have caused the railway link from the Western Region toTakoradi to cease functioning. As a result, bauxite production has beensuspended since April 1984.

1.21 Manufacturing and Construction. Manufacturing and construc-tion have shown only a modest recovery in 1983. Value added inmanufacturing rose 1.7 percent in 1983 after two successive years ofdeclining output. Although capacity utilization in public sector plantsis estimated to have risen from 20 percent to 30-35 percent, manufactur-ing remains severely constrained by shortages of power, transport andforeign exchange. 2/ With the very large price adjustments necessitat-ed by the recent exchange rate depreciation, initial delays in approvingrevised prices on the part of the Prices and Incomes Board (paras.2.17-2.19) eroded profitability and access to credit at a time when(especially in 1983) credit was scarce (para. 2.14). Manufacturinggrowth is estimated to accelerate in 1984 as foreign exchange and powerconstraints ease during the second half of 1984. With the low level ofpublic investment and widespread cement shortages, construction growthwill be maintained at the 1 percent level recorded in 1983.

1.22 Energy Supplies. Ghana experienced a dramatic deteriorationin energy supplies in 1983, underscoring its heavy dependence on hydro-electric power and imported crude oil. 3/ Almost all of Ghana's elec-tricity production comes from the Akosombo (912 MW) and Kpong (151 MW)hydro-electric reservoirs on the Volta River. Successive years ofdrought caused water levels at the Volta Lake to drop to 235 feet (13feet below the minimum level for full operation), forcing a 45 percentcut in domestic supplies, a 50 percent cut in exports to Togo/Benin anda total cessation of supplies to the Volta Aluminium Company's (VALCO)smelting works at Tema (Table C). The reduction in domestic supplies,which went into effect in December 1983, was enforced by cuttingsupplies to most domestic, commercial, and industrial users for 27 ofevery 48 hours. The cuts were enforced with remarkable regularity anddiscipline. Total electricity output fell 48 percent in 1983 over 1982,

1/ See also paras. 3.07-3.12.



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most of it in the second half of 1983. Since VALCO took the main bruntof the cuts, domestic supplies fell by only 6 percent for the year as awhole. With normal rainfall in 1984, the level of the Volta Lake hasrisen to above 248 feet as of end October. Electricity supplies were,therefore, fully restored to the domestic market on September 13, 1984.Since this resumption of supplies came so late in the year, and sincesupplies to VALCO are not expected to resume in 1984, electricityproduction is expected to fall by a further 50 percent in 1984 over 1983levels. The Volta River Authority (VRA) estimates a foreign exchangeloss of $15 million in 1983 due to the drought and the resultantforegone exports of power to VALCO and neighboring countries. Inaddition, VRA had to slash its planned investments by some $13 millionto $7 million. However, with reservoir levels projected in 1985 to besufficient to withstand another year of drought, Ghana will soon be ableto restore fully electricity exports to neighbors. It has alsosucceeded in reaching a new agreement with VALCO which will restore theprofitability of sales to that company once these resume in 1985 andbeyond.

1.23 Imports of crude oil also fell sharply in 1983 to 422,000 tonsfrom 1.1 million tons in 1982. This was due both to severe financingconstraints and an accident at the refinery which disrupted production.As a consequence, supplies of gasoline and gas oil fell by about 25percent over 1982 levels causing prices of gasoline to rise in the blackmarket to 0250-300 per gallon. The anticipated increase in petroleumimports to just under 1.0 million tons in 1984 will greatly easepetroleum shortages. This should result in lower black market prices ofgasoline and other products once stock levels return to normal.

1.24 Transport and Other Services. Official estimates place thegrowth of value added in transport and communications at about 12percent in 1984. This represents a recovery from a very low base. Thesector is characterized today by large quantities of over aged equipmentor equipment lying idle due to lack of spare parts or tires. 1/ In theroad transport sub-sector, for instance, the proportion of the 76,000roadworthy vehicles actually on the road was estimated in mid-1983 at 30percent due to lack of tires and spare parts. With the financing ofspare parts and tires unier recent multilateral and bilateral credits,capacity utilization is estimated to have risen to about 50 percent.

1.25 Distribution and other services are expected to experience arecovery of about 8 percent in value added after a steady decline since1978. This is attributed mainly to an increase in wholes_le and retailtrade.


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Savings and Investment

1.26 Gross domestic inmestment, which had declined from 14,1percent of GDP in 1970 to an average of 3.3 percent in the 1980-82period, is estimated to have recovered to about 4 percent of 1983 GDPand to 6 percent of 1984 GDP (tentative Bank staff estimates). With thecurrent account deficit in the balance of payments rising from 0.6percent of GDP in 1982 to 3.8 percent in 1983 and 3.9 percent in 1984,national savings, estimated residually, fell from 1.4 percent of GDP in1982 to 0.6 percent in 1983, and is estimated to rise to 2.1 percent in1984. The inadequate savings effort is attributable both to negativepublic savings and the adverse cffect on private savings behavior ofhigh inflation, negative real interest rates, and continuinguncertainty.

The Budget

1.27 A major objective of the reform program is to restore fiscaldiscipline and improve gradually the level of public savings. Despiteseveral setbacks in 1983, the goverment succeeded in improving thebudgetary situation significantly. Although revenues doubled in nominalterms, on account of the exchange rate adjustment and several newrevenue measures, 1/ they fell short of original projections by C4.4billion (Table D). This was due to lower import duty receipts resultingfrom a failure to realize the import program, lower revenues from cocoadue to a much smaller crop than originally assumed, and a generallylower level of economic activity following the drought and the lowimport levels. The government responded to this setback by reducing theoriginally budgeted expenditures by some 03.0 billion, leaving a slight-ly higher overall deficit. These restrictions were felt mainly by thecapital budget which dropped to less than one percent of GDP, althoughcurrent expenditures were also curbed.

1.28 The 1984 budget projects a douxoling of revenues in nominalterms. This reflects a number of factors Including the full year impactof resource mobilization measures undertaken during 1983, the furtherdepreciation of the cedi in 1984, the expected recovery in imports andeconomic activity, improved tax administration and compliauce, ane arelatively modest additional resource mobilization effort. Recurrentexpenditures are projected to increase by 69 percent to reflect higher

1/ These included a simplified import tariff schedule, changingcorporate income tax to a current year basis, a revised base forthe gold export levy and increases in fees and hc_rges. (See AnnexA).

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MUle D: SIMBE* OF GQ 1tflENr EIUNlC, 1982-84

1982 1983 1983 1984

Pevemwes and Grate 5,253.2 14,630.6 10,241.0 21,870.0of ubich:lmo o ion andx property 1,506.2 2,001.7 1,779.5 3,225.8T1EB an international traswactis as 788.0 8,421.9 4,989.9 8,897.6Taxes an goodrx and services 2,146.5 3,243.2 1,689.3 6,513.0

TotaW iqaiiture & Net Tmnilzg 9,220.1 18,191.7 15,177.5 27,761.7Nemnnent Mpemiiture 8,029.4 14,865.6 13,403.5 22,709.5capital Ezx1iture 816.7 2,375.0 1,354.4 3,724.1Net LsxiNz 374s.0 951.0 419.6 1,328.1

Overall Deficit -3,966.9 -3,561.1 -4,936.5 -5,891.7fh2ined by.-

foreign (net) 215.1 1,046.6 686.9 2,991.7FtnDorm g (-) 2,851.3 1,973.1 5,639.6-rq ( - -1,804.7 -1,286.2 -2,647.9

]mustic (net) 3,718.0 2,514.5 4,297.8 2,900.0Bmbiddg Systen 433.6 2,014.5 2,572.0 1,800.0Social Security 371.0 200.0 230.0 350.0Other 2,913.4 300.0 1,495.8 75D.0

Ukiderntified 33.8 - -48.2 _

)orxIa"m IttemIntereat Paymns 2,168.1 3,385.4 3,027.8 3,955.4

As peroent of rzwees (ZeTotal bYpeiiiture 175.5 124.3 148.2 126.9Beairrent hpeenditure 152.8 101.6 130.9 103.8

As percent of GOP (Z) a/Peve',ues and Grants 5.8 7.7 5.4 8.0Total l)pesiture 10.2 9.6 8.0 10.1Plecurzent EpWxiture 8.8 7.8 7.1 8.3Cmxnnat bidx4-t Savings -3.1 -0.1 -1.7 -0.3cpital! Ep1±es & Net 7eIzndsg 1.3 1.8 0.9 1.8Overall Deficit -4.4 -1.9 -2.6 -2.1Net Datic Fina!:irng 4.1 1.3 2.2 1.0Not ForeiUp PnFImi 0.3 0.5 0.4 1.1GEP at Qrrqent Market Prices 90,738.3 189,730.3 189,730.3 274,08D.0

a/ (aomns my wt add to totals due to r.cang.

Scurce: Mi y of FThe andB Ecox P3am'.

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wages and interest costs at the depreciated exchange rate. Capitalexpenditures (see Annex C) and net lending are to increase three-fold,but are still at rather low levels (less than 2 percent of GDP).

1.29 In broad terms, the structure of the budget has improved: 1/

- Revenues financed 65 percent of current expenditures in 1982,76 percent in 1983, and are projected to finance 96 percent in1984.

- The proportion of total expenditures financed by revenues hasrisen from 57 percent to 79 percent.

- Capital expenditures (and net lending) are projected to risefrom 10-12 percent of total expenditures in recent years to 18percent in 1984.

- The overall budget deficit fell from 4.4 percent of GDP atmarket prices in 1982 to 2.6 percent in 1983, and is pros ctedat 2.1 percent in 1984.

Money and Credit

1.30 Fiscal discipline has been accompanied by monetary discipline.The growth of net domestic assets had accelerated considerably in thefirst half of 1983, and then decelerated sharply. Broad money growthslowed down from an annual rate of 57 percent in June 1983 to 49 percentin December 1983, and 28 percent in June 1984. The slowdown in creditin the second half of 1983 was due in part 2/ to the difficulty someimporters faced in arranging the cedi cover to finance imports.Commercial banks were reluctant at first to raise overdraft facilitiesby such a large margin to meet the massive change in the exchange rate.Later in 1983, the Bank of Ghana persuaded commercial banks to lowerdeposit margins and provided guarantees on a selective basis. Thishelped ease the situation, but not before it had had a depressant effecton import levels.

1.31 As noted above, the reform program includes a flexibleinterest rate policy that is designed to encourage private savings and amore efficient use of credit. In October 1983, commercial bank savingsdeposit rates were raised from 8 to 11 percent and maximum lending ratesfrom 14 to 19 percent. In August 1984, a further two percentage pointincrease in interest rates was announced. With inflation projected at35 percent in 1984, this still leaves interest rates substantially

1/ See paras. 2.14-2.16.

2/ A late cocoa crop also contributed to the slow credit expansion.

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negative in real terms. The government has indicated that it iscovmitted tc achieving positive real interest rates in the medium term.

Prices and Wages

1.32 At the time the reform program was initiated, it was antici-pated that inflation in 1983 could be held to around 50 percent. Thisexpectation did not materialize because of the severe drought and theresultant increase in food prices which fuelled the 123 percent increasein consumer prices in 1983. On a December to December basis, the indexof consumer prices, rose by 142 percent during 1983. 1/ After theinitial large increases associated more with the drought than with theexchange rate adjustment, the inflation rate dropped sharply. In theeight months following April 1983, prices rose by 50 percent. Thatinflation was not higher, despite the large exchange rate adjustment, isevidence of the fact that most prices already reflected scarcity values,and that fiscal and monetary policies have been largely successful incurbing inflation. The good rains and the abundant crops have helpedreduce inflation further in 1984, with the annual rate through August1984 down to 23 percent.

TAKE E: CoSLER AND iEASEIE. PRIES

Arnml Average Point to PointDec. 1982 Dec. 1983 Ah*st 1984

over over overPe ceat aiange 1982 1983 Dbc. 1981 Dec. 1982 Auzst 1983

Cmsuwer Price ixdeK(naticcml) 22.3 122.8 16.8 142.4 22.9

of wtd&h: food 35.9 144.8 39.9 127.8 -3.3holesale Price Index 36.0 128.9 6.9 210.2 -

Sourre: Central Ebreau of Statistics.

1.33 To ease the burden of the adjustment on fixed income earners,the government raised the minimum wage in 1983 from about 012 per day to025; resulting in an average wage increase of 60 percent for civilservants and 25 percent for public corporations and the private sector.But with the high inflation experienced in 1983, the real minium wage,

1/ The wholesale price index rose much faster. This was due to thefact that price controls, which are generally more effective at thewholesale rather than the retail level, were relaxed to permit thefull pass through of the higher costs of imported fuel, rawmaterials and spares.

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which by 1980 had already fallen to a fifth of its 1975 level, fellfurther to some 13 percent of the 1975 level. Responding to thisdevelopment, the government announced a further increase in the minimumwage to 040 from March 1984. 1/ The aim was to restore the real wage tothe April 1983 level, although it did not quite succeed in doing this:inflation in the 12 months through March 1984, at 74 percent, exceededthe wage increase of 60 percent. The budgetary cost of the wageincrease was ¢5.2 billion, or some 56 percent of the increase inrecurrent expenditures over 1983 levels.

Balance of Payments

1.34 The main feature of the balance of payments results for 1983(Table G) was a decline in exports in current dollar terms for the thirdsuccessive year. At $440 million, merchandise exports were 28 percentbelow the level of 1982 and 60 percent below the 1980 level. Even moredisappointingly, they amounted to a shortfall of over 25 percent inrelation to the figure projected in the government's Economic RecoveryProgram initiated in April 1983.

1.35 There were four principal causes of this poor performance. Ofthese, the most obvious was the serious impact on the volume of cocoaexports of the drought and bush fires which affected many parts of thecountry in 1983. It is estimated that the drought accounted for a lossin this sector alone of some $80 million in exports, 2/ the volume ofwhich reached an all-time low of 170,000 tons - about 35 percent belowthe 1982 level. For the other export sector most seriously affected bythe drought-electricity-the impact was not felt until 1984.

1.36 However, the fact that non-cocoa exports were some $86 million(or 35 percent) down against recovery program expectations indicatesthat other negative factors were at work - notably, the severe transportbottlenecks and managerial constraints discussed above. This preventedany significant recovery in the much reduced level of mineral or timberexports. Although the cedi devaluation made exporting a much moreattractive proposition than for several years past, incentives remainedinadequate, particularly for cocoa, but also for other exports.

1.37 A third reason for the failure to halt the slide in exportswas the shortfall in the flow of both concessionary andnon-conceBsionary finance to cover imports vital to the rehabilitation

1/ Inclusive of allowances.

2/ The shortfall in value terms is in relation to what would have beenachieved if the export volume had been sustained at the projectedlevel. The loss in relation to recovery program projections wasonly about $60 million thanks to higher than expected unit exportprices for cocoa.

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of infrastructure and export industries. In fact, net inflows oncapital account totalled $113 million compared with recovery programexpectations of $331 million. The disbursement of long-term officialcapital was partly affected by delays in disbursements of the IDAReconstruction Import Credit of $40 million due to initial implementa-tion constraints, which have since been largely overcome (para. 4.05).Likevise, there was a substantial shortfall in official and privatemedium-term funds. 1/

1.38 The impact of this shortfall in available finance for importswas inevitably felt in other sectors of the economy besides the export-ing ones. Petroleum imports--which had in any case been expected tofall sharply as a result of the suspension of oil credits from Libya--amounted to less than half the 1982 level, as compared with a fall ofonly 35 percent projected under the recovery program. Overall, thevalue of merchandise imports fell by 8.5 percent as compared with 1982,whereas under the program they had been expected to rise by around 65percent. Non-oil imports, taken together, were about 40 percent higherthan in 1982, albeit 45 percent below the program projections. Thisstill left the economy with severe shortages of raw materials, spares,and equipment, as imports were some 37 percent below their 1980 levelsin real terms.

1.39 The net result was that the current account deficit (excludinggrant aid) nearly doubled as compared with 1982 to $356 million - equalto 3.8 percent of GDP--while the overall balance of payments moved froma surplus of $27 million in 1982 to a deficit of $243 million in 1983.This deficit was more than covered by purchases from the Fund under theFirst Standby and CFF ($259 million), so that it was still possible toreduce arrears of foreign debt by $34 million (see para. 1.10).

1.40 The 1984 balance of payments outcome is discussed in ChapterIV. It is sufficient here to note that as in other areas, 1984 repre-sents a substantial improvement over 1983, with a large Increase intrade volumes-albeit lower than originally thought possible-and amajor increase in capital flows to finance the current account deficit.Donors also responded positively to Ghana's reform program, with newcommitments totalling $415 million (para. 4.10). However, imports in1984 wi1 be substantially below the levels needed to give momentum tothe recovery program.

1/ Only $10 million out of an expected $139 million in official oilcredits was forthcoming. In the private sector, net inflows ofmedium-term finance--mainly in the form of suppliers' credits-alsolargely failed to materialize, amounting to $30 million as against$192 million originally anticipated under the recovery program.

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Conclusion

1.41 To sum up. after years of policy drift, Ghana is embarked on amajor policy reform that begins at last to address the structuralweaknesses of the economy. The initial response of the economy, howev-er, has been nixed. The potential beneficial effects were initiallyneutralized in large part by the severe drought and foreign exchangecrisis of 1983, the adverse effects of which spilled over into 1984. Asa result, the economy still remains relatively starved for imports.Administrative, manpower, and infrastructure constraints have alsoprevented a strong supply side response. Despite these difficulties,the govermaent has moved determinedly to strengthen and deepen thereform efforts. It recognizes that the reform program is still in itsearly stages and needs further evolution. What is needed is a strategicdesign covering all areas of policy. Macro and sectoral constraints andthe nature and content of such a design are discussed in Chapters IIand III.

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CHAPTER II - MACRO CONSTRAINTS

2.01 In less than two years, the government has wrought a majortransformation in the country's economic policy environuent. Thegroundwork has been laid for a more sustained attack on the main con-straints impeding structural adjustment and limiting the success of theEconomic Recovery Program. The major elements of the reform program todate have been described in Chapter I. This chapter focusses on theremaining constraints facing the program. The constraints fall intothree categories: First, the shortage of foreign exchange, whichreflects both the structural and short-term problems inhibiting thegrowth of exports, and the volume, nature, and timing of externalfinancial support; second, the cumulative effect on the country'sproductive and social infrastructure of years of low growth, lowinvestment and policy neglect; third, weaknesses revealed in the policyframework which are conditioning the economy's response. In mountingits attack, the government will need to move rapidly on several fronts,strengthening those policies and programs that have begun to losemomentum, and initiating action in new areas where weaknesses have beenidentified. These various measures will need to be integrated into acoherent medium-term development program. The speed with which thegovernment is able to move across a broad front will depend heavily onthe size and nature of donor support. This is discussed in Chapter IV.Sectoral constraints and issues are discussed in Chapter III. Thischapter focusses on key macro constraints, most notably the exchange andtrade regime, incentives for cocoa, pricing and distribution controls,administrative and manpower constraints, and budgetary policies.

The Foreign Exchange Constraint

2.02 The most severe and binding constraint facing Ghana's recoveryprogram is the shortage of foreign exchange. The failure of imports toincrease, as originally planned, in 1983 and 1984, is responsible forthe slow recovery of the productive sectors of the economy, and is asignificant factor in the infrastructural constraints that have emerged,and which are discussed in Chapter III. Two factors account for thisbehavior of imports. First, there was, at least in 1983 and the firsthalf of 1984, little foreign exchange to allocate. Second, what littlethere was has not found its way quickly to priority users because of acomplex and time-consuming allocation system.

2.03 As indicated in Chapter I, the main difficulty in 1983 was thelack of foreign exchange. Export earnings experienced a severe short-fall due largely to the impact on cocoa of the drought and bush fires.Capital receipts, other than Fund purchases, were substantially belowforecast. The Fund's resources became available only in August; a goodpart of these went to pay off the $100 million bridging loan that had

- 24 -

been taken in late June in anticipation of the Fund program. As aconsequence of this tight situation, the little free foreign exchangethat trickled in went to meet debt service obligations and other priorcommitments, leaving precious little to allocate to imports.Quick-disbursing credits came late in the year and moved slowly (para.4.05). Faced with these circumstances, the government delayed the issueof licenses for 1983 till after June 1983 (when the bridging loan becameavailable), and tried to compress a whole year's import program into sixmonths. Not surprisingly, a large proportion of the licenses issued in1983 remained unutilized and their validity had to be extended through1984. This tight foreign exchange situation continued through the firsthalf of 1984, although it is expected to improve substantially for theyear as a whole.

2.04 The Import Licensing Regime. The imbalance between the demandand supply for foreign exchange placed severe pressures on the importlicensing and foreign exchange allocation system. The initial alloca-tion system, described in Annex B, was administratively cumbersome andtime-consuming, and had other flaws as well. Licenses were issued atthe beginning of the fiscal year or, as in 1983 and 1984, more thanhalfway through the year. The licenses were on an annual basis so thatif all the recipients submitted their applications for foreign exchangeor the cedi cover all at once, the commercial banks could not possiblycope with the demand for credit, or the Bank of Ghana for foreignexchange. The system was also vulnerable to an initial overestimationof foreign exchange availabilities. Projections of export earnings andcapital receipts tended to be unrealistic. Moreover, it was implicitlyassumed that all aid was fungible and not tied to specific projects orgoods and services from particular sources. There was, therefore, amismatch between the import program and potential financing. Thesefactors contributed to a major overprogramming of imports in relation tothe foreign exchange available. Import licensing thus became lessmeaningful since it neither ensured the release of foreign exchange nordetermined priorities as between sectors. In the words of one observer,the license was "in practice a permit to line up and join a long queueat the commercial bank". A majority of importers were frustrated eitherbecause they were refused credit or because the Bank of Ghana could notprovide the foreign exchange cover, or both. The sectoral priorities socarefully determined at the import licensing stage gave way topriorities which, for private importers, were essentially set bycommercial banks.

2.05 Recognizing the weaknesses in the system, the government hasintroduced a number of changes vhich are described in detail in Annex B.The changes address the three problems with the previous system, viz.,the delays in processing license applications, the failure to establishpriorities, and the overprogramming of imports. The establishment of aninterministerial technical committee should help in reducing delays inprocessing applications. Recognition of the specificity of aid willeliminate the mismatch problem discussed above. The major innovation,though, is the decision to prioritize imports into a core, a periphery(Category I) and an outer core (Category II). The core will comprise

- 25 -

imports of raw materials, equipment, and spares, for a select list ofessential and revenue producing commodities, which are either financedfrom the country's free foreign exchange or from external assistance.Importers of core items will be guaranteed a minimum level of importsfor a three year period. Category I comprises imports that directly orindirectly support the manufacture and distribution of core items.Category II comprises all other imports, licensing of which will beconditional on the availability of foreign exchange. Provided that thenon-aid financed core is sufficiently small to ensure that it can befinanced from Ghana's own resources even in years of great foreignexchange scarcity, the new system will obviate much of the tendency toover program imports. Core and Category I importers, assured of foreignexchange availability, will also be less inclined to rush to commercialbanks at the beginning of the year. To further reduce the burden on thelicensing system, the government should consider: (i) introducing asystem of automatic license renewals for core importers based on proofof substantial utilization of previous licenses; (ii) ensuring that thecore is sufficiently small so as not to monopolize the country's freeforeign exchange resources, and that other categories of imports are notallowed to starve because they must queue behind core imports which mayor may not be moving; and (iii) greatly simplifying procedures for thoseeligible to import under high priority aid financed projects andprograms. The licensing authorities could then focus their energies onCategory I and II licensing.

2.06 The proposed reform cannot be implemented successfully, with-out a steady flow of export and capital receipts together with aninitial injection of foreign exchange into the system to enable the Bankof Ghana to support without interruption the basic Core and Category Iimports. Donors should consider assisting Ghana in this area, particu-larly by financing imports in Categories I and II that are in danger ofbeing excessively squeezed.

2.07 Exchange Rate Policy. The need for an elaborate system ofimport licensing and foreign exchange controls arises from the continuedover-valuation of the official exchange rate. There are at presentthree markets for foreign exchange: the official market, the parallelmarket, and the Special Unnumbered Licenses (SUL) market. The latter ismainly a channel for remittances from Ghanaians overseas. The existenceof a large black market and the large premiums over the official rate(three times or more the official rate) reflects the huge imbalancebetween the demand and supply for foreign exchange at the currentunusually low levels of exports and aid receipts and at the present ex-change rate. Thus, although the black market premium does not representan "equilibrium" or "purchasing power parity" rate, it provides a strongincentive to smuggling of exportables and diversion of remittances fromoverseas. To the extent that such activities eat into availablesupplies of foreign exchange, they worsen the demand/supply imbalanceand this becomes a self feeding mechanism for the growth of the parallelmarket. The SULs provide an alternative legal way of channellingremittances by financing imports of goods which are then sold at aprofit in the domestic market. The limit to the premiums enjoyed by

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these goods is effectively set by the black market rate for foreignexchange; the effective exchange rate realized by remitters issubstantially lower than the black market rate since these premiums mustbe shared with traders and intermediaries who charge a risk premium andwith the government which levies an import duty, albeit a modest one.The SULs thus provide a safety valve by making available goods thatwould not be normally imported through the official system and which arefinanced by foreign exchange earnings of Ghanaians overseas, which wouldnot be remitted at the official exchange rate.

2.08 In an ideal world, the government ought to be integratingthese various markets by establishing a realistic exchange rate thatapproximates an equilibrium rate. Such a policy would enable it toeliminate the costly quantitative controls on imports and end thesubstantial continuing discrimination against cocoa producers (paras.2.11-2.13), without sacrificing much needed budgetary revenues fromcocoa. Political and economic realities, however, dictate a morecautious approach. Prevailing supply constraints would significantlydelay the benefits from such an exchange rate movement while accelerat-ing the hardships that would be imposed on the poor from the furthersharp changes in relative prices, following so closely on the heels ofthe massive April 1983 devaluation. To the extent that the absence of asupply response results in further inflationary pressures, it erodes theextent of the real exchange rate depreciation and necessitates furtherexchange rate movements. While a more cautious approach is warranted,the present policy of maintaining a constant real rate Is clearly fartoo cautious, providing as it does continuing strong disincentives toexporting which could delay even further the required supply response,particularly in the cocoa sector. There is, therefore, a need for amore ambitious exchange rate policy, 1/ which has the objective ofreaching over a finite period-say two to three years-the equilibriumexchange rate, and hence, involves movements in the real rate towardsthat objective. As exports recover in 1985 and 1986, and aid flowsbegin to increase, the extent of the adjustment required will besubstantially less in real terms than is implied by the currentdifferential between the parallel rate and the official rate. Moreover,it should be possible in this period to make significant progresstowards removing some of the supply bottlenecks which would furtherreduce the required adjustment.

2.09 In this interim period there is no escape from some form oflicensing of imports. To reduce the strains on the licensing system,the government needs to initiate action on a study that would examinethe desirability, feasibility, and ways and means of establishing a morepurposive safety valve (than the SUL market). This could take the formof a legal parallel market by auctioning a modest amount of importlicenses (say $50-60 million or about 10 percent of the current level of

1/ This is a matter for the government to be pursuing with the Fund.

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non-food, non-petroleum imports). Eligibility to participate in theauction could be initially restricted to the industrial and agriculturalsectors. Use of licenses could either be limited to a narrow range ofcommodities, (viz., raw materials, spares, and equipment), or, highimport duties or, preferably, excise taxes, could be used to discourageundesirable imports. Such a system would be of most benefit to thosesub-sectors which are based on domestic resources, and which have lowimport cost components. It would essentially enable producers to importgoods that they have either not been able to obtain at the officialexchange rate or which they need urgently in small enough quantities andcannot be bothered to jump the hoops of the licensing system. Theauction would generate substantial revenues for the government whilereducing premiums on the black market and thus discouraging dealings onthe black market. Under such a system, it might also be feasible topermit holders of free foreign exchange, such as Ghanaians livingabroad, tourists, and exporters who are not using their retentions, tosell foreign exchange directly to the Bank of Ghana at a specified ratethat equals or is related to the going auction rate for licenses. Thusthe SUL market could be wholly or partially merged into this system andthe auction could become self-financing. However, such an auctionsystem poses serious implementation and management questions that needcareful study. The proposed study would also examine the experience ofother countries that have auctioned either imports or import licenses,(e.g., Pakistan's with "bonus vouchers").

2.10 Another means of reducing pressures on the import licensingsystem would be to partially absorb the rents presently earned byimporters. While in the medium term this can be achieved through a realexchange rate depreciation, in the short run, these rents could be taxedaway through a broad based tax on imports. Such a tax would help boostbudgetary revenues and restrain the demand for imports.

Incentives for Cocoa

2.11 A major thrust of the reforms has been the improvement ofincentives to cocoa farmers. Nominal producer prices have been raisedtwo-and-one-half times over the pre-Reform levels. However, inflationturned out to be substantially higher than originally anticipated. As aresult, the real producer price for cocoa farmers actually declined in1983/84, and improved only moderately in 1984/85 over 1983/84 levels,but was still 7 percent below the 1982/83 level. In real terms, theprice is currently 43 percent of its 1970/71 level. At the officialexchange rate, the producer price is only 34 percent of the currentf.o.b. price. At the parallel rate it is only 11 percent of the f.o.b.price. In contrast the producer prices in neighboring Ivory Coast andTogo are 3.3 and 2.5 times respectively the producer prices in Ghana indollar terms at the black market exchange rate, providing a substantialincentive for smuggling. In relation to other domestic crops, the netreturn per hectare from rehabilitation of cocoa at 91,000 issubstantially below the returns from maize/cassava (023,000-C30,000 perha) or maize/plantain/cocoyam (¢40,000). The net return per man dayfrom rehabilitation at the current price, 0118, is less than the daily

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rural wage rate of 0120, and also below the net return per man-day frommaize/cassava (about 0400) and maize/plantain/cocoyam (over 01,000).Similarly, the returns from replanting cocoa at 04,400 are substantiallybelow the returns from replanting oil palm (037,000) although thisdivergence is partly neutralized by the returns to the cocoa farmer fromplantain or cocoyam which are planted as shade for cocoa.

TABLE F: DN2NnEs FEOR COXX FARI4HS

1970/71 1980/81 1981/82 1982/83 1983/84 1984/85

A. Total ocoa purchases by 413 258 224 179 158 200GMB '000 mt.

B. Naninl producer price 293 4,000 12,0O0 12,000 20,000 30,000(0 per metrlc ton)

C. Real pnducer price 100.0 42.3 60.6 49.4 38.6 42.8(1970 - 100)

D. Namunalproducer priceas 45.6 85.5 267.1 45.2 26.7 33.9percent of f.o.b. priceat offical echg rate

E. Nadnal prducerpice as 27.0 14.1 28.0 9.3 10.4 10.9perient of f.o.b. priceat parallel EuLkt rate

Sorce: Quma Cooa Marketing Boad

2.12 There is, therefore, the need for an adjustment of the coocaprice in the 1985/86 season. It would require a trebling of the cocoaproducer price to restore it in real terms to the level prevailing inthe early 1970s. At this price, the relative economics of cocoa wouldimprove substantially, with a swing in cocoa's favor in terms of netreturns to labor from rehabilitation, and net returns per hectare fromreplanting, although the net returns per hectare from rehabilitationwould still compare unfavorably with other crops. However, such anincrease has significant implications for the budget and exchange -ratepolicy. At the present exchange rate, given the relative izflexibilityof Ghana Cocoa Marketing Board (GCMB) costs in the short run, evenallowing for their current efforts to cut costs, it would implysubstantial budgetary subsidies to the GCNB to pay for the increasedproducer price. A doubling of the cocoa price on the other hand, wouldsubstantially restore cocoa's advantage in the area of returns to laborfrom rehabilitation but would leave returns per hectare fromrehabilitation slightly inadequate, as also returns per hectare from

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replanting. However, even a doubling of the cocoa price would wipe outgovernment revenues in the short term, at the current exchange rate.

2.13 There are several implications for policy. First, as arguedabove, the present exchange rate is clearly providing an inadequatereturn to cocoa producers. Only a sufficient movement in the rate wouldprotect cocoa revenues, while permitting a near doubling of the producerprice and meeting GCMB operating costs. Second, the GCMB is clearly amajor drain on resources, eating into export revenues that could bepassed on to farmers. Privatization of the cacoa trade is currentlybeing studied under the Export Rehabilitation Project as well asmeasures to reduce GCMB operating costs. Both exercises need to becompleted expeditiously. Third, the gcvernment needs to considerseriously the possibility of introducing attractive replanting subsidiesfor cocoa which would reduce greatly the required adjustment in cocoaproducer prices to, say, a near doubling while ensuring that replantingactually takes place. Ordinarily, replanting subsidies are lesspreferable to a strong price incentive. However, given the pastexperience, cocoa farmers are unlikely to have much confidence in thegovernment's ability to maintain the cocoa price in real terms, andwould respond much better to a specific incentive.

Liquidity Problems

2.14 A significant factor in the slow growth of imports has beenthe difficulty facing some importers in obtaining the cedi cover neededto establish letters of credit. Government departments and corpora-tions, strapped for funds, lacked the cedis to pay import duties or topay for the imports themselves at the vastly depreciated exchange rate.Some private sector importers have found their access to credit had notrisen sufficiently to match the increased cost of imports. Banks werecautious about increasing overdraft or lending limits by the largemargins required because of a reluctance to accommodate customers who,after several years of stagnation and poor financial performance, werenot exactly prime borrowers. The banks, nevertheless, remain concernedabout several aspects of government policy that, !n their eyes, affecttheir borrowers' creditworthiness. In particular, delays in approvingprice changes after the large exchange rate movements since April 1983meant that some companies were forced to produce at a loss, ceaseproduction, or sell on the black market, risking severe penalties.Distribution orders that required producers of a few essential comodi-ties to sell to government agencies, People's Shops or other institu-tions/associations which did not have the financial resources to liftthese goods meant that funds were locked up, accentuating the liquidityproblem of both banks and these customers.

2.15 Commercial banks are currently reasonably liquid, taken as awhole, although some are more liquid than others. This confirms theneed for an overnight call money market, which the Bank of Ghana isconsidering, that would enable banks that are liquid to lend to thosewho were short of funds. However, the present level of liquidityreflects the relatively low levels of trade and economic activity. Once

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activity picks up, the banks may find themselves short of funds. TheBank of Ghana will, therefore, need to consult closely with commercialbanks on the availability of credit for importers (and exporters) toensure that creditworthy, and potentially creditworthy, customers meettheir legitimate needs. In addition, government needs to take immediatesteps to enable firms to revalue their assets without fear of excessivecapital gains or wealth taxation. A one-time revaluation of assets,would be more than justified by the magnitude of the recent exchangerate movements, which have increased the cedi cost of replacing assetsby a factor of 14. Such a revaluation would make firms more credit-worthy (by decreasing debt-equity ratios) and enable them to chargedepreciation at a more realistic rate in terms of replacement costs.This should be encouraged through exemption from possible wealth orcapital gains taxation for this one-time revaluation which reallyrepresents gains on paper rather than in the real value o' assets.

2.16 The imbalance between the demand and supply for credit that islikely to result when trade levels recover as projected in 1985 aud 1986would also call for positive real short-term interest rates as a meansof rationing credit more effectively and ensuring that capital is notexcessively subsidized in a capital scarce economy. The governmentrecognizes the need for positive real interest rates, and its recentadjustment in interest rates is a small but significant step forwardtowards positive real rates which it expects to attain in the short tomedium term. It has been inhibited from moving faster in this directionby its fear of pushing up costs throughout the economy. But as withforeign exchange, the recipients of credit are currently earning rentsthat can be mopped up without significantly raising prices, whichalready reflect the scarcity value of capital. It is argued sometimesthat savings will not respond positively to a major interest rate changebecause of lack of confidence in the banking system following thefreezing of bank accounts in excess of 50,000 cedis in the pre-Reformsperiod. This measure was subsequently reversed and substantial effortshave since been made to rebuild confidence. However, this will taketime. A clear statement from government of its firm intention not toviolate the privacy of a banking relationship would help. But an effortalso needs to be made to sweeten the pill to an early restoration ofconfidence through higher deposit rates and wealth and income taxexemptions for bank deposits up to a certain value. Small savers maywell respond positively, while the rich will gradually begin to grudgethe high cost of staying outside the system.

Pricing and Distribution Policies

2.17 The management of scarcity has been a major preoccupation withpolicy makers in Ghana. Price controls have been used extensively toensure: (i} the availability of goods at reasonable prices Su times ofacute scarcity and inflation; and (ii) a reasonable balance betweenprices and incomes. rrior to the reform program, almost all prices(other than for domestically produced agricultural commodities) weresubject to control. With the large exchange rate movements since April1983, and consequential changes in relative prices, a system of

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reference prices was introduced for all but 23 commodities/commoditygroups in December 1983. Strict price controls prevail for the 23commodities or commodity groups. 1/ The controlled prices aredetermined by the Prices and Incomes Board (PIB) on the basis of datasupplied by manufacturers. Any price changes for these commodities mustobtain clearance from the Committee of Secretaries (the Cabinet). Forall other commodities, the PIB till recently set reference prices basedon data supplied by manufacturers, importers, etc. which became bindingon the seller. Manufacturers, retailers, etc. were able to make ssallprice changes (8 percent) around the reference price. Any larger pricechange required the approval of the PIB, but not of the Committee ofSecretaries. The reference price system has been further liberalizedmore recently (see para. 2.19).

2.18 The search for price stability through price controls has beenan eluisive one. Since it is virtually impossible to police controls ofthis nature, actual prices prevailing in the open market-despite thevery serious consequences of flouting price regulations--are usuallysubstantially above the controlled price; and the vast majority ofbuyers obtain goods at the open market or black market price rather thanat the controlled prices. Thus controls confer rewards on the veryblack marketeers they are trying to eliminate. The economicconsequences of these price controls have been rather severe. Controlshave distorted relative incentives, favoring trade rather than produc-tion (since price controls are much easier to enforce at the point ofmanufacture than at the wholesale or retail level) and thus underminedthe very supply response that would help reduce prices. They havesuccessfully deprived the government of vitally needed revenues, as theblack market mark-up escaped taxation. Some producers/importers havealso had to incur losses, especially after the devaluation, due todelays in approving price increases, either because the cost of produc-tion exceeded the controlled price or because inventory costs rose asmanufacturers/importers awaited pricing decisions before selling theitems concerned. Even when price increases were approved, there wasinitially a tendency to specify profit margins in nominal (rather thanad valorem) terms, thus eroding profitability in a period of highinflation. The establishment of inadequate margins, and delays inobtaining price approvals, has deprived some importers/manufacturers ofthe cedi cover needed to finance imports, as banks questioned thecreditworthiness of these borrowers. Finally, the controls haveincreased suspicions between the government and the private sector, thuspartly undercutting the government's efforts (para. 2.29) to improve the

1/ Imported rice and maize, sugar, cooking oil, frozen fish, milotonic drink, milk, flour, meat, baby food, beer, textiles, soaps,matches, drugs, cigarettes, kerosene, tires, spare parts,automobile batteries, lubricants and cement.

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business climate. Private entrepreneurs have been vulnerable to chargesof evading price controls and sometimes have been subject toprosecution.

2.19 Recognizing some of these problems, the government hasrecently introduced a significant relaxation in its policy with respectto items other than the 23 controlled items. For these items,manufacturers/importers are free to set prices without the PIB's approv-al. The PIB will continue to establish reference prices. Manufactur-ers/importers must post their prices which the PIB would moEL.tor expost. If the posted prices are severely out of line with the referenceprices, the manufacturer/importer would be required to explain therationale behind his price. This is a welcome step, and its effective-ness would be enhanced through greater publicity to this-decision. Thegovernment has also moved away from nominal to ad valorem profitmargins, and this has dissipated complaints about the fairness of thePIB's pricing formulae and shifted attention to delays in approvingprices. The reduction in the number of items on the list of controlleditems to 23 will enable the PIB to process price revision applicationsmore expeditiously. Efforts are also underway to introduce a setformula for the pricing of controlled items like spare parts, batteries,tires, etc. so that the burden of setting prices within the agreedformula shifts to the manufacturer, with ex-post approval by PIB. Thesewelcome efforts need to be accompanied by a reexamination of the needfor price controls for those items which carry no direct weight in theconsumer price index or which are substantial revenue earners (e.g.,spare parts, auto batteries, lubricants, cement, tires, cigarettes).These can be shifted to the second category of goods in which manufac-turers are free to set their prices within a range of reference prices.Also, items which cover a wide number of commodities or which are basedon domestically produced or potentially domestically produced rawmaterials, such as "spare parts", "textiles", sugar or tobacco should beshifted to the second category. In addition, the need for Cabinetapproval for price changes should be reexamined together with otherreforms which would further speed up processing of requests for pricechanges.

2.20 The use of distribution controls over certain essentialproducts in recent years reflects the frustration of policy makers withthe efficacy of price controls. The rationale for these rests in thebelief that once products leave a manufacturer and enter the hands ofthe wholesale or retail trade, they disappear into the large urbanmarkets preventing an equitable regional and social distribution. Thelack of availability of essentials at reasonable prices undermines realincomes of groups whose morale is clearly very important to politicaland economic stability, namely farmers, civil servants, and organizedlabor. Thus, for selected commodities, the Ministry of Trade issues"distribution orders" which specify how a manufacturer/importer maydispose of his products. For essential commodities, the Ministry ofTrade allocates quantities by region, and specifies the distributionchannel for each region (commercial houses, including the Ghana NationalTrading Corporation (GNTC), people's shops). In addition, the Ministryof Trade will require manufacturers/importers of items other than thespecified essentials to provide 30 percent of their output to GNTC if

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GNTC is willing to market these items either directly or through thePeople's Shops.

2.21 Since, in a tight financial situation, the People's Shopsfrequently lack the resources to lift output, the cost of holding stocksof finished products/imports--at interest rates of 19 percent ormore-is then borne by the producer/importer or commercial house.Commercial banks, not wishing to lock up their funds, are unwilling tolend to entities subject to distribution controls. Thus such controlsadversely affects the production/import of the very commodities whosesupply government wishes to increase. Recognizing this, government hasbegun in certain cases to allow manufacturers/importers the freedom todispose of their products if beneficiaries do not lift their quota by acertain date. While this marks a step forward, the immediate short runobjective should be to minimize the use of distribution controls. Inthe medium term, government needs to reassess the role of People'sShops. The proposal to reestablish these as cooperatives makes bettersense since, as presently constituted, these organizations lack thecommercial experience and may be aggravating rather than improving thesupply situation. A more appropriate course would be to reestablish,with goverrment encouragement, the distribution network of thecommercial houses, particularly the private commercial houses.

2.22 The way to price stability and improved distribution isthrough improved supplies of essential commodities. The improved foodsituation has already demonstrated this clearly. With the recovery inexports and aid levels, the government's import programming must buildin a careful planning of how requirements of essential commodities areto be met. Assuring adequate supplies of essential commodities willexnable gover.ment to eliminate price and distribution controls. Donorscan assist in this process through commodity and program assistance toimprove supplies of essentials.

Incomes Policy

2X23 The reluctance to move away from price and distributioncontrols arises from a desire to protect the real incomes of organizedlabor and the civil service from further erosion. Real wages, by 1982,had already declined to 16 percent of their 1975 level. Since the April1983 reforms, the minimum daily wage has been raised twice from 012.50to 040, but inflation has eroded much of the gains to workers duringthis period (para. 1.33). Moreover, since the increase has mainly takenthe form of higher minimum wages, wage and salary differentials betweenthe senior civil servants and the lowest paid in the civil service havenarrowed substantially, witi- the former suffering an even severerdecline in real incomes. A department director of a Ministry typicallyearns 01,900 a month-$48 at the official exchange rate and about $15 atthe parallel market rate-while the lowest paid civil servant now earns01,200 ($10-30 a month depending on the exchange rate). These incomelevels are totally inadequate to feed, house and clothe a family. Themission estimated the daily cost of a minimum nutrition diet at June1984 prices for one person at 0168. Assuming that food costs constitute85 percent of total expenditures for low income workers, totalexpenditure per day per capita would be about 0200 or five times the

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minimum wage for an individual or 10 times for a household of four,assuming two persons earning a minimum wage. A small and highlyinformal survey of actual household expenditures by the mission revealeda much poorer diet and an actual daily expenditure on food of ¢90 whichwas some 50 percent of total daily expenditures (¢180) per person. Inanother survey in August 1984 in a poor area in Accra (East Maamobi)expenditures on food for a household of four totalled 04,920 per month,and all expenditures of ¢5,800, as against reported incomes of¢1,000-2,000 per month. These large gaps between reported incomes andexpenditures suggest other sources of unreported income (trade,subsistence agriculture, unreported spouse income, moonlighting, etc.)and constitute a substantial temptation for corruption. Possiblesolutions are discussed in para. 2.28.

Administrative and Manpower Constraints

2.24 The inadequacy of remuneration levels in the civil service isan important but partial explanation for the poor condition in whichthis government found the country's development administration. Thedecline in economic activity over the years, political upheavals, and amass exodus of qualified personnel have left the administration in acondition in which it poses a threat to the smooth implementation of therecovery program. The shortage of qualified personnel, low pay levelsfor those who remain, cumbersome administrative procedures, high ratesof absenteeism, and the lack of confidence in the civil service from itspolitical masters have bred low morale, inertia, and inactivity.Planning and implementation functions have suffered, as have informationand control mechanisms.

2.25 Poor 'alaries and political uncertainties have resulted in asteady attrition of qualified personnel from the civil service. Thereare no precise data available; but several examples can be cited. TheMinistry of Education estimates that it has lost some 10,000 staffduring the last eight years. The planning section of the Ghana HighwaysAuthority (GHA) has only one higher level position filled and sevenvacancies. The Ghana Water and Sewerage Corporation (GWSC) has only twoGhanaians in top management. Five years ago it had 90 engineers; todayit is down to 20. There are no qualified accountants left in GWSC,whereas there were 10 a few years ago. The personnel who remainfunction without proper support, and in a poor environment. Lowsalaries and the scarcity of wage goods result in considerableabsenteeism as people are either trying to help their families make endsmeet or are forced to use work hours to chase down scarce consumer goodsand fuel. Long hours are spent commuting to and from work because oflack of transport. Once on the job, the basic essentials for work arefrequently not available: stationery, copying, typing facilities, etc.Inter and intra-office communications are poor. Telephones often do notwork, and lack of transport slows mail deliveries. Politicization ofthe civil service has further worsened matters, as civil servants avoiddecision making and shirk responsibility. The institutions andinformation needed for management and control have become weaker, whilethe role of the state has remained as large as ever. A preoccupationwith the policing of controls has led to the neglect of developmentissues. At the lower echelons, there is considerable overstaffing which

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adds to low morale and breeds inertia, as there is not enough work to goaround, and those who want to work are held back by those who do not.

2.26 The government has begun to take a number of steps to"funcdamentally restructure" the administration. Under the newstructure, the PNDC is the sole appointing authority for all civilservants. The objective is to strengthen the political direction withinministries. To ensure a more effective administration, each Ministry isto establish divisions for planning, budgeting, monitoring and evalua-tion, statistics and training. Each Ministry will also have an advisoryboard to advise the PNDC Secretary on policy and administrative matters.The Board will consist of the Under Secretaries, representatives of thetechnological and professional divisions of the Ministry, nominees ofthe National Defense Council, the armed services, the police and relatedorganizations.

2.27 Work has also begun to restructure the civil service andredeploy redundant and under utilized personnel in the public sector.Three bodies have been set up, a National Mobilization Committee (NMC),a Public Administration Restructuring and Decentralization Implementa-tion Committee (PARDIC), and a Manpower Utilization Committee (MUC).NMC is responsible for developing a comprehensive framework for rede-ployment of labor, particularly to the productive sectors of the econo-my. PARDIC is charged with restructuring and decentralizing publicadministration. The objective is to make each region solely responsiblefor planning and administering its own development programs. Eachregion is headed by a regional PNDC Secretary who has Cabinet rank.Each sector of government would have offices at the regional anddistrict levels which would report to the Regional Secretary.Ministries at the national level would be responsible only for policy,performance monitoring, and personnel matters. MUC's primary objectiveis to identify all excess labor in the public sector and to devise waysand means of redeploying them more productively. All public sectoractivities are to establish manpower "Determination and AppraisalCommittees" which will (i) establish how many people are employed; (ii)evaluate their role and performance; (iii) make suggestions forredeployment; and (iv) assume responsibility for carrying out MUC'sinstructions for redeployment.

2.28 While these, for the most part, are welcome initiatives vhichhave begun to have a positive impact on morale, the goverment needs toturn its attention to the problems of politicization, scarcity ofskilled manpower, and low salaries. Addressing the first requiresincreased recognition of the importance of a professional civil serviceboth in the short and long run. In the short term, technical assistancewould assist in meeting shortages of skilled manpower. However, govern-ment needs to examine whether its decentralization proposals will notprove very staff intensive and spread scarce resources thinly. Thesolution to lo-w salaries lies in a package that substantially raiseswages and salaries, particularly at the higher levels of the civilservice, achieves a massive reduction in the numbers employed in thecivil service, and creates an overall economic climate in which rapidgrowth in the productive sectors of the economy provides the employmentopportunities for those made redundant in the civil service. All this

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cannot be achieved at once. However, a beginning can be made with the1985 budget. In preparing the package, the government needs to:

(i) resist the temptation to merely offer a large across the boardsalary and wage increase. Such an increase will once again bequickly eroded by the inflation it will help feed. Theobjective this time should be to try and achieve a majorincrease in the total real value of emoluments for seniorcivil servants by designing a package of benefits (profession-al allowances, transport, housing, etc.) that reverses theerosion of real incomes they have experienced and at leastpartially restores the public sector's competitive positionvis-a-vis the domestic private sector. A substantial increasefor lower level staff will also be necessary to ensure that aminimum wage is a living wage. Increases at this level willalso need to be linked to (ii) and (iii) below.

(ii) develop a redeployment policy. Current efforts to do thisinclude identification of personnel who may be declaredredundant, and the establishment of retraining programs.These efforts may need strengthening, and be supplemented byattractive termination grants to encourage the redundant toleave the civil service;

(iii) use the opportunity provided by a further wage and salaryincrease announcement (and a related improvement in suppliesof essential commodities - para. 2.22) to significantly reduceor eliminate pricing and distribution controls. This measurewill go a long way to create job opportunities in the privatesector which will greatly ease the task of redeployment. Itwill also release highly trained personnel monitoring pricingpolicies for more important development tasks within the civilservice.

Private Sector Environment

2.29 As the new government's confidence built up, there has been apositive change in its attitude to the private sector. The need toimprove private sector confidence has been clearly recognized, and therehas been a steady reduction in the number and frequency of arbitraryactions that might adversely affect the private sector. Pricing co'Itrolshave been significantly liberalized; and there has been an effort :;orein in the Workers' Defence Committees (WDCs). 1/

1/ WDCs are People's Defence Committees (PDCs) at the workplace level.Their primary functions incLude the political education of workers,ensuring maximum efficiency and productivity within their work-places, rooting out corruption and mismanagement, and participatingin the decision-making process in their workplaces. WDCs areexpected to cooperate with their local trade unions and not takeover the union's functions.

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2.30 The business climate. however, would be improved considerablyby greater efforts to publicize this positive attitude towards theprivate sector. This shot.ld include:

- a clear policy statement that sets out the role the governmentenvisages for the private sector in a mixed economy based on acareful consideration of the possible advantages of selectiveprivatization in such areas as marketing, distribution, andother services, e.g., fertilizers, consumer goods, cargohandling at ports including lighterage and stevedoring and incritical export sectors (timber, mining, etc.). A newInvestment Code that stresses the government's positiveattitude towards potential private (domestic and foreign)investors rather than the regulations and restrictions govern-ing private investment has already been drafted, and should begiven early approval;

- a clarification of the role, functions and limitations of theWDCs with a view to ensuring consistency between the legiti-mate objective of workers' participation in management, withthe objective of efficiency of management;

- more effective dissemination of information about theliberalization of price controls both to encourage the privatesector and to prevent any unnecessary harassment ofenterprises by WDCs and PDCs who are not aware of the spiritand letter of the policy change; and

- a careful consideration of the nature and scope of proposedwealth tax legislation. In moving forward with this tax, thegovernment will need to walk a tight rope between itslegitimate desire to tax urban property and the possibleconflicting signals such a tax may give to the private sector,particularly if it is seen to threaten incentives to work andsave.

2.31 The managerial and entrepreneurial skills available in theprivate sector provide a resource that must be generously tapped ifGhana's recovery program is to take root. The sooner the governmentsucceeds in restoring confidence and reducing uncertainty in the privatesector, the quicker will be the economy's response to the reform pro-gram.

Budgetary Constraints and Issues

2.32 Three major issues have emerged with respect to the budget.First, while resource mobilization efforts have succeeded in raising theratio of revenues to GDP by 2 percentage points (Table D), the projectedratio for 1984 at 7.9 percent is well below the 15 percent reached inthe early 1970s. The size of the parallel economy is a major factor inthe erosi,n of the tax base. In the short term, the objective should beto tax away the high rents produced by controls and shortages, particu-larly through taxes that are not easy to evade such as those on importsand petroleum. In the medium term, the gradual elimination of controls

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and the rents they induce will help boost tax revenues and produce ahigher tax elasticity with respect to GDP. In the longer term, thepositive effect of such a liberalization on production incentives andresource allocation will also benefit resource mobilization. A doublingof the current ratio of revenues to GDP should be the medium-termobjective.

2.33 Second, a large revenue effort will provide a greater degreeof flexibility on recurrent expenditures where the two key issues arethe current low levels of public sector salaries and wages (discussedabove) and the inadequate provisions for operations and maintenanceexpenditures. The latter need to be substantially increased in keysectors, and these adjustments must be closely coordinated withrehabilitation programs in the capital budget.

2.34 Third, frequent cuts in the capital budget, following adeteriorating revenue position, have greatly reduced its relevance tothe recovery program. In 1984, for instance, the capital budget was cutfrom about ¢10 billion to ¢4 billion, less than 2 percent of GDP(Annex C). While an effort was made to protect aided projects and toensure that the government's contractual obligations are met, thetruncated budget has not been fully integrated into the package ofmeasures embodying the recovery program:

- The capital budget comprises a large number of ongoing activi-ties, both aided and non-aided, and mostly small in scope andsize, the original rationale for which may no longer berelevant to Ghana's present circumstances; there are nodiscernible investment priorities other than those dictated bya series of unrelated past investment decisions.

- Despite the government's best efforts, the cuts in expenditurehave been so large that key public utilities have been starvedof funds. Some of them (e.g., GWSC) have been faced with asharp increase in their operating costs (electricity, importcosts) and have not becn permitted the adjustments in tariffsthat would permit full cost recovery. Even where tariffadjustments have been made, the size of the adjustment hasresulted in the non-payment of bills (and the accumulation ofoverdues) particularly from other government departments andpublic corporations also constrained by budgetary or financialconstraints. The lack of capital and foreign exchange toinvest in the rehabilitation of revenue earning facilities orin transport facilities that can be used to oversee mainte-nance or pursue overdue payments, further erodes the viabilityof these corporations.

- The budgetary allocations are not always linked to cashreleases-since these are dictated by the revenue position--orto the import program--since there is no organic link betweenthe foreign exchange budget and the fiscal budget. Thus,priorities set through budgetary allocations may be negated bythe actual availability of cash or foreign exchange. More-over, there may be a failure to synchronize payments from the

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consolidated funds for import duties and port charges with thearrival of imports because of a temporary cash squeeze.

Thus, with the main focus on stabilization, a major instrument for asuccessful structural adjustment of the economy, the government'scapital expenditures, has had to be held in abeyance.

2.35 It is extremely important not to delay much further thedevelopmental momentum that a well conceived public expenditure programcan provide for Ghana's flagging recovery program. While stabilizationconsiderations, and the related need to eschew inflationary financing ofthe budget, remain as important as ever, economic stability in themedium term is itself dependent on addressing the country's structuralproblems. The Economic Recovery Program (1984-1986) was meant to doprecisely this. The adverse developments in the economy have preventedthe program from proceeding smoothly. and strengthened the need for amore broad-based approach. Recognizing this, the government plans todevelop a three year rolling medium-term development program embracingthe recurrent and capital budget commencing January 1, 1986, andintegrating its ongoing Recovery Program into the development program.Such a program should incorporate an incomes and employment policy forthe public sector, a strategy for subsidies and transfers, and one forthe management of the domestic and external debt. The program wouldstrive to attain an appropriate balance:

- between sectors;

- between capital and recurrent expenditures, taking intoaccount operation, and maintenance expenditure needs;

- between resource use (domestic versus foreign, capital versuslabor intensity).

2.36 A key component of this exercise would be to divide proposedexpenditures by priority ranking (core, periphery, and other) which areconsistent with the priority rankings in the import program (para.2.05). In addition to normal criteria such as economic and social ratesof return, the objective should be to:

(i) expedite completion of older ongoing projects in the pipeline,and if these are no longer relevant to Ghana's present circum-stances--even if these are aided activities-to abandon them;

(ii) accelerate expenditures on high priority aided projects so asto ensure greater utilization of the aid pipeline;

(iii) where appropriate, redesign projects to address specificinfrastructure bottlenecks; and

(iv) to emphasize rehabilitation and maintenance over the creationof new capital.

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Conclusion

2.37 In sum, recommended further steps to carry forward the reformeffort would include:

- a more aggressive exchange rate policy;

- improvements in the import licensing allocation system;

- higher producer prices for cocoa;

- positive real interest rates;

- a significant liberalization of price and distributioncontrols;

- higher real wages for civil servants combined with redeploy-ment policies that contain the budgetary impact of such anincrease;

- an improved business climate for the private sector;

- an enhanced domestic resource mobilization effort; and

- better integration of public expenditures with the recoveryprogram's objectives.

2.38 These policy measures need to be integrated into a medium-termdevelopment program that begins to address the substantial rehabilita-tion needs of the economy. Together, they will build on the major andcommendable reforms already undertaken, providing momentum in areaspreviously neglected, and strengthening further the areas where reformshave succeeded the most. Such a broad-based approach will help securethe reform program and ensure a smooth transition to structuraladjustment.

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CHAPTER III - SECTORAL ISSUES AND CONSTRAINTS

3.01 The government recognizes that success of a medium-termdevelopment program will depend heavily on the design of appropriatesectoral strategies for the key sectors of the economy from which thegrowth and exports must come to help finance iuvestments that secure thelong term growth of the economy. The following provides a briefoverview of policy issues and constraints in a few key sectors.

Agriculture

3.02 The importance of agriculture in the national economy is amplyreflected in its central place in the Economic Recovery Program.Adjustment measures initiated in April 1983 and implemented over thepast 18 months have focussed on a substantial restructuring of relativeprices, especially correcting the overvaluation of the cedi, andimproving the financial position of productive sectors with a view torestoring the competitive position of Ghana's major export product,cocoa. Important measures in the program were aimed at reducing theerosion in farmers' incomes and increasing incentives. The*. cqqaproducer price was substantially raised twice. In addition, steps weretaken to increase the supply of essential inputs such as sprayers andinsecticides, while at the same time the subsidies on insecticides wereremoved. To supplement the financial incentives of a higher producerprice, efforts have also been made to increase the supply of basicconsumer items to cocoa farmers. For the non-cocoa agricultural sector,removal of fertilizer subsidies was an important and necessary--forfiscal reasons-policy change. In the foodcrop subsector, the.government has let the open market determine prices with guaranteedminimum producer prices for some crops. The government strategy in thenon-cocoa agricultural sector is to promote maize, rice, and cassava,during the three year period (1984-86) by improving yields in selectedhigh potential areas. Self sufficiency in industrial crops (cotton, oilpalm, tobacco, and groundnuts) needed to support installed and futureagro-based industries is an important objective of policy. Otherobjectives include the promotion of export crops, the provision ofimproved storage, processing, and distribution systems to minimize postharvest losses, and ensuring an adequate buffer stock of foodgrains.

3.03 A World Bank agricultural sector mission visited Ghana in May1984. Its report will become available in December 1984. However,based on its preliminary findings, the following key issues and con-straints emerge in the agricultural sector:

(i) Although the incentive framework for agriculture has improvedconsiderably following the reform program, there remainsignificant distortions in relative incentives for different

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crops. As noted in para. 2.11 above, a further majoradjustment in the cocoa producer price will be needed in May1985 to help restore relative incentives in favor of cocoa.Prices for most industrial crops, particularly cotton, tobaccoand sugar-cane, which are controlled by the government, are atpresent very low and do not provide incentives to producers.As argued in para. 2.19 above, there is a need to liberalizethe controlled prices of end products such as textiles andcigarettes to enable a liberalization of the prices of theagricultural raw materials they use. There is an effort tostabilize food prices for consumers through the operations ofthe Food Distribution Corporation (FDC). The FDC alsoguarantees minimum prices to producers. However, this doesnot act as a support price since the FDC purchases only smallamounts and has no capacity to purchase or carry large stocks.Efforts to stabilize consumer prices have to be reviewed verycarefully given the limited financial and managerial capacityat the disposal of the government and, even more so, of theparastatals involved in the implementation of food policies.There appears to be little justification for support pricesfor crops other than maize. There may, however, be a case forfood security reserve stocks (to be financed through food aid)in the northern region, which is more vulnerable to drought.

(ii) Delays in importation, transportation, and distribution offertilizers have remained a major problem. Except in theUpper and Volta Regions, where farmers' services companieshave been established, input supply is still theresponsibility of the Ministry of Agriculture. Thisresponsibility places heavy burdens on the Ministry's staffand detracts from their responsibilities for extension,research, and policy formulation. A delinking of input supplyfrom extension would be an important policy step towardsefficient discharge of both functions. Additionally, a policydecision to move towards privatization of fertilizerdistribution is recommended to improve efficiency of inputsupply operatio. .

(iii) The government's objective of self sufficiency in major cropsneeds to be based on a careful review of Ghana's comparativeadvantage. Preliminary Domestic Resource Cost (DRC) calcula-tions by Bank staff suggest that the cost of pursuing self-

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sufficiency in rice is high, 1/ while the economics. of cotton,oil palm, tobacco and rubber are sound; maize and groundnutsare border-line cases. With a moderate iuprQvement in yieldsover present levels, maize import substitution becomeseconomic, and is clearly both a feasible and desirableobjective. Mechanization of rice, which has high priority inthe government's plans, yields a net economic loss, althoughrestricting mechanization to plowing of cotton and tobaccoyields attractive returns. This calls for a selectiveapproach to mechanization and appropriate pricing ofagricultural machinery.

(iv) An integrated agricultural plan based on priorities dictatedby comparative 'dvantage needs to be developed. This willrequire closer coordination between the different entitiesthat handle the agricultural sector, and in particular, theGhana Cocoa Marketing Board (GCMB) and the Ministry of Agri-culture (MOA). There appears to be a need for an AgriculturalPolicy Committee with representation from the Ministries ofAgriculture, Finance and Economic Planning, Trade and Indus-try, and GCMB, which will provide this coordination and ensurethat the sector receives high priority.

(v) Agricultural research in Ghana does not get the attentionrequired for a country in which agriculture is the mainstay ofthe economy. To redress the situation, additional funds,staff, and equipment are needed. Working conditions should besuch that researchers are no longer inclined to emigrate. Tomake research more efficient, it is recommended that thecountry's agricultural research institutions are brought underthe MOA. 2/ This will facilitate the establishment of a soundresearch program responsive to the priority needs of the agri-cultural sector.

Forestry

3.04 Forest products, mainly logs, or semi-processed products, suchas sawn timbers, veneers, plywoods, furniture, and flooring are Ghana'sthird largest foreign exchange earner, and a major potential source okforeign exchange earnings. The industry has an installed processing

1/ Even under very optimistic assumptions about yields. DRCs for riceare unfavorable for all techniques and under all scenarios; thevalue added is negative at world prices for large-scale mechanizedand large-scale irrigated r'ce production.

2/ Agricultural research institutions report now to the Ghana CocoaMarketing Board, the Council for Scientific and IndustrialResearch, the Universities, and the Ministry of Agriculture.

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capacity of approximately 1.3 million cu. meters, of which 1.0 mn. cu.meters is in the private sector. Veneer, plywood, and other sheetmaterials account for 13 percent. Logging capacity is very unstable anddependent on imports of spares and equipment. It is currently estimatedat 800,000 cu. meters. Capacity utilization in 1983 was at a low 23percent. The reform programs have greatly improved the financialprofitability of the sector. The average export price to productioncost return has jumped from 30 percent before April 1983 to 200 percentafter. However, while incentives for exports are good, sales ofprocessed products in the domestic market are yielding higher returnsbecause these can be smuggled across the border. With the introductionof the 20 percent foreign exchange retention scheme, smuggling hasdeclined and there is an increasing willingness to export. Timberexports, which rose by 50 percent in 1983, are running below target in1984, due to continuing foreign exchange constraints, and disruptions inpower supply.

3.05 The sector is facing several constraints:

- Foreign exchange allocations have been inadequate to meet thesector's needs. In 1983, for instance, import licenses worth$44 million were issued to the sector, but letters of creditestablished totalled only $10.2 million by end June 1984. Useof export retention schemes through June 1984 totalled a mere$4.7 million. As a result, there are severe shortages ofinputs, particularly, of tires, fuels and lubricants.

- Lack of transport is a major constraint. Log loaders, bull-dozers, tipper trucks and other logging equipment, and spareparts are urgently needed. Railways contribute to delays inthe movement of timber since they are unable to providesufficient wagons and are subject to numerous derai3ments.Inadequate supplies of fuel and lubricants have contributed todifficulties. The resultant excessive transport costs andhigh shipping and f.o.b. charges are eating into theprofitability of exports.

- Two of the four state owned companies (Glicksten, and AfricanTimber and Plywood) are facing serious management and finan-cial problems. The viability of all the state owned companiesis being examined under the IDA Export Rehabilitation Projectand alternative strategies for ownership and management areexpected to emerge from this exercise.

3.06 The Export Rehabilitation Project has provided $25.6 millionfor the timber sector, which is part of a $157 million three yearinvestment program to rehabilitate some 57 of 108 timber mills. Theprogram estimates the private sector's needs at $62 million, the state-owned mills at $56 million, and loggers' at $38 million. Under theproject, the marketing organization and procedures are beingrestructured. The Ghana Timber Marketing Board has been abolished andis to be replaced by the Timber Export Development Board. The former

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entity used to exercise complete control over export production andprices. TEDB will operate solely as a marketing organization.Inspection and grading of exported timber products are to bestrengthened by a Forest Products Inspection Bureau. In addition to thepublic enterprises study, a study rationalizing concession allocationswith a view to cancelling uneconomic concessions and reallocating theseto other producers is envisaged.

Mining

3.07 The mining industry is the country's second largest foreignexchange earner after cocoa, with mineral exports accounting for some 15percent of the country's foreign exchange earnings. The industry hassuffered in the past from an overvalued exchange rate and high inflationwhich eroded the finances of mining companies. Shortages of foreignexchange, the lack of finance to replace over-aged equipment or explorenew deposits, lack of management autonomy, and the departure of foreignand Ghanaian technical and managerial staff, are among some of the otherproblems that have plagued the industry. The government's reformprogram has begun to address these problems. The exchange rateadjustment has restored the profitability of mines and the increasedforeign exchange retention- from 20 to 35-45 percent in the case ofgold, and from zero to 20 percent for all other mineral exports--willhelp ease foreign exchange constraints, provided exports recover.Investment programs have been drawn up for the Ashanti GoldfieldsCorporation (AGC) which are being assisted by an IFC investment 1/ whilethe needs of the State Gold Mining Corporation (SGMC) are to be part-ially met under the $30.6 million gold component of the ExportRehabilitation Credit. This Credit also provides for: (i) fullmanagement autonomy, with SGMC mines to be run as commercial entitiesunder management contract with an internationa' 1aining company;(ii) restructuring of SGMC's finances; and (iii) a -:orker incentivescheme.

3.08 The supply response of the mining sector to the reforms has,on the whole, been disappointing. There are several constraints stilloperating. While the retention scheme will satisfy the foreign exchangerequirements for operations an. maintenance expenditures at normalproduction levels, it is inadequate to meet the large capitalreplacement needs of the industry. In 1983, when the retention schemeswere not fully operational, SGMC applied for import licenses worth ¢140million, but received only 020 million of which ¢7 million of LCs wereestablished. The Ghana National Manganese Company (GNMC) obtained $7million worth of import licenses in 1983 but was able to establish LCsworth only $0.5 million. The same was true for diamonds. Thus, thereis a large backlog of demand for imported raw materials, spares, andequipment, resulting in a reduced effective installed capacity.

1/ $25 million, with a further $25 million from commercial banks.

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3.09 Part of the difficulty lies in the poor financial viability ofmost of the mining companies. With the exception of AGC, which posted anet profit of 0229 million in 1983 (compared to a loss of 03 million in1982) others were strapped for funds, due to low production levels andthe unwillingness of banks to extend them credit until the governmentstepped in with guarantees. Lack of investment funds (some $4 million)are continuing to hold back the operation of GNMC's $25 millionnodulizing plant for the exploitation of carbonate manganese ores nowthat Ghana's oxide ores are depleted. Similarly, funds are needed toshift diamond mining to an area adjacent to the Ghana ConsolidatedDiamonds' (GCD) present concession, which is depleted. GCD's ownfinances are in a parlous state, and government guaranteed debts tocommercial banks currently total 068 million.

3.10 Infrastructure constraints have had a particularly severeimpact on the mining sector. The railway line from the manganese mineto the port--a distance of 38 miles--is in a perpetual state ofdisrepair. At present production levels, the railways need to move1,500 tons of ore out each day, but barely manage 1,000 tons despiteGNMC making available to the railways diesel, ballast, and repairservices. Similarly, the evacuation of ore from the bauxite mines tothe port of Takoradi--a distance of 150 miles-has proved impossiblebecause of the state of the railway track. As a result, some 70,000tons of bauxite has piled up at the mine head and all further mining hasceased since April 1984. GBC estimates that the rehabilitation of thewestern railways, which involves replacements of 80,000 sleepers, wouldpermit it to export some 300,000 tons of bauxite a year. Limited portcapacity at Takoradi has also restricted movement of umnganese.

3.11 Absenteeism and low morale have also been a significant factorin capacity utilization. Lack of food in 1983 and low real wages forcedmany mine workers to absent themselves from work to help their familiesgrow food crops. In the case of SGMC, food or food allowances are nowbeing provided at the mines along with productivity bonuses todiscourage absenteeism and boost morale. While the food situation hasimproved for the moment, low real wages will' continue to be adisincentive, and this problem needs to be addressed (see para. 2.28above).

3.12 In the medium term, the mining sector needs to preparedetailed corporate plans for manganese, diamonds, and bauxite. Theseplans must incorporate investment, management and financial strategies.Donor assistance in paeparing such corporate plans along the lines ofIFC's involvement with An-C or IDA's with SGMC would make an importantcontribution to Ghana's export drive. In preparing these corporateplans, the need for foreign management contracts as a means of facili-tating the objectives of the corporate plans need to be explored.

Industry

3.13 Industrial decline has resulted from a number of factor , bothexternal and internal, -rhich are reviewed below (see also the more

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detailed discussion in Annex D). Policy changes introduced during thelast two years have begun to address some of the distorted incentivesthat have adversely affected industrial structure and output. Neverthe-less, industrial production remains heavily constrained by the lack offoreign exchange, infrastructural bottlenecks, and inadequate liquidity,with capacity utilization averaging less than 25 percent over the lastthree years. Industrial recovery and restructuring will require acombination of additional external resources in the short term andcontinued policy adjustment over the longer term.

3.14 The decline of industrial capacity utilization was precipi-tated by a dire shortage of foreign exchange due to the combination ofan unfavorable international economic environment and a distorteddomestic incentive and policy framework. As noted in Chapter I,exogenous factors included a prolonged worldwide recession thatadversely affected export demand and prices, high energy costs, and adrought that hurt production of both export and food crops and forcedelectricity cutbacks. Past trade and exchange policies such as anovervalued exchange rate, import restrictions, and high tariffs onconsumer goods combined with low duties on imported inputs and capitalprovided high effective protection to generally large, capital-intensiveindustries with very high import content. This fostered animport-dependent high-cost industrial structure. Agriculturalproduction was discouraged by low producer prices and high returns totrading and smuggling, thus undermining the surplus of materials thatpreviously had supported substantial resource-based processing,particularly for export. Industrial performance-and the ability torecover-have also been affected by a negative climate facing producersin both the private and public sectors. Price controls have limited theability of some producers to generate adequate cash flows. Laborregulations preventing the laying off of redundant workers have raisedcosts and reduced productivity as well as liquidity, making it difficultto raise wages. Very low real wages, in turn, have drastically loweredworker morale and raised the propensity for workers to engage both indisruptive actions and in parallel income earning activities. Theprivate sector has felt uncertain about the government's intentionsvis-a-vis private profit-making activities. The performance of publicsector enterprises, finally, has been weak and difficult to c_ntrol,owing to haphazard organization, multiple and unclear objectives, andineffective management.

3.15 Although Ghana has a long tradition of indigenous entrepre-neurship and artisanal manufacturing geared to satisfying the householdneeds of the broader mass of the population, such activity has not beenfavored by the bias of incentives and administrative requirements towardlarge scale activities, nor by the climate for private business.Moreover, even under more favorable prospects, export earnings simplycannot meet the requirements of the highly import-dependent industrialcapacity. A furdamental need for restructuring is therefore to shiftincentives to activities oriented toward export and toward greaterutilization of domestic inputs. These activities are likely to have thegreatest multiplier effects by providing additional resources and income

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to fuel further expansion and they will make minimal further demands onforeign exchange since they can utilize retained foreign exchangeearnings and domestically available materials. This also implies a needto create stronger incentives for production and marketing of surplusesof domestic agricultural and other commodities that can be processed.Moreover, since small-scale manufacturing, repair and service activitieswill likely continue to provide substantial employment as well as themeans to train a large share of the industrial labor force, a centralelement of industrial restructuring must be to allow the small-scalesector to play a more vigorous role.

3.16 As noted in Chapters I and II, the government has, since 1983,undertaken a series of measures intended to remedy the underlying causesof the problems described in the preceding paragraphs. The exchangerate has been progressively adjusted from 02.75 to 038.50 to the dollarover an 18-month period and is regularly adjusted to maintain its realvalue. This has gone a long way toward restoring incentives to exportand reducing scarcity rents and incentives to importers. Tariffs havebeen brought to a reasonable level within the range of 25-30 percent onalmost all items, although they do not yet determine protection becauseof the continuing scarcity of imports and overvaluation of the exchangerate. Agricultural producer prices have been improved, and administra-tive controls on the prices of manufactured goods eased, especially forproducts not on the list of 23 "essential" commodities. Efforts arebeing made in some areas to redeploy redundant labor. Government andworker take-overs of firms have stopped, and in some cases been re-versed. The government has emphasized that its enquiries into thesources of large bank accounts was a one-time exercise at the time ofits coming into power, and that bank accounts henceforth have beenprotected from arbitrary investigation. It is preparing a new Invest-ment Code that demonstr-ates its desire to continue attracting privatedomestic and foreign investors in the context of a mixed economy. Ithas embarked on a comprehensive review of the entire public sector as abasis for a program of restructuring and management improvement. It hasintroduced an export retention scheme and other prograns (includingrehabilitation of critical infrastructure) aimed at revitalizing theexport sector.

3.17 The policy changes described in paragraph 3.16 along withother measures that form part of the Economic Recovery Program,represent a serious and far-reaching attempt on the part of the govern-ment to remedy the shortcomings of past policies affecting industrialdevelopment. Although much more remains to be done, particularly incontinuing the process of adjusting the exchange rate, restoring privatesector confidence and liberalizing price and distribution controls, asubstantial improvement in the incentives facing industrial producershas already taken place. These changes, however, have as yet had littleimpact on industrial output because of the continuing critical lack offoreign exchange for essential inputs, in some cases aggravated byinadequate liquidity and infrastructure. Given the substantialunderutilized capacity and labor force existing in industry, and thesteadily improving policy framework and economic climate, a rapid

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recovery of industrial production would be possible if it has access toadditional foreign exchange, complemented by increasing availability ofliquidity and eli}-ination of infrastructural bottlenecks. Such arecovery could initiate the process of shifting toward a moresustainable industrial structure if additional resources are con-centrated on activities that not only offer a quick payoff or stimulateother sectors, but also have a high potential for long-run efficientresource use.

Transport

3.18 The transport sector is faced with several problems. Chronicforeign exchange shortages have had a devastating effect on a sectorwhich is highly foreign exchange intensive. The foreign exchangecontent of construction and maintenance works is estimated by GHA to be75 percent, and of economic road vehicle operating costs, about 80percent, while almost all railway and port handling equipment and spareparts are imported. Lack of foreign exchange has, therefore, led tosignificant amounts of over-aged equipment or equipment lying idle dueto lack of tires and spares in the ports, railways, and with public andprivate sector road transport agencies. As noted above, the railwayshave been unable to cope with the demands of the timber and miningsector due to lack of wagons and locomotives and the failure to maintainthe track and routinely replace worn out railroad sleepers. The roadnetwork, though badly neglected, has been kept operational, but thebacklog of maintenance and rehabilitation is enormous and, as a result,vehicle operating costs are excessively high.

3.19 Another major problem is the very low wage level in key publicsector agencies in the transport sector, such as the Ghana HighwayAuthority (GHA), Department of Feeder Roads (DFR), Ghana Railways Corp-oration (GRC), and Ghana Ports Authority (GPA) and related port agen-cies. As indicated above (paras. 2.23-2.24), current wage levels aretoo low to support an individual, let alone a family, and this has ledto widespread frustration among workers, high absenteeism as the workersseek other sources of income such as farming and trading, and resultinglow productivity. At the same time, low remuneration levels have forcedmany qualified professional staff to leave key organizations, and seekalternative employment abroad. This has left many key public sectoragencies crippled, without sufficient managers at the senior and middlelevels.

3.20 For the future, the key issues facing the inland transportsector are:

(i) Foreign exchange constraints. Given its vital importance, thesector deserves priority treatment both in the government'sown foreign exchange budget and from donors. The focus must,to the extent possible, be on rehabilitation and maintenance,although the state of transport equipment may well justifyreplacement in many cases. On balance, though, investments innew or upgraded facilities must be taken up only when the

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returns from such investments can be clearly demonstrated tobe high. The following provides a rough magnitude of foreignexchange requirements for essential rehabilitation of thetransport sector:

(a) A road rehabilitation project recently appraised by theWorld Bank, covering the partial maintenance of the roadsystem for the 1985-87 period, and rehabilitation of onemain road, is estimated to cost US$135 million in foreignexchange; rehabilitation necessary for other main roadswill cost about US$300 million in addition.

(b) In road transport, essential import requirements fortires, parts, and new vehicles needed in 1985 isestimated at about US$150 million; another US$200 millionmay be needed during 1986-87 (2 Yrs).

(c) The ongoing rehabilitation of the western sector of therailway system, partly funded by IDA and the AfricanDevelopment Bank, would require urgent supplementaryfunding of about US$15 million in 1985.

The above adds up to about US$800 million in foreign exchange for urgentrehabilitation requirements in the key inland transport sub-sectorsduring 1985-87, excluding projects already funded. The sector's needswill have to be set against those of other sectors in the present tightforeign exchange situation.

(ii) Foreign exchange and energy costs can be severely reduced byemphasizing:

- mass versus personal transport;

- within personal transport, energy efficient vehicles suchas bicycles, mopeds, animal-driven carts, and vehicles;

- import substitution, where this is economic, of sparesand tires. The latter appears a distinct possibilitysince an existing tire factory could be rehabilitated.The viability of this needs to be examined; and

- more labor intensive methods of road maintenance,particularly for rural roads.

(iii) Staff morale and lot; salaries are a major factor causing poormaintenance. This is an issue that cannot be tackled inisolation at the sector level (see para. 2.28). However,programs designed to strengthen incentives and training forbetter operations and maintenance would make an importantcontribution, and donors could assist in this area. Food aidprograms supported by the World Food Programme and otheragencies are showing very positive results; for example, in

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GRC, when a package of imported food (rice, cooking oil, sugarand canned tuna-- items which are in shortage in the countryand which do not compete with local production) wasdistributed to workers on a weekly basis for a nominal price,absenteeism declined and productivity increased significantly.A wider application of such programs tied to targets ofreduced absenteeism and increased productivity will be a sureway to improve efficiency of the transport sector in the shortrun, particularly in activities like road maintenance, railwayoperations and port handling.

(iv) Pricing policies are appropriate for road transport companies,which are expected to operate at a profit. However, therailways and road users are being subsidized to varyingdegrees. The situation of the railways will improve only oncompletion of the ongoing rehabilitation project which isintended to improve their viability. As for road user charg-es, there is a strong case for raising their level immediate-ly. Vehicle licensing fees are low, duties on importedvehicles and spares are a mere 25-30 percent; gas oil pricesare partially subsidized by gasoline. A fuel tax that mops upthe current high rents enjoyed by road users will provide auseful incentive to conserve fuel and a major source ofbudgetary revenues. A related pricing issue is the inadequacyof the price the railways were willing to pay the timberindustry for track sleepers. This has proved a strong dis-incentive to regular supplies of sleepers from the timberindustry for t1he track rehabilitation program. The price hassince been raised, but remains inadequate.

(v) The government also needs to develop an overall transportpolicy, particularly to determine the relative priorities asbetween road and rail transport and between the public andprivate sectors. The deterioration of the railways has beenso marked, and there has been such a noticeable shift to roadtransport, that the viability of the railways in their presentconfiguration needs to be closely examined. There is littledoubt that the Western Line is viable in the long run sincethere is no alternative means of transport for Ghana's mineralexports. The additional funding of $15 million needed tosupplement the ongoing IDA/ADF Credit to rehabilitate thewestern line needs to be provided urgently. Traffic on theEastern and Central Lines declined to insignificant volumes interms of freight in 1983, and about half a million passengerstravelled on each line. A parallel and competing road network(Accra-Kumasi and Accra-Takoradi) is being rehabilitated.Traffic prospects, rail transport costs, and the viability ofGRC's various lines are currently being evaluated in a studyfinanced under the IDA supported Railway RehabilitationProject. This study will be an important input into a newtransport policy. The need to encourage private roadtransport for both passengers and freight, through relaxation

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of tariff regulations and provision of credit for purchase ofspares and equipment, should be explored.

3.21 As for the ports subsector, the key problem is the high turn-around time for vessels. Pre-berthing delays at Tema in February 1984averaged 4 days, 2 days for general cargo ships and one month forfoodgrain ships; the latter because the port has only two deep waterberths which can take ships of upto 10 meter draft. Low productivity inloading and unloading is a serious constraint. Tema's mechanized grainhandling capacity is 200 tons per hour; however, effective capacity is30 tons per hour; even at this capacity, the unloader cannot be movedalongside the ship because of damage to the rails along the berth so theship has to be moved to unload cargo from each of its holds. Theloading rate for cocoa at 280 tons per day is 25 percent of capacity.Slow handling prolongs turnaround time and causes high berth occupancy,and contributes to pre-berthing delays. In addition, because ofsiltation and low drafts in the ports, ships have to be diverted toother ports to lighten their loads before calling on Ghana ports. Thelow drafts also force che use of an uneconomic size of ships andunderloading.

3.22 The frequent general freight increases to the Ghana sectoreffected by various shipping lines, even in the face of decliningfreight rates elsewhere in the world, are a partial reflection of thesehigher port costs. Moreover, many shipping lines levy a special "GhanaPorts Surcharge" of about US$4 per ton, because of the low productivitylevel at the ports. These surcharges will increase when port trafficpicks up again, unless port facilities are improved urgently.

3.23 The reasons for the conditions of the ports are not hard tofind. First, due to shortage of foreign exchange, preventive andregular maintenance has been neglected. Even anti-corrosive paintneeded to protect floating craft has not been available. Over-agedequipment and poor maintenance have resulted in only 8 of 69 forklifttrucks in Tema being operational; only one of the three tugboats each inTakoradi and Tema are being operated. Civil engineering facilities arein poor repair. Second, due to the poor condition of dredgers, mainte-nance dredging has been neglected, resulting in substantial siltation.Finally, poor management, lack of trained staff, and absenteeism due tolow wages and scarcity of essentials has contributed to the ports'problems. The poor performance of the public sector cargo-handlingcompanies has also been a problem.

3.24 A $4.8 million port component in the IDA financed ExportRehabilitation Project was meant to meet urgent needs for spare partsand equipment and repairs for civil works. This was part of an initialestimate of $15 million to cover emergency needs; the rest was to comefrom cofinancing which has yet to materialize. The foreign exchangecost of urgent rehabilitation needs in port equipment and facilities isestimated at about US$40 million during 1985/86. Studies are underwayto prepare a medium-term ports rehabilitation project and to strengthen

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port institutions and management. These will provide an improved basisfor donor support to Ghana's ports.

Energy

3.25 Although Ghana is well endowed in energy resources, supplieshave been constrained in the early 1980s. The severe drought drastical-ly curtailed hydroelectric power output; the increase in petroleumimport costs, and more recently, severe foreign exchange shortagesforced a reduction in petroleum imports, and further aggravatedtransmission and distribution losses in the electricity subsector.

3.26 The government's immediate short-term objective is to increaseenergy supplies and reduce the country's vulnerability to disruptions insuch supplies, partly through inter-change of energy between Ghana andits neighbors. A second objective is to expand the development ofindigenous energy resources tbrough gas and oil exploration and thedevelopment of renewable energy resources which account for a third ofGhana's energy requirements. A third objective is to promote moreefficient use of energy through demand management.

3.27 The first objective should be partially achieved once therecent recovery in water levels in the Akosombo and Kpong reservoirsresults in a return to normal power supplies in 1985 (with the exceptionof VALCO's smelter which will continue to receive less power thanrequired), and once the projected improvement in the foreign exchangesituation permits an increase in petroleum supplies. In addition, threeongoing and proposed projects which are being partially financed by IDAare designed to promote petroleum exploration, rehabilitate the oilrefinery and power distribution systems.

- Inter alia, the Energy Project comprises: (i) the collection,processing and evaluation of past exploration data;(ii) acquisition, processing and evaluation of new seismicdata in an area of 1,000 sq. sm. relinquished by an oilcompany; and (iii) expediting offshore exploration by prepar-ing a promotional package for the oil industry, revising thelegal framework for petroleum exploration, organizing biddingof acreage and assisting in negotiations for exploration andproduction contracts. Under this project, negotiations havecommenced with Agripetco on a participation offer for a smallfield (Saltpond) which could potentially deliver some $300million of oil during the remaining years of this decade.Petro-canada has comenced drilling in another field, andconfirmed the existence of hydrocarbons. A gas utilizationstudy is about to be commissioned.

- Under the Petroleum Refinery Rehabilitation Project studieswould be carried out, and plans prepared to: (i) rationalizethe petroleum refinery to match its production to the patternof domestic demand; (ii) improve the efficiency of the refin-ery; and (iii) reduce the losses of crude oil in ocean

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transport, at the harbor and in the refinery; (iv) improve theproduct distribution system; and (v) improve the financialmanagement and accounting system of government companies inthe petroleum sector.

- The proposed $24 million Power VII Project is intended torehabilitate the Electricity Corporation of Ghana's (ECGs)diesel generating plants, and distribution system, and providevehicles and equipment, improve billing, collection, andaccounting systems and strengthen training and manpower needs.In addition, the Volta River Authority (VRA) which isresponsible for bulk power generation, has contracted Canadianconsultants (Acres) to review the case for thermal power (coaland gas based) to complement existing hydro capacity. Thereis also a need to rehabilitate VRA's major sub-stations (inaddition to the ECGs distribution system).

3.28 Power exports to VALCO's aluminum smelter and to Togo-Beninwere severely reduced due to the fall in the reservoir level. Thesewill now be restored to normal levels as will supplies to the IvoryCoast, which were being made on a restitution basis through 1984. In1984, VRA has negotiated new rates for electricity supply to VALCO andTogo/Benin, which are substantially above the old rates. VRA believesthat, if domestic power demand grows as projected at 3 percent perannum, it should eventually be possible to export power to Upper Voltaand Nigeria, expand the domestic network to northern Ghana, and expandexports to the Ivory Coast. This will require sizeable investments inthe inter-connection of grids.

3.29 For these plans to materialize, and for Ghana to containexpenditures on petroleum imports, energy conservation will need to playa major role. The following are some of the key areas for conservation:

Electricity Pricing: Although power tariffs have been raisedby 500-1,000 percent and this will permit an adequate returnon capital, at US 3i per unit, they are substantially belowprevailing electricity prices in Ghana's neighbors (US 8-9O).A newly constituted power curtailment committee is examiningthis among other areas of power conservation, and it estimatespotential savings of between 10-20 percent from present usageof electricity.

Petroleum Pricing: The government has moved decisively toeliminAte the subsidies that emerged for petroleum productsfollowing the large exchange rate movement in April 1983.These have resulted in substantial increases in the price ofpetroleum products. However, petroleum prices, expressed indollar terms at the official exchange rate, remain well belowthe prices prevailing in most oil importing countries (Ghana'sneighbors), and at the parallel rate, these prices are evenlower. This gives rise to considerable rents for those whoare able to purchase products at the official rate

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(particularly in the context of the present shortage ofproducts), and encourages smuggling. A fuel tax designed tomop up these rents and encourage conservation of what is ahighly scarce resource, appears a high priority.

Conservation Programs: The potential for conservation isgreatest in the industrial and transport sector. Most ofGhana's industries were developed prior to the energy crisisof the 1970s when plants were designed to take advantage oflow energy costs. This resulted in high energy consumptionper ton of product and a lower investment cost than wouldotherwise have been the case. At today's prices, it ispossible to obtain high returns on energy saving investments.These range from relatively small investments designed toensure optimal use of existing plant, (e.g., better control ofair/fuel mixes in furnaces, preventive maintenance, insula-tion, elimination of steam leakages, etc.) to more costlyinvestments in retrofitting of existing equipment (heate::changers, boilers to recover waste heat, etc.). An energyconservation program needs to be developed to: (i) createawareness of potential savings; (ii) conduct a technicalassistance program for users including energy audits;(iii) provide incentives/legislation to encourage savings; and(iv) ensure that finance is not a constraint to the executionof energy savings.

3.30 In the transport sector, as stated in para. 3.20, there isconsiderable potential for conservation. Better maintenance of vehiclesthrough improved supplies of imported spares and tires will help; butsecuring a more radical shift to public transport, and to less energyintensive modes of transport should be a major objective of policy.

Human Resources

3.31 Ghana is faced with several constraints ir the development ofits human resources. Pzeliminary results from the 1984 census suggestthat the population has been growing at 2.6 percent per annum. Thisrate of growth conceals a high natural rate of increase due to the largeout-migration in the last decade. Although a national family planningprogram has been in existence for over a decade, acceptance rates havedropped to an estimated 10 percent of eligible women, due in part tolack of transport for needed contraceptive supplies. Second, the healthstatus of the population is poor, with little improvement in sight.There are frequent outbreaks of communicable diseases, and the healthservice cannot always influence the progress of epidemic diseases.Third, the urban and regional hospital facilities have deterioratedrapidly during the past two years. Most medical staff of these facili-ties have left to join the private sector or migrated overseas. Build-ings are old and some of them have fallen into disrepair. Medicalequipment is scarce and what remains is obsolete, and drug supplies arelimited. The referral system between various levels of the health caresystem is almost non-existent. Fourth, the nutrition situation is quite

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poor. Estimates by the Ministry of Agriculture indicate per capita foodavailability in 1982 was 30 percent lower than ten years ago. Asmall-scale nutrition survey carried out in 1983 in eight southernvillages indicated that 5 percent of children under 5 years wereseverely malnourished, and that 50 percent were under 90 percent ofstandard weight for age.

3.32 In the short term, the government needs to prevent furtherdeterioration of the few services which are still functioning, and atthe same time establish basic infrastructures which will be essentialfor developing future programs and for restorina the credibility of thehealth system. The key issues facing the health sector are:

(i) The deterioration of health in urban areas, as a result ofacute food shortages and of a collapse of public healthservices. Priority action should be geared to maternal andchild care, with the establishment of urban centersresponsible for nutrition surveillance and rehabilitation,immunization, outpatient pediatric visits, antenatal and postnatal care, family planning and distribution of contra-ceptives, and outreach activities in the various sectors ofthe towns.

cii) The outbreak of communicable diseases which calls for therehabilitation of preventive services and control programs.As a priority, infrastructure for the cold chain and mobileimmunization delivery systems needs to be established.

(iii) The lack of communications, logistics and maintenance. Thehealth services are unlikely to attain a reasonable coverageof the population as long as inland areas are short of basicsupplies (gas and kerosene) and as long as the economicsituation of the country does not permit an adequate supply ofbasic spare parts. This situation precludes the normaldistribution of supplies to provinces and health posts, thesupervision activities, the launching of immunizationcampaigns, and in general any outreach activity.

(iv) The management of drug supplies. Local factories for drugsand disposable syringes are operating well below t.Seircapacity. Consequently, the public and the private sectordraw important foreign exchange resources to purchase drugsabroad, and the scarcity of these resources result In apermanent shortage. The government considers this issue as apriority for the short term.

3.33 The government's objective of reducing malnutrition should bepartially achieved with the recovery in food production in 1984, and theadequacy of current food stocks. Several NGO's already provide foodsupplementation to pre-school children. The Ministry of Health withUNICEF support, is preparing the restarting of immuimzation programs anddiarrheal disease control in several provinces. A proposed FY86

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project, to be partially financed by IDA, is expected to assist inrehabilitating urban child-care services and fauily-planning deliverycenters, and in initiating programs for stronger preventive services inthe country.

3.34 Education: Ghana's once well developed education sector hassuffered a steep and accelerating decline in quality, quantity, andinstitutional support. The primary reason for this decline is theeconomic crisis which has resulted in a reduction in the share ofeducation in government expenditures from about 21 percent in the1969/70 to 17 percent in 1981/82, and to reportedly lover levelssubsequently. The other reason is the exodus of teachers and educationspecialists for higher wages in neighboring countries. The quantitativedecline is evidenced by an adult literacy rate of 30 percent which,although high by West African standards, represents a deterioration forGhana. The mass literacy campaign undertaken by the government has lostmomentum as a result of the economic crisis. Approximately two millionschool age children do not have access to education. First, funds arenot available for new school construction. The capital budget, whichwas about 7 percent of education expenditures in 1969/70, has declinedto less than 3 percent of the reduced education budget in 1981/82.Second, existing capacity use is far from optimal. About 75 percent ofsecondary schools offer boarding facilities. Government efforts toconvert them into day schools to reduce per student costs and increasethe number of student places have not been successful so far, but needto be persisted with. Furthermore, school location plans have not beenmodified in response to population growth and movement. Thus, someareas have no schools while others have excess school capacity.

3.35. The declining quality of education is also a concern.The failure rate at the common entrance examination to secondary schoolsis about 83 percent. In the 1979/80 school year, about 43 percent ofprimary and 72 percent of middle-school teachers were untrained-thesefigures are reportedly higher now. There are virtually no textbooks orbasic school supplies. In 1980/81, only 2 percent of the recurrentbudget was allocated for non-salary items. Teacher training collegesand technical vocational schools are not able to produce the number orquality of manpower required due to lack of teachers; school inspectorscannot perform their functions for lack of transport. Institutionalsupport to the system has become severely deficient. Educational plan-ning expertise is absent; statistics are out of date and uareliable, andcannot be used as a basis for judgement; office supplies and equipmentare lacking; communication with the field is non-existent. The educa-tion system has undergone three reforms since Independence; since thegovernment has not had the means to complete a change over from onesystem to another, all three systems are currently operating.

3.36 In the education financing area, institutional weakness is abottleneck. Resource allocation between levels of education does notcorrespond with priority needs. Per student costs at primary levelaverage $9.0, which is low even by West A' ican standards. Measures toincrease cost sharing by parents have so ta: not been possible due to

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the economic crisis. Parental contribution to textbooks has remainedaround 3 to 15 cedis per student per annum since 1963, despite the veryhigh inflation in this period. The government is unable to obtainemployer support in the form of a tax to help financetechnical/vocational education, despite the private sector's admittedneed for trained manpower.

3.37 Government policies such as universal primary education andincreased technical/vocational training have not been translated intocarefully phased action plans. Although each operating directorate ofthe Ministry of Education has identified its needs, these have not beenconsolidated into a macro plan and annual programs. With regard todonor assistance, the sector lacks the capacity to formulate aidrequests. External assistance is tragmentary, uncoordinated, andinadequate.

3.38 In light of the above, three priorities emerge: (i) rehabi-litation of the sector to prevent further decline in quality andcoverage; (ii) the need for an overall sector plan and investmentprogram that is realistic and within the current implementationcapability of the country; and (iii) coordination of donor assistance inthe areas to be identified by the plan.

Conclusion

3.39 This brief survey of key sectors reinforces the analysis inChapter II. There is a remarkable commonality in the problems facingmost sectors: the all pervasive foreign exchange shortages, weaknessesin the incentive framework and pricing policies, the need to strengthenthe role of the private sector, and the adverse effects of the presentlow wage and salary levels and related managerial weaknesses. Detailedsector strategies need to be prepared soon which can form the buildingblocks for a medium-term development program. In some areas, work onthis is already considerably advanced (gold, timber, cocoa, highways,railways, ports), while in others, the forthcoming World Bank sectorstudies (agriculture, indastry, health, and education) will provideuseful inputs. The task of integrating these various efforts into amedium-term development program cannot be minimized, and an earlybeginning in this direction-with appropriate technical assistance--iscalled for. Moreover, it is important to deal with those issues thatcut across several sectors urgently so that a consistent overallstrategy emerges.

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CHAPTER IV - AID REQUIREMENTS

4.01 The success of Ghana's Economic Recovery Program is heavilydependent on a substantial increase in concessional aid flows. Thischapter discusses the size and nature of Ghana's aid requirements in theshort and medium term in the context of its balance of paymentsprospects. It begins with a review of the 1984-86 balance of paymentssituation (set out in Table G) and assesses its implications fur aidcommitments and disbursements in 1985 and 1986. The chapter goes on toprovide an overview of medium term balance of payments prospects anddraws some lessons for Ghana's policy makers and the donor commrnity.

The 1984 Out-turn

4.02 There is as yet little hard data on the 1984 balance ofpayments out-turn. Present indications suggest a considerable improve-ment in the overall balance of payments position in 1984; however, theresults will still fall well short of the original program expectations.This is due to an improvement in Ghana's export prices, and a sub-stantial increase in capital receipcs. The value of exports is project-ed to rise to $580 million, a 32 percent increase over the very lowlevel of 1984. While the long awaited recovery in imports is alsoexpected to begin, the growth in imports will be considerably beloworiginal projections. This moderate growth has been made possible by anincrease in aid disbursements, which reflects an encouraging Initialresponse from the donor community to Ghana's reform program.

4.03 The recovery of exports is led by cocoa, earnings from whichare projected to grow by some 45 percent This is despite a decline inthe volume of cocoa exports, which at 165,000 tons will reach a new low.However, unit prices for cocoa have risen temporarily by 53 percent overthe 1983 level. Exports of other goods have risen much more modestly(10 percent over low 1983 levels). Although incentives for non-cocoaexports have improved considerably, following the depreciation of theexchange rate and the introduction of foreign excharge retentionschemes, the response to these new incentives nas bean modest so far,reflecting the severe infrastructural problem discussed earlier in thisreport, particularly in respect of transport and port facilities, andmanagerial and administrative constraints, especially in the gold miningsector.

4.04 Imports are projected to rise by some 21 percent. This partlyreflects the return to near normal levels of petroleum import3. Non-petroleum imports are expected to rise by 24 percent. This latterincrease may not fully materialize because of the delays in issuingimport licenses for 1984 and revalideting the overspill of 1983licenses.

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Table G: BAlAN9 OF PAUINES, 1982-86(W$ UdllJfI, cureat prices)

1982 1983 1984 1985 1986A Reined a/ EC.tium^ te/ BmilSaff Prjectigm

A. MI4mADISE -24 -137 120 -240 -275Exports f.o.b. 607 440 580 660 850I1mot c.i.f. -631 -577 -. '0 900 -1,125

B. N1N FACU SEVIM -85 -151 -150 -110 95ReReipts 105 123 34 80 1PEimnt -190 -274 -184 -190 -215

C. RMOUlJ BMAlC WB) -109 -288 -270 -350 -370

D. NEr FACE DUXDE -82 -82 -95 -100 -135Receipts 2 0 2 10 10paEy -84 -2 -97 -110 -145

L PRVATE TLM4F (Net) b/ -1 14 60 70 80

F. CURREDIr AZr BAUMCE (C-H)E) -192 -356 -305 -38 425ffnbmmed by.

(i) CrG7m (Official Traafers) 84 79 151 155 18D(ii) Official Lwg Term Lis (net) 16 37 104 152 220

(a) D (55) (84) (154) (205) (285)(b) Aurtislt:Ir (39) (47) (50) (53) (65)

(I) Officia M4ediu Term Touis (net) 97 30 12 - -

(iv) Trust Puid - - -1 -7 -10(v) Direct Foreiga lNestmnt 16 14 2 5 20

(vi) Private WMd & ICr Tern Loom (net) -5 12 -19 20 50(Vii) Ot0r 14 61 -55 - -

(vLiii) Errors and Qdns s -3 -120 - - -

G. NEr CAPAL ATOMr +219 +113 +194 +325 4460

L OUERl BNANCE(F-G +27 -243 -111 -55 *+35

I. aeD NY11 MIS -24 +243 +111 f55 -35

li (net) -5 259 217 126 -20Q4g8es in SOR Hlings -10 16 - - -

Foreig bmcwge -43 1 -36 -11 -

PEans Arre 35 -34 -70 -60 -Bilateral Balances -4 1 - -

Ienrese in Gros es - - - - -

J. PENN= GAP - - - - -;5

Muvraami ItenB:Phsource Gap as Z of GDP at Market Prices 0.3 3.0 3.4 4.8 4.9CUrrent AowCnt Deficit as 2 of GP

at Market Prices 0.6 3.8 3.9 5.2 5.6GrWS Add Dldwm Amig No

Now Cawdtiets after 1984 139 163 305 241 131OGo Aid Didnmi Wfit C aime

Projected as in Table III-C [ (i)+(1) )] 139 163 305 360 465Net Aid ar, Z of CUP at Market Priceg 0.3 1.2 3.3 4.2 5.3

a/ Offlcdal estimes revisd by Banstef-.b/ng remi K Under Special Lmbered LicmSne ($18 *IlliU in 1983and $53 minion In ea of the subequent years.

Surce: rpsk of am and mF, for 196244; ]*k staff estes for 1985 md 1986.

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The terms of trade are expected to improve by about 28 percent in 1984due mainly to the improvement in export prices. The current accountdeficit of $305 million represents an improvement in nominal terms over1983, and at 3.9 percent of GDP, is about 2.8 percsatage points (of GL'P)below the original program projections.

Aid Disbursement Delays

4.05 Net capital receipts are projected to increase by some $81million to $194 million in 1984. This is mainly on account of gross aiddisbursements which are expected to nearly double to $305 million. Thecapital account might have looked healthier but for the near doubling inthe level of public sector amortization payments between 1983 and 1984from $84 million to $153 million, delays on the part of donors incommitting quick disbursing aid, and the relatively slow initial pace ofdisbursement of such aid (provided by IDA, the African Development Fundand others). Several factors contributed to the slow pace of disburse-ments. The most important was the lack of cedi cover. Public sectorimporters were constrained by the tight budgetary situation, or in thecase of comercial entities, by the parlous state of their finances.Private sector importers found the commercial banks unwilling to providebank guarantees to cover the landed cost of aid financed goods, becausethe value of imports had risen by over 1,000 percent following devalua-tion, and in some cases, exceeded the total value of assets of theimporter (see para. 2.14). Comm:rcial banks were also reluctant toprovide guarantees when the goods concerned were subject to price anddistribution controls (see para. 2.17). The procurement procedures ofdonors' also contributed to delays. Inadequate bid specifications wereanother source of delay. With experience, many of the minor problemshave been ironed out; but the shortage of cedis and pricing anddistribution controls remain constraints. The lessons learnt from theexperience of these early attempts at quick disbursing aid need to beapplied to future aid efforts. Donors, on their part, will need tosimLplify their procedures to the extent possible, while the governmentwill need to ensure that its own rules and regulations do not impede thepace of disbursements.

The Outlook for 1985 and 1986

4.06 The prospects for the next two years for exports are for afurther improvement, based mainly on a sharp recovery of volume in thecocoa, mining and timber sectors. This is forecast on the assumptionthat there will be a more positive response to the depreciation of thecedi from these sectors, aided by a more determined effort torehabilitate the related infrastructure. Cocoa exports are assumed torecover to some 200,000 tons in 1985 and further to 225,000 tons in.1986. The expected decline in cocoa prices will partly offset thisrecovery in volume; nevertheless, cocoa exports could earn some $424million in 1985 and $515 million in 1986. In the non-traditional exportsectors, electricity exports are forecast to register a large increase.These exports suffered a serious reduction following the drought in 1982and 1983, although the cuts were not as sharp as they might have been

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because of the policy of imposing the main burden of the cuts on thedomestic market. It is assumed that not only will output recover in1985-86 with the benefit of a more normal rainfall, but that Ghana willdiversify its export markets, restore supplies to the VALCO aluminumsmelter and increase substantially average unit export prices. Therehas been good progress in all these areas during 1984. Trial supplieshave begun to the Ivory Coast to supplement the Togo-Benin market; and anew arrangement with VALCO will substantially increase the basic tariffVRA imposes on that entity.

4.07 Between 1984 and 1986 imports are projected to grow by 61 per-cent and exports 47 percent. This expansion in imports is essential tothe success of the recovery program since it will provide the inter-mediate and capital goods needed to rehabilitate Ghana's economy,replace worn out equipment, and rebuild depleted stocks of spares andraw materials. Projected import levels for 1985 will still leave importlevels at just over one-half of 1970 levels in constant dollars, and in1986, at under two-thirds.

4.08 The deficit on non-factor services (such as freight andinsurance, transport and travel, etc.) is expected to be reduced in 1985and 1986 as non-factor service receipts, which fell to an unusually lowlevel in 1984, return to more normal levels. However, the outward flowon account of net factor income will increase by 40 percent in 1986 over1984 levels. We have assumed that a restoration of confidence andefforts to attract remittances will increase private transfers outsideof the Special Unnumbered Licenses remittances, with a modest initialimpact in 1985 and 1986. The current account balance will be in deficitto the extent of $380 million in 1985 and $425 million in 1986 or 5.2percent and 5.6 percent of GDP respectively. This increase in thedeficit will need to be largely financed by concessional aid receipts.Aid disbursements are projected to rise from about $305 million in 1984to $360 million in 1986. Taking into account other anticipated netcapital receipts and payments, the overall balance will be in deficit by$55 million in 1985. Net transactions with the Fund ($126 million) willcover the 1985 deficit, and permit a further planned reduction inarrears of $60 million and a small build up in reserves. In 1986, theoverall balance will be in a small surplus. This will be insufficientto finance Fund repurchases ($20 million) and to pay off past arrears($60 million) on the current schedule.

Past Aid Performance

4.09 To reach the level of aid disbursements projected for 1985 and1986, and necessary to finance the recovery in imports so essential toGhana, there is not only an urgent need for further substantial newcommitments, but also that such commitments take a form which permitstheir early utilization. Donors will collectively need to raise theirlevel of commitments on highly concessional terms sharply over theirrecent past levels if this much needed growth in imports is tomaterialize. Net disbursements of official development assistance (ODA)

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to Ghana between 1976 and 1982 averaged a mere $12-13 per capita ofwhich roughly half came from multilateral sources:

1976 1977 1978 1979 1980 1981 1982

Net ODA to Ghana 1/($ million) 64 91 114 169 192 145 142Per Capita ($) 6 9 11 16 17 13 12

Ghana, has, therefore, been relatively neglected in the past by donors.This was not without reason since policy performance was not conduciveto efficient use of aid. That same logic suggests that during thisperiod of good policy progress that Ghana should be highly favored bydonors.

4.10 At the meeting of the Consultative Group for Ghana in Paris inNovember 1983--the first in thirteen years-there was a general recogni-tion that Ghana's pressing needs and the courage and realism of thegovernment' s recovery program merited increased support, although only afew donors were able to make specific pledges of increased aid.Provisional estimates of aid conmitments and disbursements for 1984,however, do show a substantial advance on 1983, equal to around 118percent in current dollar terms for commitments and 87 percent fordisbursements. However, this increase was from very low levels, andalmost all of it is accounted for by a few multilateral agencies,(mainly, EEC, WEP, AD1 and IDA and one bilateral donor, Canada, whichaccounted for $53 million of the total bilateral commitments of $120million). 2/ Four-fifths of total commitments from all sources wentinto non-project aid, which more than trebled over 1983 levels. Projectaid commitments declined slightly over 1983 levels.

1/ Source: OECD DAC.

2/ Canadian commitments were exceptionally high due to an oilexploration grant (US$ 30 million) which was additional to Canada'snormal commitment authority for Ghana.

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Table H: AID MaMlMS TD GME, 19831984($ mlIUCC)

ioect a/ Nlect b/ Total y________1983 1984 1983 1984 1983 1984 1985 1986

ltila-teral/ C 42 78 59 217 101 295Bkilaterl 54 9 35 111 89 120

Total 96 87 94 328 190 415 46050

Scm: Amzc F.

a/ Iw3Zfflg tacuLcal. assistmae.b/ Progra and sector support, food and ccmwdity aid.If Fxwud1xg 3DF.

Recommendations for 1985 and 1986

4.11 Based on the new commitments of aid realized in 1984, the aidpipeline at the beginning of 1985 is estimated at $498 million.Disbursements from this pipeline are projected at $241 million in 1985and $131 million in 1986. Thus, if (i) total disbursemeuts are to reachthe projected levels of $360 million in 1985 and $465 milI.ion in 1986,and (ii) if the aid pipeline is not to fall sharply, substantial new aidcommitments will be required in 1985 and 1986. In our view new aidcommitments totalling $460 million for 1985 and $500 million in 1986would be appropriate (Table I). These represent an 11 percent increasein 1985 over 1984 levels, and a further 9 percent in 1986 over 1985. Toachieve these levels will involve a substantial additional effort on thepart of bilateral donors. This is because some of the multilateraldonors (WI in particular) will find it difficult to sustain their levelof 1984 commitments, some of which represented an emergency response tothe drought; others, like IDA, are constrained by the resourcesavailable to them. Assuming, illustratively, that multilateral commit-ments decline to a more sustainable level of around $220 million,Ghana's traditional donors and others will need to double their con-tributions collectively to about $240 million in 1985 and again increasethem further to at least $280 million in 1986. The recommended level ofcommitneents will help push net ODA disbursements up to around 4.75percent of Ghana's GDP in 1985 and 1986, which would be still below theaverage for Sub-Saharan Africa in 1982.

4.12 Reaching this level of commitments will r,ot by itself ensurethese levels of disbursement unless sufficient attention is paid to thenature of assistance. The re-commended overall pattern of commitments isset out in Table I; roughly three-fourths of all new commitments in both1985 and 1986 are recommended to in the form of quick disbursing

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Table I: OVEUIAL AID PIPEJIE, 1982-87OS$ Millum)

Project and Food andAid Setor d Total

1984

A. Uzliebrwsed BIance 12/31/83 a/ 290 77 21 388B. Nw 1984 Ccmmitments 87 207 121 415C. D sts fm pre 1984

Cciubnts 59 59 16 134D. D i frm now 1984

ciutumnts 35 86 50 171E. Total lBsits 1984 (0D) 94 145 66 305

1985

F. Ikidijirsed Wance 12/31/84 a/{>ktB-m 283 139 76 498

G. Nw 1985 Cnibndnts 100 210 150 460H. rhixumelts ron pre 1984

Ccmitments4 57 18 5 80I. Dialxru.nm ts from 1984

CwMKmnets 10 80 71 161J. fren 1985

Comdxmenmts 5 64 50 119K. Total Itx1ect 1985

72 162 126 360

1986

L. Ulubiursed EBa3ace 12/31/85 al(F4G-K) 311 187 100 598

M. Now 1986 Ca eWt 120 220 160 500N. ficinpre 1984

Ccmdtezents 70 -- 700. fixxn 1984

cauzinits 20 41 - 61P. frc 1985

Cmd±mgs 10 100 100 210Q. Iitun ts rron 1986

candtMnts 5 64 55 124RL Total fllsbnaninaits 1986

(NotP') 105 205 155 465

1987

S. Undisbursed Ble-mce 12/31/86 al(LiM-a) 326 202 105 633

a/ UzImdjusad for sidrwig rate Cias.

Scuroe: MlSdstzy of Thwmce and EXX IC P21mdrg.

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program/sector or food and commodity assistance. This is designed toensure a substantial acceleration in the disbursement ratio, i.e., theratio of disbursements from past commitments to the undisbursed pipelineat the beginning of each year from an anticipated 35 percent in 1984 to48 percent in 1985 and 57 percent in 1986 before declining as theemphasis begins to shift back to project lending. Program and sectorsupport, such as IDA's Reconstruction Imports Credit and the AfricanDevelopment Bank's parallel Agriculture and Transport SectorRehabilitation loan, provide suitable vehicles for relatively fastdisbursing assistance that is targetted carefully to address specificinfrastructure or production bottlenecks by supplying essential rawmaterials, spare parts and capital equipment. Such credits have alsoprovided useful conduits for cofinancing and an effective way in whichdonors can respond quickly to Ghana's needs. IDA's proposed $60 millionSecond Reconstruction Imports Credit to be committed in 1985, isintended to be a more flexible and broader based import support creditfocussed primarily on the private sector, and should be seen by donorsas another vehicle for cofinancing.

4.13 Regarding food and commodity aid, while it is important toavoid introducing excessive amounts of foodgrains that would undulydepress market incentives-since this would clearly be self-defeating asfar as the country's long-term balance of payments goals are con-cerned--short term considerations dictate continued food aid to helpGhana secure the rice, wheat, sugar and milk powder that it wouldotherwise have to import using its own scarce foreign exchange. Maizeimports will also be needed for reasons of food security, providedstorage problems can be resolved. Donors should consider assistance forrehabilitating and improving storage systems. The recent FAO/WFPAssessment mission also recommended assistance in the form offertilizers, metal sheets for the local production of hoes, cutlassesand bullock-drawn equipment and lift pumps for off-season irrigation offood crops. Commodity aid in the form of raw material and maintenanceimports, for example, cotton for the textile sector, would greatlyassist increasing capacity utilization in manufacturing, which isseverely curtailed for lack of such imported inputs. Such quickdisbursing assistance will be needed at least until the supply responsefrom Ghana's export sectors begins to materialize, and donor emphasis isable to shift to project aid.

4.14 For Ghana to obtain the maximum benefit from such non-projectaid, it is desirab'le that as high a proportion as possible be untied.Donors should also try to ensure that their administrative procedures donot seriously delay aid disbursements. The government on its part alsoneeds to streamline its import licensing and other procedures to ensurethat ri1ch lines of assistance are quickly utilized (see also para. 4.05above). The disbursement levels projected in Tables G and I implicitlyassume a substantial improvement in the pace of aid disbursements.

4.15 In the mission's view, project aid commitme'its should becontained at a relatively modest level of $100 million in 1985. rhis isnot only because of the need to ensure quicker disbursing assistance but

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also in recognition of Ghana's limited ability to handle such type ofassistance for reasons discussed extensively in Chapter II. Suchproject aid as is provided should in the main focus on high prioritysectors (agriculture, energy, transport, health) and should concentrateon maintenance and rehabilitation of existing infrastructure rather thanadditions to capacity without ruling out specific investments designedto remove bottlenecks. To the extent possible, projects should be quickdisbursing and donors should finance as high a percentage of total costsas possible including local cost financing to minimize the burden on thegovernment's lisited financial resources. By 1986, we envisage a modestincrease in project aid commitments in support of a carefully plannedincrease in public investment that begins to address some of Ghana'slonger term constraints to development.

4.16 As indicated above, even the substantial increase in projectedcommitment levels in 1984-86 will prove insufficient to cover theputative financing gap for 1986, with about $45 million being leftuncovered. These estimates in fact understate the true financing needsin 1986 in that Ghana should be adding to its gross internationalreserves to maintain a ratio of reserves to imports at a level of abouteight weeks. There is time between now and 1986 to address the issue ofthe financing gap in that year. Possible solutions include:

- treating the level of aid commitments recommended above--which, perforce, must represent a compromise between Ghana'sneeds and what is likely to be available-as a minimum levelof effort; and aiming for a much higher level of commitments,particularly in 1985, so that there is time to make an impacton disbursement levels in 1986.

- reexamining past (pre-1984) commitments which now constitutethe pipeline. The project pipelsne at the beginning of 1984was some $290 million; while some $1i6 million of this may getdisbursed before the end of 1935, there may be scope forredirecting funds tied up in slow moving projects towardsquick disbursing assistance or new projects included in arevamped 1986 capital budget. To be helpful, such adjustmentswould have to be additional to current donor contributions.

- individual donors should also try to increase net transferswhere possible, through selective debt rescheduling.

4.17 A further word of caution may also be in order at this point.The balance of payments scenario for 1985 and 1986 (presented in TableG) rests on a rather positive view of export performance. We believe,though, that this level of exports can be realized provided a determinedeffort is made to deal with the administrative, managerial and infra-structural bottlenecks facing exports while ensuring that relativeincentives continue to shift towards efficient exporting and importsubstitution.

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The Quality of Aid

4.18 Ghana's debt service ratio, 1/ excluding debt to the IMF butincluding the large amortization of oil credits currently stands at 34percent. The ratio including the Fund is 39 percent. Although oilcredits will gradually be phased out, the debt service ratio (includingthe Fund) will climb in 1985 and 1986 to 56 percent and 47 percentrespectively before falling again. This calls for considerablerestraint on the part of the government in borrowing on commercialterms. Such borrowing must be strictly controlled and directed toinvestments with a high pay off in foreign exchange earnings or savings.Donors, on their part, will need to provide as much of their assistanceas possible in the form of grant or near grant terms. Donors shouldalso try to untie their aid to the extent possible and in the case ofproject assistance to finance as high a proportion of local andrecurrent costs as possible. With commitments at levels indicated inTable J and an average grant element including private commercialborrowings of 60 percent, Ghana's debt service ratio should fall tc1about 26 percent by 1990.

Technical Assistance

4.19 In Ghana's special circumstances, donors can play a positiveand constructive role beyond the primary task of providing financialsupport through well designed and carefully targetted technical assis-tance. This assistance should address two types of constraints: first,the government's present low capacity for macro and sectoral planningand policy analysis. Line ministries will need to be strengthened asalso the Ministry of Finance and Economic Planning and its foreignassistance unit (para. 4.20) if the government's proposed rollingmedium-term development program is to be taken seriously. The secondarea of technical assistance must be in key productive andinfrastructure areas where both managerial and technical personnel areeither lacking or weak. Assistance through the financing of managementconsultancies, the preparation of corporate plans and training inoperations and maintenance would be high priorities. Given Ghana'sremarkable strides in the early post Independence period in generating alarge and competent bureaucracy and technocracy, the task of technicalassistance is rather more complex than it is elsewhere in Sub-SaharanAfrica. Donors need to avoid creating a situation in which the presenceof large numbers of highly paid expatriates exacerbates an alreadysevere morale problem among GhanAian officials. Thus, technicalassistance should also focus on the training of Ghanaian counterpartswhile the government should be encouraged to introduce professionalallowances and address directly and indirectly the problem of morale.To the extent that donors can finance some of these additional localrecurrent costs for finite periods as part of a technical assistance

1/ Debt 3ervice as a percentage of exports of goods and services.

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package, and extract a clear undertaking that government takes on theseadditional costs in the future, it will greatly ease the entry problemof expatriates. A further possibility is the preparation of a scheme,financed by donors, to partly subsidize the temporary return to Ghana ofGhanaians working overseas. These issues need to be addressed at thelocal level aid group meetings with the objective of hammering out acoherent and coordinated technical assistance strategy that donors cansupport.

Aid Coordination

4.20 With the sudden increase in assistance to Ghana recorded in1984 (para. 4.10) and the additional support Ghana is seeking in theyears to come, aid coordination will become an increasingly crucialissue. The resurrection of the dormant Consultative Group in 1983 andthe establishment of a local level aid coordination group will providemuch needed support to the aid coordination process. Donors will beable to use the Paris forum to supplement their own information onprogress of the reform program and ensure that collectively aid flowsmatch the requirements emerging from the pace of the program. An issuethat should be discussed in Paris in this context is the need for amechanism to monitor and coordinate the follow-up to the informalindications that donors provide at CG meetings to ensure that theseindications are quickly converted into formal commitments, and to fillany financing gaps, should these emerge.

4.21 At the local level, the agenda should be broader with a viewto ensuring fuller participation by the donor commnity in Ghana'sdevelopment programs. As a first step, these local meetings mustimprove information flows on donor assistance to avoid wasteful duplica-tion and identify promptly gaps in funding or technical assistance.Beyond this, donors and government need to address such issues as theadequacy of operations and maintenance expenditures, public investmentpriorities, administrative and procedural bottlenecks to quick disburse-ment at both ends, institution building etc. A further role for thelocal aid coordination group could be a discussion of sector issues andthe involvement of a lead donor or a group of donors in working with thegovernment on the preparation of sectoral investment strategies.

4.22 For the aid coordination effort to succeed, as indicatedabove, the unit handling foreign assistance in the Ministry of Financeand Economic Planning, the International Economic Relations Division,will need to be substantially strengthened both in terms of staff andresources. Outside agencies such as UNDP and the World Bank can andshould provide technical assistance, but resp:nsibility for aidcoordination, whether at local or international level, must restsquarely with tne government.

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Medium Term Prospects

4.23 Table J provides purely illustrative, and highly tentative,Bank staff projections of the balance of payments for the second half ofthe current decade. The projections assume a continued and strongimprovement in policies and substantial concessional aid flows. Onthese two assumptions, the scenario presented shows a marked recovery ofinvestment, output and trade and an improved balance of paymentspicture. Export projections are based on the findings of the economicmission, and the level of capital flows is based partly on thegovernment's planned borrowings, and partly on the mission's recomendedlevels of concessional aid commitments.

4.24 The projections imply the following behaviour of key macro-economic variables: I/

1985-90Rates of growth of:

CDP 4.0Exports of Goods and Non-Factor Services 10.5

Imports of Goods and Non-Factor Services 4.5

Investment as a percentage of GDP at current market prices is expectedto average 13 percent between 1985 and 1988 before declining to around10 percent (as the efficiency of capital improves and the backlog ofreplacement demand for capital is reduced), while imports (GNFS) average16 percent of GDP and exports 12 percent throughout this period.

4.25, The key elements in the balance of payments scenario are thefollowing:

- Exports. Cocoa exports a:e projected to recover to 225,000tons by 1986 and stabilize at that level. This is because ofcontinued supply side constraints, including decliningacreages, and decliniag yields, due primarily to the highaverage age of cocoa trees, the SSVD disease problem, laborshortages, etc. These factors are all working towards afurther and continuing decline in cocoa production, and itwill take both a substantial increase in producer incentives,and a major improvement in supplies of inputs and supportservices to farmers to reverse this declining trend in yields

I/ These are purely illustrative, and meant to convey a sense of thebroad magantudes involved.

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sufficiently to sustain cocoa output through 1990 at 1986levels. On this assumption, cocoa export revenues will growfrom $394 million in 1984 to $632 million in 1990. Goldexports will benefit from planned invescments in the AshantiGold Company, supported by IFC, and in the State Gold MiningCompany, supported by IDA. Export earnings are projected todouble over this period. Timber exports are also expected togrow very rapidly, reflecting the great potential in thissector, including the potential for greater domesticvalue-added, which it is assumed, will be exploited morefully. Electricity exports assuming more normal weather, willbenefit from substantial improvement in unit valuerealizations, particularly from supplies to the VALCO aluminumsmelter, and a fuller exploration of the regional grid. Animportant assumption here is that electricity export priceswill be increased periodically in line with projectedincreases in petroleum prices, and that domestic electricitypricing and other policies will restrain domestic demand forpower. Other exports are assumed to respond vigorously to theimprovement in export incentives.

Imports. The relatively slow projected growth of importsconceals divergent trends in its components. Food imports areprujected to decline as the country moves towards greaterself-sufficiency. Other consumer goods Imports are expectedto grow at a modest rate as the foreign exchange situationwill not permit a much higher level of growth. Intermediateand capital goods are estimated to increase rapidly through1986 and then decelerate as the essential needs forrehabilitation are met, and stock levels rebuilt and capitalequipment replaced. Petroleum import growth is projected torise modestly as the refinery's rehabilitation program getsunderway.

Terms of Trade. An added complication is that Ghana's termof trade are estimated to decline over the 1985-90 period byabout 19 percent. Export prices, after an initial largedecline in 1985 and 1986, are set to recover, but at a paceless than import prices. However, the expected deteriorationin terms of trade between 1986 and 1990 is relatively modest(8.5 percent).

Services. Exports of non-factor services are also expected torespond positively to the new price signals and record stronggrowth. Tourism has a modest potential but one that needs tobe tapped, as do other invisible export earnings in an economythat is still relatively well endowed in technica3 andentrepreneurial skills.

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Table J: MEDIUM TERM BALANCE OF PAYNENTS SCENARIO(US$ million - current prices)

1985 1986 1987 1988 1989 1990

Exports of Goods and NonFactor Services 740 970 1120 1270 1430 1595

Imports of Goods and NonFactor Services -1090 -1340 -1465 -1660 -1870 -2090

Resource Gap -350 -370 -345 -390 -440 -495

Net Factor Service Income -100 -135 -215 -235 -245 -245

Private Remittances 70 80 115 145 165 185

Current Account Deficit -380 -425 -445 -480 -520 -555Financed by:Grants 155 180 180 200 230 260Net Official Loans 145 210 220 230 215 215Net Private Loans 20 50 70 80 85 90Net Direct Foreign Investment 5 20 30 40 40 45

Net Capital Account 325 460 500 540 570 610

Overall Balance -55 +35 +55 +60 +50 +55

Memorandum Items:

Terms of Trade Index (1982-100) 120 1iO 106 102 99 97Aid Commitments 460 500 525 550 575 600Aid Disbursements (gross) 360 465 438 518 515 540Average grant element includingprivate non-guaranteed loans (%) 67.1 51.1 50.5 61.7 66.2 69.7

Source: Tentative Bank Staff Projections.

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- Worker remittances, which currently finance imports underspecial unnumbered licenses, are assumed to viden in scope andrespond to new incentives that will need to be developedincluding more realistic exchange rate.

- Ghana's debt service burden is very heavy in the initial yearsof the forecast period, but is set to decline as the countryreduces its dependence on expensive short to medium termborrowing to pay for oil and other essential imports.

- Aid commitments are assumed to rise from $460 million in 1984to $600 million by 1990. In real terms, this implies adecline in aid levels of about 18 percent between 1984 and1990. These commitments will generate gross aid disbursementsaveraging $467 million, assuming very quick disbursing aidthroughout the period.

- The overall balance -will show small surpluses during thisperiod to help finance payments of arrears and maintain aconstant ratio of gross reserves to imports. The size of thissurplus will, however, be insufficient for this purpose or tomeet the large repurchase obligations with the Fund. Theprojection, therefore, implicitly assumes that net trans-actions with the Fund will remain positive beyond 1985.

implications for Policy

4.26 The implications for Ghana's policy makers are painfullyclear. If this ambitious export program and the projected aid levels donot materialize, Ghana will need to cut back on both investment andgrowth to reduce import growth from the rather modest rates projected.Such a course will not only excessively prolong the period in which theeconomy returns to health, but raise once again the spectre of a declin-ing per capita GDP level. While factors beyond Ghana's control-such asweather-may also play a part in the outcome much rests on maintainingthe momentum of the policy reforms. This is implicitly assumed in theabove projections. If the reform program is further strengthened, asdiscussed in Chapter II, this will permit a considerable improvement inthe efficiency in the use of capital, not only through increasedcapacity utilization, but also by directing resources to those sectorswhich are likely to yield the highest returns. To ensure that thishappens, Ghana's policy makers will need to pay particular attention to:

- the adequacy of incentives for exports, particularly forcocoa, but also for other exports. A realistic and flexibleexchange rate policy will encourage both exports and efficientimport substitution; appropriate agricultural pricing policieswill encourage production of cocoa, food, and industrialcrops.

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- a shift away from pricing and distribution controls as part ofa larger move to improve the climate for private investment;

- efficient execution of ongoing rehabilltation programsdesigned to address supply constraints in export sectors, andrelated infrastructure. The speed with which cocoa, gold andtimber exports can be galvanized will have an important bear- -

ing on the success of the reform program;

- diversifying the export base so as to further reducedependence on cocoa. This requires identifying and exploitingexport opportunities for resource based industries, e.g.,rubber and wood products and other agro-based products, aswell as encouraging service-based export industries, notablytourism;

- reducing dependence on traditional imports to the extentconsistent with growth and equity considerations. There isscope for moving much closer to self-sufficiency in food, andconsiderable scope for reducing net energy imports throughenergy conservation. Appropriate pricing and investmentstrategies, and in the case of agriculture, adequate research,supply of inputs, extension, and marketing will yield highreturns;

- encouraging the repatriation of foreign exchange earnings byGhanaians living abroad through a package of incentives and arestoration of confidence in the economy. With some 2 millionGhanaians living abroad, the assumed level of projections of$185 million by 1990 Is a relatively modest $93 per head perannum or less than $8 per month. The experience of SouthAsian countries, particularly Bangladesh and Sri Lanka, may berelevant to formulating policies that will enhance theattractiveness of remittances. While this may take time, thepotential returns are so large that an early and exceptionallyattractive package of incentives should be announced soon;this might be linked to the possible auction system discussedin para. 2.09.

- special measures to simplify licensing and other procedures inorder to ensure rapid disbursement of aid.

Implications for Donors

4.27 Ghana's experiment in policy reform has reached a criticaljuncture. Its success will depend not only on the degree to which thegovernment is able to address the policy, infrastructural, andadministrative bottlenecks that have delayed the supply response so farbut also on the size and nature of donor response to its program in 1985and beyond. The medium-term scenario discussed above suggests levels ofnew commitments averaging some $530 million over the next several years,which will generate some $470 million in gross aid disbursements.

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Unless Ghana's economy is able to expand its capacity to import, thereform program will be seriously jeopardized. Farmers need imports toproduce food and cocoa. Industry needs raw materials and snares toproduce the consumer goods required to persuade farmers to produce moreand market their products. Ghana's infrastructure needs rescuing fromnear collapse if it is to get vital exports to and through ports andcritical imports to final users. Stocks of goods need replenishing soproducers do not live from hand to mouth. What is more, the governmentmust be able to show some tangible progress on the ground in terms ofimproved supplies of essential commodities and increased employmentopportunities if it is to call on the people for continuing support letalone for more sacrifices, and harder work for the reform program.

4.28 Given the government's strong commitment to a reform programthat is already an outstanding case among Sub-Saharan African reformprograms, it would indeed be tragic if this experiment were allowed tofail for lack of adequate external support and Ghana's economy werepermitted to slip back down the dreary slope of decline. In the presentinternational economic environment, donors will undoubtedly facedifficulties in reapportioning commitment authorities within stagnant oreven shrinking aid budgets. Yet, in degree of difficulty, what is beingasked of donors today is far less than what donors have asked ofGhana-and what Ghana has already achieved. A year ago, donors weresupportive but somewhat skeptical, and in many cases somewhat cautiousin their financial support. The program was then in its early stages,and the government's commitment to seeing it through was only partiallytested. This year will test the extent to which the donor communitywill be able to do its part to respond. This is qiportant not only forthe reform program. Other African countries are watching Ghana'sexperience with great interest. It is in effect a bellweather of howserious donors are about supporting major Sub-Saharan reform efforts.

-76 - ANNEX A

Page 1 of 5

SELECTED POLICY CHANGES SINCE 1983

AGRICULTURE

Cocoa

The cocoa producer price was increased by 67 percent to020,000 per ton effective May 1, 1983.

The cocoa producer price was increased further by 50 percentto ¢30,000 per ton effective May 1, 1984.

A long-term production strategy and a swollen shoot virusdisease (SSVD) control program have been established. A compensationsystem to encourage replanting has also been introduced.

Studies regarding staffing of the Ghana Cocoa Board andprivatization of GCB's cocoa plantations including cocoa products facto-ries and insecticides have been initiated.

Input Subsidies

The subsidy on fertilizer was removed in stages resulting in aselling price of 0450 per bag in April 1984.

As of April 1983, the price of insecticides was raised fromt30 per liter to 0130 per liter in order to remove subsidies at the newexchange rate.

TIMBER

In 1984, the Ghana Timber Marketing Board was abolished andreplaced by an independent Timber Export Development Board as an exportpromotion body with representation of Goverrment and mill owners.

A study on alternative strategies for ownership and managementof state-owned companies including the possibility of privatization andmanagement contracts is expected to be completed and adopted by April1985.

Procedures for retention of 20 percent export proceeds inforeign exchange were simplified and streamlined.

A Forest Products Inspection Bureau (FPIB) has beenestablished as a self-regulating professional body to strengthen gradingand inspection of timber products.

-77- ANNEXAPase 2 of 5

MINING

State Gold Mining Corporation (SGMC) will enter into a manage-ment contract with an international mining company and will be run as acommercial entity.

Foreign exchange retention for gold export companies wasincreased from 20 percent to 35-45 percent while foreign exchange reten-tion of 20 percent for other mineral export companies was introduced.

INFRASTRUCTURE

With effect from April 1983, tariff rates on the followingwere adjusted as follows:

(i) Road Transport 165Z(ii) Railways Freight - 380Z; Passenger - 100Z(iii) Water Supply 150Z(iv) Telecoimnnications Domestic - 3252; External - 127Z(v) Postal 365%

Electricity tariff rates were adjusted by 40 percent in April1983 and then again by 500-1,000 percent to pass through the full effectof devaluation.

THE BUDGET

With effect from April 22, 1983:

- Tax administration was strengthened.

- The schedule of tariff rates on imports has been simplifiedand reduced to three rates: zero, 25 percent and 30 percent.For purposes of computing the customs duty, the c.i.f. valueat the official rate is taken and to this is added the bankingsurcharge appropriate to that category of imports.

- Assessment on corporate income tax was changed to current yearaccruals rather than previous year accruals.

- A New Wealth Tax was introduced to which only individualswould be liable, based on a restricted number of assets:buildings, undeveloped building lots, accessible uncultivatedarable land (within 5 kms. of a trunk road), and all motorvehicles not used for commercial purposes.

- The tax on rental income was also changed to bring the tax inline with regular income tax rates with a 30 percent standarddeduction.

Following the 1983 budget the basis of gold export duty waschanged to 20 percent of the export value rather than the shipments in

- 78 - ANNEX APage 3 of 5

excess of 100,000 fine ounces. The 1983 budget also announced substan-tial increases, some more than tenfold, on a wide range of licenses anddepartmental sales of goods and services. For example, the fee for ahospital bed in an open ward was increased from 00.50 to ¢7.50 foradults and 05.00 for children; hospital consultation fees from ¢0.50 to¢25.00 per visit; a money lender's license was raised from 020 to02,000; rent on use of government warehouses from 00.67 per ton to ¢100per ton.

WJth effect from October 10, 1983 the retail price of beer wasincreased by 75 percent (from 020 to ¢35 for the large bottle) and theprice of cigarettes was increased by 33 percent to raise additionalrevenues of ¢800 million during the remnainter of 1983.

In the 1984 budget, personal income taxes were adjusted down-wards to reflect reduced real incomes. In June 1984, the tax oncigarettes was raised by ¢5 on a pack of 20 cigarettes, to bring inadditional revenues of 0900 million on an annual basis.

MONEY AND BANKING

During 1983 a flexible interest rate policy was adopted with acommitment to achieving positive real interest rates in the medium-term.In line with this objective, on October 10, 1983 all interest rates wereraised by 30-35 percent or by 3-5 percentage points. For example, thesavings rate was raised from 8 percent to 11 percent per annum and themaximum lending rate from 14 to 19 percent.

Again, on August 23, 1984 all interest rates were increasedfurther by two percentage points. For instance, the savings rate is now13 percent per annum and the maximum lending rate is now 21 percent.

PRICES AnD INCOMES

Petroleum

On April 21, 1983, the prices of petroleum products were, onaverage, more than doubled to the equivalent of crude oil being importedat 015 = US$1. In October 1983 the retail prices of petroleum productswere raised further to the equivalent of crude oil being imported at ¢23= US$1. As a result, there was a subsidy on petroleum products in 1983amounting to ¢1.1 billion. The retail price was again raised in March1984 to eliminate the subsidy on petroleum products. The followingtable indicates the adjustments in prices for petroleum products.

-79 - ANNEX APage 4 of 5

Petroa3en Product PricesOPer Irpeiral Galjn)

Pre-hprll Post-April Octdber Mardi September1983 1983 1983 1984 1984

0 e $ ¢ $ ¢ $ - $ e $equiv. equiv. equdv. equiv. equiv.

Premun lGawsline 12.30 4.47 25.0 1.05 35.0 1.17 55.0 1.57 60.0 1.56RePglar Casoline 11.30 4.11 21.5 0.91 30.5 1.02 50.0 1.43 56.0 1.45Kerosene 5.00 1.82 13.2 0.56 20.0 0.67 30.0 0.86 35.0 0.91Gas 01L 8.50 3.09 15.9 0.67 24.0 0.50 35.0 1.00 46.0 1.19

Note: $ equivalent data are at offiaial eKd'aiige rate.

Price Controls

In 1983, the effects of the exchange rate adjustment on domes-tic prices of imported goods and the import component of domesticallyproduced goods were fully passed through. In December 1983, furtheraction was taken to enhance flexibility and reduce the scope of pricecontrols. Price caps on imported maize, rice, and sugar were removed andthe prices of these items were raised to equal the prices of thedomestically produced products. Price controls were limited to 23 items,whose prices require Cabinet approval. For all other prices, the Pricesand Incomes Board (PIB), in consultation with the affected manufacturers,importers, and other sellers, set reference prices. As of August 23,1984 procedures were changed to allow traders to set their own priceswithout reference to the PIB. However, PIB would continue to publishreference prices, based on its own estimates, for the information of thepublic.

Wages

With effect from May 1, 1983, the minimum wage rate was raisedfrom 012 to 025 per day. This resulted in an increase in wages, onaverage, by 60 percent for the civil service and, on average, by 25 per-cent for the public sector enterprises and the private sector. In March1984, wages and salaries in the public sector were increased by 40percent so as to mitigate loss of morale and work incentives following anIncrease of more than 100 percent in the cost of living in 1983.

EXTERNAL

Exchange Rates

On April 21, 1983 a multiple exchange rate based on bonuses andsurcharges was introduced. The operation of the system, which consisted

- 80 - ANNEX APage 5 of 5

of two rates, 923.375 - US$1 and p29.975 - US$1 and applied to specificreceipts and payments transactions, resulted in an implicit weightedaverage rate of ¢24.692 - US$1. On the receipts side, transactions weredivided into two groups. Exchange receipts falling under the firstgroup, consisting of cocoa, gold, timber, and other traditional exportproducts received a bonus equivalent to 750 percent over the officialexchange rate of t2.75 - US$1. All other receipts, including receiptsfrom invisibles and capital, received a bonus of 990 percent. The 20percent export bonus scheme which had applied to non-cocoa exports wasabolished. On the payments side, transactions were also classified intotwo categories. Transactions falling under the first category, importpayments for crude oil, essential raw materials, capital goods, and basicfoodstuffs, and transfers in respect of official commitments were subjectto a surcharge of 750 percent. All other payments were subject to asurcharge of 990 percent.

On October 10, 1983, the system of bonuses and surcharges (andhence the multiple exchange rate) was abolished about nine months aheadof schedule and a unified exchange rate of 030 - US$1 was established.

On March 26, 1984 the exchange rate was further depreciated to035 - US$1 in accordance with the movement in the index which measuresthe differential in the inflation rates in Ghana and its major tradingpartners.

On August 23, 1984, the exchange rate was depreciated furtherby 10 percent to 038.5 - US$1, in accordance with the movement in theabove-mentioned index during January-April, 1984.

External Payments Arrears

Arrears were reduced by US$39.1 million to US$562.0 million byend-August 1983, by US$62.4 million to US$538.4 million by end-October,and by US$68.7 million to US$532.4 million by end-December 1983.

-81- ANNEXPage 1 of 3

FOREIGN EXCHANGE ALLOCATION SYSTEM

1. Imports are tightly controlled within a framework of an annualimport program. The foreign exchange allocation system prevailing in1983 was administered by an Import Licensing and Foreign ExchangeAllocation Committee (ILFEAC), comprising secretaries from the relevantministries. The system worked as follows:

(i) A technical committee prepared a foreign exchange budget andsubmitted an import program for approval by ILFEAC. Foreignexchange earnings from the country's own resources, pluscommitted aid less contractual and other payments, constitutedthe available resources for imports.

(ii) ILFEAC approved the import program and issued broad guidelinesto line ministries on how licenses should be issued.

(iii) Importers applied to line ministries for import licenses. TheMinistry evaluated these applications and then submitted itsrecommendations to ILFEAC for approval before issuing lettersof intent.

(iv) Importers submitted these letters of intent to the Ministry ofTrade together with a schedule of imports and supportingdocumentation.

(v) The Ministry of Trade issued a license, enabling the importerto proceed to the next hurdle: the foreign exchange and cedicover.

2. Apart from being cumbersome and prone to delays, the systemwas subject to overprogramming because of:

(i) an initial over-ste.ement of foreign exchange receipts, and amismatch between Lid availability and the import programmainly because all aid was assumed to be fungible and not tiedto particular goods and services from particular sources;

(ii) large uncertainties on foreign exchange earnings realizations;

(iii) the practice of issuing licenses on an annual value basiswhich, in a scarce foreign exchange situation, causedlicensees to rush to the banks to try and get as much foreignexchange as available; since the foreign exchange or domesticcredit available at any one time was a small fraction of theannual year's license values, the bulk of importers were

- 82- ANNEX BPage 2 of 3

frustrated, and priorities were determined by commercial banksand not the licensing authority.

Moreover, there was no systematic monitoring of actual allocations anduse of licenses issued since no accurate records were kept on actualforeign exchange allocations.

3. In March 1984, ILFEAC was replaced by an Import Programmingand Monitoring Committee (IPMC) comprising the PNDC Secretaries ofFinance, Industry, Agriculture, Trade and Health, with the CoordinatingSecretary as Chairman. The Bank of Ghana and commercial banks arerepresented on the Committee. The Committee has been assigned fourtasks:

(i) "to draw up the annual import program on criteria establishedunder the Recovery Program;

(ii) to examine and approve allocations made by Ministries toensure effective use of and maximize benefits from licensesissued;

(iii) to schedule the submission of letters of credit applicationsand monitor their establishment so that priority sectors havefirst call on foreign exchange resources; and

(iv) to undertake a periodic review of the import program in lightof a changing internal and external situation."

4. IPMC has instituted the following new procedures that aremeant to improve the system:

(i) The balance of payments forecast and import program willdisaggregate aid "availabilities" by sector and purpose sothat overprogramming on this account does not take place;

(ii) An inter-ministerial technical committee has been constitutedto process import schedules and recommend the issue of licens-es to the Ministry of Trade; the technical committee will beresponsible for ensuring that importers provide the informa-tion required, and that this review process is dealt withexpeditiously;

(iii) The import program is to be divided into a Core program, andtwo supplementary categories (Category I and II). The corecomprises essential commodities, raw materials and imports ofequipment and spares for revenue producing industries, 1/

1/ Soap, tobacco, malt, clinker, drugs, newsprint, sugar, rice andmaize.

- 83 - ANNEX BPage 3 of 3

including those financed by aid. Category I comprises importsthat directly or indirectly support the manufacture anddistribution of basic core items. Category II comprises allother approved imports. Core imports will be given assuredaccess to a minimum level of foreign exchange for a three yearperiod. Core licenses will be issued at the end of thepreceding year, so that receipients can plan their imports andhave access to foreign exchange early in the year. Licenseswill be issued for Category I and II only to the extent thatthe foreign exchange situation permits, with preference beinggiven to Category I;

(iv) Letters of credit established are to be carefully monitored.

5. The provisional 1984 Core program includes just over $100million of licenses for goods coming under aid programs. Aid-financeditems outside the Core (which are expected to reach $180 million in1984) can still obtain licenses through the following process. TheMinistry of Finance and Economic Planning informs sector Ministries ofaid available; the sector Ministry allocates it to recipients and sendsthem a letter of intent, also informing the Ministry of Trade. Thebeneficiary provides its sector Ministry with a schedule of imports,which is verified by the inter-ministerial technical committee andforwarded to Trade, which then issues the license. The beneficiary thenrequests a commercial bank guarantee for the cedi cover. The commercialbank may obtain the foreign exchange cover directly from an overseascorrespondent (e.g., for IDA credits), or through the Bank of Ghana,which claims to make the foreign exchange readily available foraid-financed imports. These procedures appear reasonable but do notalways work smoothly, and Government needs to monitor aid disbursementsclosely to ensure expeditious disbursements.

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GHANA: Development Budget, 1984(cedi uillion)

1984 19841983 Draft 1984 Final

Ministry Actuals Estimate a/ Preliminary b/ (June) cl

Agriculture 124.00 1,491.45 1,438.09 371.70Lands and Natural Resources 13.21 229.62 200.28 107.10Fuel and Power 20.05 59.95 139.29 69.63Trade 0.11 79.42 78.84 3.54Industries, Science and Technology 2.78 48.38 27.50 24.92Works and Rousing 118.22 1,448.28 1,249.73 471.81Roads and Highways 766.03 3,043.58 3,478.98 1,587.60Transport and Communications 101.82 396.01 365.44 258.23Education 61.50 210.40 146.23 105.80Youth and Sports 4.48 30.28 48.70 23.25Health 65.50 87.34 448.00 200.00Labor and Social Welfare - 5.03 5.03 2.74Rural Development and Cooperatives 12.00 120.35 297.61 231.71Interior 6.96 162.42 59.26 30.70Local Government 5.01 219.32 90.45 33.45Office of the PNDC 17.49 474.08 216.53 123.52Culture and Tourism 9.70 727.13 125.50 53.50Information 4.34 514.15 516.38 9.10Administration of Justice - - - -Foreign Affairs 2.12 69.99 69.99 26.81finance and Economic Planning 25.81 81.74 751.01 d/ 659.07 d/Defence 49.53 942.39 570.31 167.7Extra-ministerial Departments - 32.44 5.70 10.03

Total 1,410.67 10,473.75 10,328.85 4,571.92 d/

a/ January 1984.b/ post March 1984 budget.c/ June 1984 revised; this is not consistent with provisions in the budget

of 03,724 for capital expenditure and %1,328.1 for net lending.d/ Includes ¢500 million for National Economic Mobilization.

Source: Ministry of Finance and Economic Planning.

- 85 - ANNEX DPage 1 of 16

AIDE-MEMOME ON INDUSTRIAL RESTRUCTURING IN GUMAPrepared by World Bank Trade and Indus try Mission

July 1984 (revised November 1984)

INTRODUCTION

1. The purpose of this aide-memoire is to further the dialoguebetween the World Bank and the Government of Ghana on economic recovery andpolicy reform, with a focus on industrial sector strategy, policies andpriorities. This aide-emoire builds on and is consistent with previousdocuments such as the Bank report on Ghana: Policies and Program forAdjustment, the government's Economic Recovery Progran 1984-86, and alde-memoires by the Trade and Industry and the Economic MKisions. Since thesedocuments contain a thorough analysis of Ghana's economic problem and astrategy for recovery, only a brief overview will be provided here of thecurrent economic situation as it pertalns to the industrial sector. Thisoverview summarizes the perceptions of the Trade and Industry Mission as abasis for stating its views of appropriate strategic objectives for Indus-trial restructuring and of priorities for a short-to-medium-term program ofsupport to the sector.

OVERVIEW

Nature and Sources of Industrial Problems

2. One of the most striking signs of Ghana's current economic diffi-culties is the very low utilization of industrial capacity-averaging 25percent or less for the last three years. Although Ghana's industrialcapacity is relatively large, diverse and long-establibhed compared to mDotother African countries, it Is not adequately utilized because the economydoes not generate sufficient foreign exchange to supply its substantialimported input requirements (let alone to maintain and replace its agingcapital stock) and because its high costs of production prevent It frommeeting Its own foreign exchange needs through export earnings (and indeedfrom producing at prices affordable by the majority of Ghanaian consum-ers). Production costs are especially high at present because of lowutilization of both capital and labor employed in industry, but studiesover the years have shown that many of Ghana's Industries would be uncom-petitive at world prices .wen at full capacity. Some even consume moreforeign exchange through direct and indirect use of imported materlal,capital and labor inputs than they save by replacing imported consumergoods.

3. The current situation was precipitated by a dire shortage offoreign exchange due to a cowbination of an unfavorable international eco-nomic environment and a distc:ted domestic incentive and policy framework.Conditions outside govermuent control include prolonged worldwide recessionthat has adversely affected export demand and prices, high energy costs,and drought that has hurt production of both export and food crops andforced electricity cut-backs. Past trade and exchange rate policies such


as an overvalued exchange rate, import restrictions, and high tariffs onconsumer goods combined with low duties on Imported Inputs and capitalestablished very high effective protection to assembly-type industries withhigh import content (especially luxury goods). These policies togetherwith investment incentives and public sector industrial projects tended toencourage large, capital-intensive Investments. Agricultural productionwas discouraged by low producer prices and high returns to trading andsmuggllig, thus undermining the surplus of materlals that previously hadsupported substantial resource-based processing (especially for export).

4. Industrial performance-and the ability to recover-have beenadversely affected by a negative climate facing Industrial producers Inboth the private and the public sectors. Price and distribution controlshave prevented producers from generating adequate cash flows and createdexcessive administrative work and delays. Regulations preventing layingoff redundant workers have raised costs and reduced productivity (as wellas liquidity), making it difficult to raise wages. Very low reaal wagesrelative to the cost of living have drastically lowered worker morale andraised the propensity for workers to engage in disruptive actions. Suchactions have been encouraged by the polltical climate and by the creationof Workers' Defence Comittees without clear legal guidelines as to theirrole, function and limitations. The private sector has felt particularlyuncertaLn about the governmentes litentLons vis-a-vis private profit-makingactivity. Public sector financial and managerial performance is weak anddiffLcult to control because of haphazard organization (resulting largelyfrom taken-over flrms outslde the GIROC structure and multiple lines ofauthorLty), multLple or unclear objectives, and ineffective management.

Need for Restructuring

5. The goals for industrialization set out In the Lagos Plan ofActlon correspond to those of President Nkrumah in iitLatLng a vigorousindustriallzatlon effort for Ghana:

- exploitation of local natural resources;- forming a base for developing other economic sectors;- satisfaction of basic needs of the populatlon;- creatlon of jobs;- assimilating and promoting technologlcal progress;- modernization of society.

6. The impact of the shortage of forelgn exchange on industrialproductlon has revealed the extent to which Ghana's industrial structurehas fallen short of the first two goals, which are the keystone for theoverall objective of promoting economic independence and self-reliance.Export earnings-even if prospects were more favorable simply cannot meetthe requirements of lts hlghly Import-dependent lndustrial capacity. Afundadental need for restructuring is therefore to shift productlon infavor of those lndustries that can make the most effective use of domestlcinputs and resources. This also implies a need to create strongerincentives for productlon and marketing of surpluses of domestlcagricultural and other commodities that can be processed. Furthermore,

-87 - ANNX DPage 3 of 16

given weak prospects for traditional exports, industry is clearly going tohave to be more oriented toward providing a greater share of its ownforeign exchange requirements through export. Thus it makes sense to talkof "restructuring" the industrial sector so that the nature and methods ofproduction conform to present and future realities-especially limitedresource availability-and to the objectives set for it.

7. Ghana's industrial structure falls short of its potential tosatisfy basic needs and create jobs because it is biased toward large-scale, capital-intensive production of import-substitutes using a highproportion of imported inputs. In spite of a long tradition of indigenousentrepreneurship and artisanal manufacturing geared to satisfying thehousehold needs of the broader mass of population (generally using local,nputs, including waste materials), such activity has not been favored bythe bias of incentives and administrative requirements toward large-scaleactivities and by a negative climate for private business. In the longrun, a shift from small-scale to large-scale production is a natural partof the process of technological progress, modernization, and capturing theeconomies of scale of an expanding market. For the present, however,small-scale manufacturing, repair and service activities will continue toprovide substantial employment (probably more than modern manufacturing)and the means to train a large share of the industrial labor force (throughapprenticeship). There is a need for restructuring of incentives generallyto reduce protection and benefits to non-essential good, assembly andcapital-intensive industries and to allow the small-scale sector to playmore vigorous role.

8. The need for policy reform in the industrial sector reflects thatin the economy as a whole. The overall economic incentive structure isdominated by three principal contradictions: (i) The official exchangerate does not reflect the scarcity value of foreign exchange (or ofimported goods), creating high rents to those who obtain foreign exchangeat the official rate and tremendous incentives to engage in smuggling andtrading of imports. (ii) Official prices do not reflect market prices ofgoods, making officially-distributed goods an inportant part of the incomeof those with access to them and again creating tremendous incentives toengage in trading and illegal activities. (iii) Wages and salaries bear norelation to reasonable costs of living (given the impossibility of supply-ing the population with sufficient quantities of goods at controlledprices), creating overwhelming incentives to engage in secondary income-earning activities (legal or illegal) and lowering both productivity andmorale. These incentives are so pervasive and so well established that anindustrial recovery effort is pointless except in the context of an overallprogram to reduce and eliminate these gaps.

The Impact of Economic Recovery Measures on the Industrial Sector

9. The Economic Recovery Program has begun to address the contradic-tions referred to in the preceding paragraph. The most significant actionhas been to reduce the gap between off lcial and scarcity values of foreignexchange through a massive devaluation and subsequent adjustments to main-tain the exchange rate in real terms. (Nevertheless, the official rateremains only about a quarter of rates that can be obtained on the parallel

-88 - ANNEX DPage 4 of 16

market and at best half of a rate that would make a reasonable share ofindustrial production potentially efficient at world prices.) The recentdecision to focus price controls on 23 'essential" commodities and monitorothers through a "reference price' system represents a step toward reducingthe inpact of disparities between official and market prices. Fiscal andmonetary measures to retard the rate of inflation and limited wageincreases have been used to try to avoid further erosion in employee'spurchasing power. Redressing the wage gap is of major concern both forpolitical reasons and to restore productivity incentives, but progressdepends essentially on the ability of the economy to raise overall incomeper capita.

10. The devaluation has as yet produced little results in terms offoreign exchange earnings, but (together with the export retention scheme)it has had a major Impact on the direction of incentives facing industrialproducers, especially exporters. Previously dying export processing indus-tries such as timber and lime juice are now eagerly seeking the means toexpand their production and capacity. The results to date have beeulimited because infrastructure and supply industries had deteriorated sobadly, but the response of exporters has led to identification of bottle-necks and efforts to improve transport and rehabilitate capacity. Liquid-ity and creditworthiness are also problems for exporters, given poor cashflows in recent years and the low book value of assets following the deval-uation. The export retention scheme also has had a favorable impact onincentives to exporters, both by providing an assured minimum access toforeign exchange and by expediting the process of importing inputs.

II. The devaluation has also gone a long way toward soaking up scar-city rents on items imported at the official rate and toward discouragingimport-intensive activities. The impact on the rate of price inflation hasbeen minimal compared to the size of the devaluation, indicating both thatmarket prices already reflected scarcity values and that fiscal and mwoc-tary policies have had some success in containing the inflationary impact.Producers who are highly dependent on imported inputs are finding it verydifficult to provide the necessary cedi cover, and efforts to restructureindustry away from such activities would be aided by continuing measures toput pressure on foreign exchange users. At present, however, efficient aswell as inefficient producers are having liquidity problems. This is duepartly to their poor cash flow in recent years and partly to the generallack of confidence and deposits in the banking system following a temporaryfreeze on assets and investigations based on the si.e of bank accounts. Iffirms had access to additional imported inputs, they could expand produc-tion and improve their cash flow, Which would also contribute to revivingthe banking system.

12. A simplified tariff structure has been iltroduced that wouldyield a reasonable level and a narrow range of protection if it determineddomestic prices. At the present exchange rate, however, prices are deter-mined by the scarcity value of imports, which is well above the cif priceplus tariffs. This differential is especially high for luxury and othernon-essential goods that have been most severely restricted, and the effec-tive protection to industries producing these goods is even higher becausethe value added domestically is a relatively small proportion of product

-89 - ANNEX DPage 5 of 16

value. Thus, rents remain high to those who manage to Import or produceluxury and other highly restricted goods.

STRATEGY FOR INDUSTRIAL RESTRUCTURING

Overall Strategy

13. The overall objective of industrial restructuring in Ghana is topromote more productive and efficient use of resources in the industrialsector. In order to resolve the principal problems of low capacity utili-zation, weak production incentives, high costs and low wages, the ailshould be to channel resources to industry in such a way as to achieverapid growth in productivity in industries most likely to be viable in thelong run so that unit costs can be lowered along with real wage increasesin these industries.

14. An industrial restructuring strategy aims to establish a systemof incentives that stimulates more productive resource utilization.Incentives to industrial producers are largely determined by macroeconomicpolicies concerning product prices, the exchange rate, tariffs, taxes, andallocation of foreign exchange and credit. The availability of domesticmaterials is another critical determinant of production in resource-basedindustries. On the demand side, growing rural incomes are essential toprovide an expanding market for domestic manufactures. Hence, paralleldevelopment of agriculture (especially industrial crops) through adequateproducer incentives is a keystone of a long-term industrial developmentstrategy. The incentive to invest and produce is also influenced bygovernment policies that affect the general business climate and theadequacy of infrastructure and public services. Thus, measures are neededin these key policy and support areas.

15. The availability of underutilized industrial capacity (bothcapital and labor force) means that the industrial sector can give a quickboost to economic recovery if it receives additional inputs. In makingdirect allocations of additional resources to industry, the strategy shouldbe to favor activities that not only provide a quick payoff or stimulateother sectors but that also have a high potential for long-run efficientresource use. That is, even before an appropriate incentive framework hasbeen fully established, additional resource allocations should be directedtoward the most viable industries so as to begin shifting the structure ofproduction.

Components of the Strategy

16. Trade and macroeconomic policies: An industrial restructuringstrategy can best succeed if the process of policy reform for the EconomicRecovery Program continues to resolve the contradictions between officialand realistic exchange rates, prices and wages (see paragraph 8 above).Further real depreciation of the exchange rate is needed to strengthenincentives to exporters, to discourage import-intensive production, and to

90 - ANNEX DPage 6 of 16

absorb rents and make the tariff structure effective (i.e., to protectdomestic producers rather than traders and smugglers). Producers need tobe freer to set their prices in order to cover costs, generate sufficientliquidity, and capture a larger share of scarcity rents (presently accruingto traders and recipients of goods distributed at controlled prices). Realwages need to rise to give workers incentive to raise productivity and toenable workers to afford goods at market prices.

17. Foreign exchange allocation: Direct foreign exchange allocationis likely to remain a key determinant of industrial production for sometime to come, at least until the foreign exchange gap has been resolved.Rationalizing the foreign exchange allocation system to conform to theobjectives of industrial restructuring is therefore a key component of thestrategy. The first step is to implement and modify as necessary the newapproach to import programming and licensing so that licenses issuedconforin more closely to priorities and to foreign exchange actually avail-able. (Otherwise, the final allocation of foreign exchange is determinedby the commercial banks rather than by the import licensing process). Thenext step is to establish priorities among industrial activities on thebasis of their consistency with the priorities of the Economic RecoveryProgram and with the objectives of efficient resource utilization andlong-run viability. At the same time, measures are needed to relievepressure on the import licensing system by reducing both scarcity rents tothose who receive allocations and the number of administrative decisionsinvolved in the process.

18. Producer incentives: Consumer-oriented price and distributioncontrol policies have had a negative impact on domestic producers withoutproviding much benefit to consumers-both because they have tended toreduce supplies and aggravate scarcities and because they have been largelyineffective in restraining retail prices. Producers need greater controlover their pricing and marketing if they are to have an incentive toincrease supplies--which is the most effective way to keep prices down overthe long run.

19. Business climate: Gradual improvement of producer incentives andof the import licensing system will go a long way to improving the climatefor investing in and operating industries in Ghana. Nevertheless, anatmosphere of uncertainty such as bas prevailed in the past would inhibitthe willingness of both entrepreneurs and the international donor communityto put additional resources into re-opening, rehabilitating or expandingindustrial capacity. The government should take advantage of the improvedclimate in recent months to establish greater mutual understanding with theprivate business community of the role it is expected to play In whatareas, on the one hand, and the government s legitimate interests inregulating business activity, on the other. Particularly important wouldbe reiteration of the intended limits both of that regulation and of therole of workers in management and operating decisions.

20. Physical and Financia.. Infrastructure: A strong positive supplyresponse from the industrial sector depends to a large extent on complemen-tary efforts to relieve bottlenecks. The export sector is particularly

-91- ANNEX DPage 7 of 16

dependent on road and rall transport and the ports, all of which havedeteriorated seriously. Electricity and water cut-backs will become anincreasingly serious constraint as capacity utilization increases. Theerosion of confidence in the banking system puts it in a weak position torespond to increasing demands for liquidity.

AN ACTION PROGAI( FOR THE INDUSTRIAL SECTOR

21. Following are some suggestions for high-priority actions thatcould be taken in the short-to-medium term to have a direct impact onindustrial incentives and production, in accordance with the objectives andstrategy stated above. The government's efforts in these areas during thelast year are noted. Complementary measures to improve the exchange rate,agricultural production, and the infrastructural situation are assumed.

Pricing and Distribution Controls

22. The first priority in order to shift incentives in favor of pro-duction is to permit producers to obtain a larger share of scarcity rentsand to enable them to generate the liquidity necessary for expansion ofproduction. The policy introduced in 1984 of requesting advance priceapproval only for 23 essential commodities is a step in the right direc-tLon, as it will permit producers to set their prices on the basis ofcurrent costs and market conditions and to market their goods withoutdelay. The upward pressure this might exert on consumer prices should belimited by the fact that prices already reflect scarcity values, by slackdemand and by monitoring through the reference pricing systems

23. Substantial efforts are needed to make sure that the new systemis properly implemented and that both the producers of non-essentials andtheir clients understand that they have the authority to fix their prices.A danger exists that the public will use the reference prices as a basisfor actions against producers, and that buyers (including governmentagencies) will refuse to accept prices not authorized by the Prices andIncomes Board (PIB), which would be counterproductive.

24. Failure to liberalize the price control regine for essentialcommodities would tend to discourage production of these goods, whoseprofitability will remain more constrained. This is not so critical in theshort run, as production levels will be determined primarily through theimport licensing process, which is being organized to favor high-prioritygoods. In the longer ran, however, it will be iaportant to continue theprocess of freeing prices from strict controls so as to provide adequaterelative incentives to produce essentials. This process will require moreforeign exchange to be made available for imported inputs needed to producethese items, so that the increased supply would belp limit price increases.

25. Distribution regulations need to be rationalized and limited inorder to enable producers to sell their output more quickly and generate

-92- ANNEX DPage 8 of 16

needed liquidity. The inability of some designated recipients to collecttheir assigned goods due to inadequate liquidity, transport or storagefacilities needs to be addressed by releasing uncollected goods after aspecified time period. The lack of success over a period of ten years andmore in devising an allocation system that provides effective and timelydirect distribution of a substantial amount of goods to more than a smallsegment of the population argues that distribution policy over the next fewyears should concentrate on revitalizing the commercial house and tradingnetwork. This means that the direct allocation system should be targetedon as few goods as possible in order to accomplish concrete goals and tominimize the scope for diversion of goods at the expense of the State. Inthis respect the government's direct distribution program includes onlyeight (albeit important) products manufactured locally (textiles, milk,flour, matches, cement, tires, kerosine, and matchets/cutlasses), and it istrying to address the problem of assigned buyers being unable to collecttheir goods.

Foreign Exchange Allocation

26. The principal objectIve for foreign exchange rationing is to movetowards a system that depends less on administrative decisions and more onmarkets. In the meantime, some improvement can be made thrcugh the changesthat have been introduced in foreign exchange budgeting and licensing pri-orities. Establishment of the Import Progranmming and Monitoring Committeeand the Core Import Program provides a means for establishing and imple-menting priority claims on scarce foreign exchange. To make this systemeffective, the overhang of import licenses not backed by foreign exchangemust be eliminated and uew issuances must be coordinated with the level offoreign exchange receipts actually available. In this respect, only partof the remaining 1983 licenses are being revalidated and the 1985 core maybe abbreviated in view of the 1984 core licenses which will remain in thesystem into 1985. Attention could then be focused on elaborating thedetails of the other categories so that they can be issued on schedule in1985 (following periodic reviews of expected foreign exchangeavailability). Modifications to the proposed system may be in order tostreamline it further.

27. Efforts have been made to maintain aid-funded imports separatelyin the import budgeting process, and about $100 million of aid is includedexplicitly in the Core Import Programme. Much of the aid outside the Coremust go through a number of steps before licenses are issued to cover it(see Annex B). Although these procedures are often required for accounta-bility to donors, ministries should continue to give high priority to expe-diting this process, which should be monitored by the Committee to makesure that it is working and that both cedi cover and letters of credit arebeing made available. With aid levels below expectations, expeditiousutilization of what is available is likely to be an important determinantof further aid from many donors.

28. If import licenses are successfully limited to the amount offoreign exchange available, tremendous pressure on the licensing systemwill ensue as unsuccessful applicants press their claims (at present, thispressure is exerted largely on the commercial banks, since foreign exchange


cover rather than licenses is the binding constraint). Two measures willbe needed to reduce this pressure: some sort of a safety valve throughwhich foreign exchange can be obtained; and some means of reducing therents available to successful license applicants.

29. The current safety valves for obtaining imported goods outsidethe licensing system are Special Unnumbered Licenses (SULs), smuggling, andbuying from those who do have licenses. Of these, the only strictly legalmethod is SULs financed by foreign exchange actually earned abroad (i.e,remittances). SUL importers and smugglers tend to concentrate on consumergoods with quick, high returns, and importing for others is limited by thetotal value of licenses for these commodities, so that industrial producersdo not have an effective safety valve (except the retention scheme forexporters). This is particularly disadvantageous to resource-basedindustries whose ability to produce may depend on a relatively small mountof imported equipment or materials that are not available through thelicensing system.

30. Although real exchange rate depreciation is the simplest, mosteffective and neutral way of reducing both pressure on the system and rentsto Importers, interim measures would be appropriate during the transitionalperiod toward an equilibrium rate. Two such measures that could be studiedfor consideration are an auction scheme and a temporary tax.

31. An auction scheme for foreign exchange (or import licenses) canoperate in a variety of ways. To start with, eligibility could be narrowlyrestricted to industrial producers and to raw materials, spare parts andreplacement equipment, with those industries provided for in the Core andthose found not to be viable excluded. This approach would benefitresource-based industries for whom the import costs are small portioa oftotal costs. It would also enable potential exporters to obtain an initialround of imported inputs (if they have the liquidity) so as to beginexporting in order to gain access to retained foreign exchange earnings.Outside funding could be sought to help with setting up such an auctionscheme and funding it (so that the resources would be additional). Consid-eration could also be given (perhaps after some initial experience) toallowing certain holders of foreign exchange to sell through the auctionsystem, to attract more official remittances or to give exporters withexcess retained earnings an incentive to exchange them for cedis. Alimited auction of the above type would be primarily an interim alternativeand revenue-generating device, not an appropriate indicator of theacorrect' exchange rate. A more generalized auction as part of an exchangerate adjustment process could also be considered, but this is beyond thescope of what is being proposed here. A study of how different types ofauctions might actually be implemented in Ghana--their advantages anddisadvantages--would be desirable to facilitate discussion of the issuesand decision on a course of action.

32. A temporary special tax could also be considered to absorb rentsin order to reduce pressure on the system and increase government


revenues. This tax could be higher on broad categories of goods thought tohave higher rents, e.g., it could be higher on non-essential goods in Cate-gory II, and higher on Category I goods than on the Core. But it should belevied on both imported and domestically-produced goods so that it isneutral with respect to protection, and it should be both administrativelysimple and temporary, so that it can be readlly removed when exchange rateadjustment is achieved. In the meantime, it would serve to offset therevenue loss on import duties that results from an overvalued exchangerate.

Public Sector Intervention and Private Sector Role

33. The governmnt appears to be in the process of defining the roleit intends to play in intervening in and regulating industrial productionand the role it sees for the private sector. The private sector couldcertainly make a strong contribution to Ghana's industrial recovery, and itwould be helpful for the government to state such expectations and the typeof a mixed econoy it envisages for the industrial sector. The StateEnterprises Study presumably will be the occasion for the government toreview how deeply it wishes to-and can, given limited resources-beinvolved directly in industrial investment. 'Reorganizing *{ 1ramlibLELpublic industries is an important measure to improve industrial perform-ance. Successful completion of the review of State Enterprises is thefirst step. This will have to be followed by a strong commitment to imple-menting the recommendations, including strengthening or rehabilitation ofpotentially viable activities in which public sector ownership makes senseand sale or termination of others.

34. The government's new Investment Code (to be issued) is a positivestep toward clarifying its attitude toward private investment, both foreignand domestic. The revised Code establishes a positive tone toward privateinvestment, Including the necessary guarantees for repetriation of profitsand capital and against arbitrary and uncompensated takeover. It specifiespriority areas for investment and establishes different and clearly calcu-lated levels of benefits according to the nature of the investment, Itallows for licensing of investments that are not eligible for benefitsunder the Code. The return of several enterprises previously seized by theState to their former owners is another positive sign of an improvingcliwate for private business.

35. The process of improving worker-management relations should becontinued in order to reduce this source of uncertainty and tension in thebusiness climate. Efforts have been made to encourage Workers' DefenceCommittees to play as constructive a role as possible in the productiveoperation of industrial enterprises. Further efforts are in order toachieve an appropriate balance between the objectives of workerparticipation and management efficiency.

Finance

36. Provision of adequate liquidity to finance an industrial recoveryrequires actions at the levels of both the firms and the banking systemnMany firms currently have weak credit standing due to low production inrecent years. Some banks have not always been able to satisfy their


customers' needs for cedi cover for import licenses. Some specialfinancing or credit guarantee schemes may be required-especially toaccelerate disbursement of import credits and other assistance forrehabilitation. Although the banking system as a whole appears to haveadequate liquidity for present (depressed) demand, it will have to greatlyimprove its ability to attract deposits in order to ensure its ability tofinance a more vigorous recovery. Positive steps in this regard are theincreases in interest rates and efforts to control inflation. Thegovernment has also tried to restore the public's confidence in the bankingsystem by stating tha: amounts placed in bank accounts since December 31,1981, would be governed by bank confidentiality and would not be subjectedto investigation. Nonetheless, it is taking some time for the bankingsystem to recover its previous share of money in circulation.

37. In order to help restore firms' ability to obtain credit neededfor imported inputs and rehabilitation programs, immpdiate steps are neededto enable firms to revalue their assets without fear of undue taxation ortakeover. A one-time revaluation is justified by the magnitude of the 1983devaluation and subsequent adjustments, which have multiplied the cedi costof replacing assets by a factor of 10 or more. Revalued assets would makefirms more creditworthy and enable them to charge depreciation that is morerealisti in terms of replacement costs. The government is currentlyinvestigating satisfactory ways of achieving this on an exceptional basis.

Priorities fo- Funding

38. The industrial sector is constrained primarily by its lack ofimported materials and spares, which it can use productively given that theunderutilized capital and labor already in place represent sunk costs.The immediate need is for additional foreign exchange to increase capacityutilization. The overall priorities for allocating foreign exchange to theindustrial sector are set by the Economic Recovery Program and the ImportProgram, i.e., industries that produce essential consumer and incentivegoods, that generate government revenues, and that are export-oriented.The rationale is to give an initial boost to those activities that have amultiplier effect by providing incentives for production in other sectorsor by adding to budgetary or foreign exchange resources. In the short run,urgent attention should be given to defining the Import Program categoriesconsistent with this rationale and seeking to fund that Program as fully aspossible. Additional foreign exchange is needed both for prior'.tyindustries that have not benefited from imports in the Core, no as togenerate quick returns from unutilized capacity, and for greater productionof essential commodities, to support further relaxation of price anddistribution controls.

39. The longer-run objective is to give preference to industries mostlikely to be consistent with efficient use of domestic resources. Somegeneralizations can be made: look closely at industries based on locally-produced inputs, and avoid capital-intensive, import-dependent and assemblyindustries. Such generalizations, however, can also be dangerous, becausemany problems arise in expanding industries that require local materialsand because many industries based on imported inputs can be quite effi-

- 96- ANNEX DPage 12 of 16

cient. In developing the Import Program and special rehabilitationprograms over the next several years, further study will be required inorder to make sound-economic judgments about what portion of Ghana'sindustrial capacity can most effectively be rebuilt into a productive,dynamic and well-integrated sector of the economy.

40. Priority to industries that are export-oriented and that utilizedomestic inputs is warranted because they are likely to have the greatestmultiplier effects by providing additional resources and income to fuelfurther expansion, and they will make minimal further demands on foreignexchange since they can utilize retained foreign earnings and domestically-available materials. New export activities have a small allocation in theCore Import Programme that would allow them to obtain licenses for mDte-rials needed to meet firm export orders. If this approach shows somesuccess, funding to expand It would be appropriate. A more difficultproblem is how to meet the foreign exchange requirements of resource-basedindustries that need complementary imported inputs or capital equipment butcannot readily obtain import licenses. Sufficient funding for the ImportProgramme is needed so that limited amounts can be allocated to criticalone-time capital needs of such industries.

41. A special emphasis on agro-industries is warranted by theirlinkage effects and the complex problems associated with them. Agro-industrial development requires close attention to agricultural policy(especially producer prices and availability of inputs) in the supply acti-vities and to the adequacy of the transport and marketing system. Thus, aprogram approach is appropriate, making additional resources available notjust to the agro-industries themselves but also to key input and infra-structural activities.

42. The ready availability of foreign exchange (at a premium) outsidethe licensing system would be a means of quickly assisting resource-basedindustries (and others with urgent foreign exchange requirements that aresmall relative to the value of their output). Funding of a limited auctionscheme and the necessary prellminary work is one option to explore.

43. In order to establish sub-sectoral priorities for the longer-termrestructuring effort, further study is warranted to try to identify moreclosely what types of industries are most likely to be viable over the longterm in Ghana, and their requirements (especially in foreign exchange).Data collected by the Trade and Industry Mission are currently beinganalyzed to try to obtain some broad ideas of relative efficiency, andspecialists are reviewing several sub-sectors (agro-industries, textiles,wood, metals, and chemicals). These studies will provide information onproblems such as foreign exchange requirements, local resource supplies,energy costs and manpower needs, as a guide for future program. ofassistance for industrial rehabilitation. The on-goiag study of PublicEnterprises will likewise provide a basis for rehabilitating, selling orclosing public industrial enterprises according to their viability.Nevertheless, the difficulty and cost of making accurate, detailedcalculations and decisions on a firm-by-firm basis makes it essential to


establish appropriate economy-wide incentives that guide resource use inthe desLred direction. In this sense, support for general economic policyreform under Ghana's Economic Recovery Program is an essential conditionfor successful induscrial recovery.

44. Additional foreign exchange for imports of materials and spareparts to utilize existing capacity is likely to be productive throughoutthe industrial sector, given that industrial capital and labor are essen-tially sunk costs. This Aide-Memoire has argued, however, that such fund-ing should be directed as much as possible toward making incentives andindustrial structure more consistent with long-run viability and resourceavailability. The government has taken serious initial steps towardreforming the policy framework and establishing priorities in the desireddirection. At this point, the most urgent need is for programmatic supportto enable industrial recovery to get off the ground--in particular by fund-ing industrial inputs in the outer core, especially for resource-based andexport industries. With continued liberalization of price and distributioncontrols, these industries will be able to generate much of the additionalliquidity and some of foreign exchange that they need. In the medium term,studies of viability and resource requirements are needed as a basis forprograms to rehabilitate and restructure specific sub-sectors (includingthe public industrial sector).

SUNMARY AND CONCLUSIONS

Strategy for Industrial Sector Contribution to Economic Recovery

45. Ghana's highly underutilized industrial capacity can be viewed asam important resource for the Economic Recovery Program. Ghana has inplace a relatively large and varied industrial base, with capital, laborand entrepreneurs capable of providing a quick supply response if the basicconstraints are removed. The immediate constraints to utilizing thiscapacity more fully are:

- insufficient foreign exchange for Imported materials and spareparts;

- inadequate supplies of domestic material inputs;

- low profit incentives for production relative to trading andsmuggling, due to price and distribution controls, the gapbetween the official and parallel exchange rates, and importrestrictions;

- unfavorable climate for business operation and investment,especially in the private sector.

46. Cooperation between the government and the donor community isessential if these immediate constraints are to be overcome and the stage

- 98- ANNEX DPage 14 of 16

set for a reversal of the past decline in industrial production. Thegovernment has begun the process of policy reform to create a more positiveincentive framework and business climate and the international communityhas begun responding with the needed foreign exchange. Much more needs tobe done, however, both by the government on incentives and the businessclimate and by the international community an the volume and quality ofaid. Furthermore, efforts must be accelerated to overcome bottlenecks incomplementary sectors, which inhibit the supply response as follows:

- deterioration of the transport infrastructure (roads, vehiclesand spare parts, railroads, and ports) inhibits the movement ofmaterials and products;

- the responsiveness of tree crop agriculture to improved priceIncentives is limited by deterioration of the trees and the lackof inputs (as well as the transport situation);

- many firms have neither the liquidity nor the access to creditnecessary to purchase inputs, due to losses suffered over severalyears, the greatly increased credit cost of imports, and the lowbook value of assets;

- deterioration of equipment and lack of spare parts in manyIndustries causes stoppages and breakdown in production;

- rationing of electricity and water supplies slows down the speedwith which available materials can be utilized;

- worker morale, productivity and cooperation are low because oflow real wages, lack of skilled labor and managers, and theunclear role of WDCs.

47. Programs and measures to address these medium-term bottlenecksare necessary for policy changes and provision of external resources totake their full effect. Some of these areas make potentially attractiveprojects for external donor fundlig. A massive amount of resources,however, would be necessary to address all problem areas simultaneously andadequately. Hence, the government must continue developing a strategy thataims, on the one hand, at utilizing the potential of its industrial capa-city for the maximum multiplier effect on production and resourcemobilization in other sectors, and, on the other hand, to convince theinternational community that resources will be used efficiently in thecontext of a long-term program that offers Improving prospects for indus-trial recovery.

48. A central issue for industrial strategy is the degree of relianceto be placed on administrative controls and on market mechanisms. Economicactivity has been hindered at every turn by controls and regulations, whilean overburdened and underpaid administrative system has had neither theresources nor the incentives to operate effectively. A suitable strategyin this situation is to establish priority areas for public sector


intervention and focus administrative resources on these areas, whileestablishing an appropriate policy environment for market forces to operatein other areas and release administratlve resources. The choice here isnot so much ideological as between effective and ineffective implementationof measures central to the governucnt' chosen approach.

Policy Issues

49. The overriding policy concern for industrial recovery is toestablish incentives that favor productive utilization of availableresources. The first priority is to continue Implementing the government'sfar-reaching program of macroeconomic policy reform to progressivelyreduce the gaps between prevailing market prices and offIcial prices,exchange rate and wages. These gaps have distorted incentives away fromproduction lnto trading and smuggling and away fro, efficient performanceof duties into secondary and illegal income-earning activities. They alsohave reduced government foreign exchange and budgetary receipts. Onedifficulty in implementing exchange rate and prlce liberalization, however,is that some lag occurs befor- this process stimulates sufficient economicgrowth to enable real wages to rlse in the longer run. The Industrialsector offers the posslbility of relatively quick productivity increasessince most Industries have excess workers and their products are highlydemanded. These increases could be partly translated into wage increases-especially for scarce skilled workers-although this means that employmentgains are likely to be slight.

50. In addition to improved incentives and reduced harassment,further posltive steps to improve the clinate for doing business in Ghanaare essential if the potential resources available In the private sectorare to be fully mobllzed for economic recovery. The revised InvestmentCode Is one step toward establishing a more satisfactory environment thanhas existed in recent years. Indeed, the more positive attitude towardprIvate investment may be more important than the benefits to be providedin the Code, because of the signal it provides to external donors and tobusiness owners currently outside the country (as well as to Investors).

51. To relieve pressure on individual allocation decisions, somemeans must be found to reduce the scarcity rents available, until this isaccomplished through exchange rate and price liberalization. A temporarytax on both imports and domestic production (especially of non-essentials)may be appropriate. A limited foreign exchange auction could give certaiucategories of Importers legal access to imports without having to gothrough the allocation system, and would also absorb rents. These andother second-best rationing schemes should be reviewed-recognizing thatthey represent costly alternatives to a fully market-based system.

Establishing Priorities

52. The poliny reforms of the Economic Recovery Program are aimedboth at reducing the degree of reliance on administrative controls and at

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altering the signals provided to economic actors in favor of more produc-tive uses of resources. While this adjustment process is going on,administrative allocation of resources needs to be based on priorities thatare consistent with efficient resource use and that reduce the number andarbitrariness of bureaucratic decisions. The government has correctlyfocused on improving the key area of foreign exchange budgeting and licens-ing. Effective ioplementation of the new Import Program approach requireseliminating the overhang of outstanding licenses, moving quickly to initi-ate the 1985 Core Program, setting priorities and determining allocationsfor the 1985 Categories I and II, and improving the forecasting and budget-ing process.

53. A guiding principle for rehabilitation of the Industrial sectoris to favor those activities with linkages to other domestic sectors andthose most likely to be viable in the long run (in addition to the priori-ties established in the Economic Recovery Program). Expansion of output inresource-based industries, however, can have a multiplier effect only ifthe supplying industries and complementary infrastructure are able torespond--so that these activities must be accommodated in setting priori-ties. Estimation of long-run viability is no simple task given presentprice distortions and the lack of data. At this stage, some key subsectorscan be selected for further study of viability and resource requirements.In view of current and anticipated problems with liquidity, the ability ofthe financial sector to service the Recovery Program should also bestudied. World Bank missions are being planned to assist the government informulating Its subsectoral and financial sector programs.

54. A program of reform of the public industrial sector would comple-ment a statement of the government's position toward private business acti-vity. In undertaking a Survey of State Enterprises, the government hasrecognized the need to rationalize the organization of this sector and touse increasingly limited public resources more efficiently. In the indus-trial sector, this eans limiting direct i.avolvement to sectors that areinappropriate for private sector investent and to activitles that cangenerate rather than drain resources, while selling or closing down low-priority, unprofitable and unviable firms that cannot be supported by thefinancial and managerial resources at the disposal of the public sector.

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Page 1 of 15

NATIONAL ACCOUNTS AND STATISTICS IN GHANA

Introduction

1. The Central Bureau of Statistics (CBS) is the main collectorand producer of statistics in Ghana. CBS is attached to the Ministry ofFinance and Economic Planning and is comprised of four divisions:(1) Primary Statistics, (2) Economic Research and National AccountsDivision, (3) Methods and Standards, and (4) Demographic and SocialStatistics. The first two divisions are further divided into 11sections (see p. 10 for organization and publications of each section).The CBS collects most of the primary statistics used in the nationalaccounts. The Bank of Ghana collects data related to the Balance ofPayments (BOP) such as external trade and payments, foreign exchange anddebt. It is also responsible for collecting monetary statistics data.There is some overlap with CBS in the collection and analysis of tradedata; the Bank of Ghana is generally responsible for invisibles, and theCBS is responsible for merchandise trade data. The Ministry ofAgriculture (MAG) collects data that is used by CBS in its nationalaccounts compilation, and the Cocoa Marketing Board also supplies CBSwith data on cocoa production and prices which is used in the nationalaccounts. The organization is, therefore, quite centralized, and isclosely linked to the policy making process since it is under theMinistry of Finance and Economic Plannifng.

2. The collection and analysis of basic statistics in Ghana bythe CBS have suffered in rece.±t years due to inadequacies in staff andresources. Given these difficult circumstances, the renewed effort ofimproving the system has shown considerable progress, and the long runprognosis is positive for continued improvement. The future improvementin data collection and analysis should focus on timeliness, increasedcoverage, and quality control of the data. The CBS should build up thecapacity to critically review and improve data and methodologies; thenew computer system, which was created in 1982, is an important aid inthis process. The collection and collation of vital government budgetand trade statistics on the computer system is further evidence of"catching up" with current statistics in Ghana.

3. The CBS has been targetted for reorganization which shouldstrengthen its position and improve staff morale. Other forthcomingimprovements in the basic data are a planned household expendituresurvey and agriculture and industrial censuses. In addition, apopulation census and the Ghana Fertility Survey have been recentlycompleted. The implementation of these improvements is necessary inorder to previde accurate and timely information to policy makers; atpresent, the timeliness, quality and quantity of data are insufficient.

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The government should continue to strengthen the CBS and other datagenerating ministries to ensure that. quality data are used in planning.

NATIONAL ACCOUNTS AND STATISTICS

4. The national accounts of Ghana are published in both the"Quarterly Digest of Statistics"' and the annual "Economic Survey". Thelatest "Quarterly Digest of Statistics" was published in June 1984, andcontained estifrates in current and constant prices for both GDP byindustrial origin and by expenditure from 1976-81. The latest finalestimates, however, are for 1979; 1980 and 1981 are provisionalestimates based on incomplete data. The latest "Economic Survey, 1981"issue was published in August 1983.

5. CBS has published three national accounts-related papers:

(i) "Sources and Methods of Estimation of National Income andCurrent Prices in Ghana", 1971,

(ii) Input/Output Table of Ghana: 1968 (published in 1973), and

(iii) National Income of Ghana at Constant Prices: 1965-68(published in 1973).

These publications are thorough and informative, and represent a solidbasis for estimation of national accounts in Ghana.

6. The first official series of expenditure on Gross NationalProduct from 1950-57 was published in the "Economic Survey, 1957".Revisions of the estimates were made, and in 1961-62 the NationalHousehold Expenditure Survey was used as a basis for a new series ofaccounts for 1955-61. The present series is based on the new SNA(Series, F.No.2 Rev. 3) of the United Nations Statistical Office. Thepresent methodology and development of the national accounts was donewith the assistance of the UNDP. The constant price series developed atthat time was based on 1968 prices; the present series are now evaluatedat 1975 prices. Presently, a 1JNDP advisor on national accounts and anadvisor on trade statistics are attached to the CBS.

7. The national accounts section of ithe CBS is understaffed. Thesection consists of the UNDP advisor, a statistician, two assistantstatisticians and a technical officer. The UNDP advisor is the onlyperson attached to the office with a wide range of experience andexpertise in the national accounts section, and it is apparentlydifficult to recruit and keep senior people in CBS. Given these circum-stances, and the poor quality and quantity of some basic statistics, thesection can only produce weak provisional national accounts estimates.Improvement in the quality and timeliness of the national accountsestimates will require strengthening of basic data collection,institutional cooperation, re-staffing, and computerization. Theseproblems and recomendations of the statistical system will be discussed

- 103 - ANNEX EPage 3 of 15

in a separate section below. The following are some considerations ofthe estimation of the GDP value added and expenditure accounts.

GDP By Industrial Origin

8. Agriculture. Estimates of area planted and production arebased on a 1960 population census, a 1965-68 small peasant holdingsample survey and a 1970 agriculture sample census; since these sourcesof information ere dated, the coverage may no longer be adequate. Thesector also suffers from a classification problem: the marketing ofcocoa is included in the agriculture sector rather than in distributivetrade. Since separate production data -re available, considerationshould be given to reclassifying the marketing portion. In recent yearsthe annual surveys have counted only major crops, and input/outputratios are likely to have changed since importtd inputs have not beenavailable due to foreign exchange shortages. In addition, the structureof the economy has been changing; manufacturing has declined during thepast 10 years (from 14% of GDP in 1974 to about 4% in 1984), and thereis some evidence to suggest that agricultural employment may beincreasing cue to producer response to high agricultural prices.Another factor contributing to estimation difficulties is the smugglingof cocoa and forestry products out of Ghana.

9. Estimates of removal of forest products from unreservedforests (81% of forested area) are from casual observation, and may beunreliable since no recent surveys have been undertaken to estimate thesubsector. Estimates of firewood production, which is the main energysource for cooking in Ghana, is extrapolated by population growth from a1963 benchmark estimate; an updated benchmark from a small survey wouldimprove these estimates, especially since urban/rural population growthrates are quite different (1.5 vs. 5.5 respectively), and usage may beevolving differently in the two areas. For the fishing subsector,estimates of fish production may need more careful scrutiny; due to poorstorage facilities on commercial ships, spoilage is as high as 60% ofthe catch. Also, the assumption that the same number of canoes in useas that enumerated in 1962 may no longer be reasonable. A survey tore-estimate the number and type should be carried out.

10. The quality and quantity of data collection has been decliningrecently due to lack of resources such as transportation & equipment andwell trained and motivated field workers. The drought and bush fires of1981-83 have probably introduced further problems in estimating areasunder crop, types of crops and yields. Disease in cocoa plants, andhigh prices of food crops has also contributed to a change in thecomposition of agriculture crops under cultivation. Price collectionfor all crops is quite extensive, but they may be unreliable due toquickly changing prices, and price controls which are probably notstrictly adhered to. The Accra CPI for 1983 did not include prices ofmaize and rice; lack of reliable price statistics could account forunusual swings in the agriculture value added series.


11. Since the national accounts section of CBS depends on primarydata from the Ministry of Agriculture (MAG), it has not been able tofully assess the reliability of the data; however, given the time lagsin receiving data, and the known problems with existing data, thequality of agriculture production estimates are considered to be weak.Some of these problems should be resolved with the planned agriculturalcensus to be conducted in 1985. The census will be partially funded byUNDP. NAG is aware of some of the shortcomings of its present data, butgiven the high percentage of agriculture in GDP (about 55%), strongerlinks between CBS and MAG should be forged to ensure that timely andquality data be supplied for compilation of the national accounts. As alarge data supplier of an important sector, MAG should keep abreast ofCBS plans of reviving and extending computer services so thatappropriate computer links can be made in the future.

12. Mining and Quarrying. This sector poses few problems incoverage since most mining is done by large corporations. However,individual "African diggers' t are excluded from the estimates. The majorproblem posed by this sector is in timeliness; delays in receivingquestionnaires of approximately two years clearly inhibits the abilityof CBS to make sound estimates in this sector. As in other sectors, theassumption of the value added/gross output from the 1968 benchmark needsto be reviewed for use in calculating the constant price series.

13. Manufacturing. Large scale manufacturing (over 30 employees)coverage is good but medium and small firms production is estimated onthe basis of their share of manufacturing from a sample survey in 1963.This ratio may no longer be applicable since many small scale "backyard"firms are thought to be operating to replace some of the supply oflarger firms that have closed down due to lack of imported machinery/rawmaterials. This coverage problem has been known for some time, and thecoverage will be improved as a 1985 industrial census (to include mediumand small scale firms) will be conducted for the year 1983. Cautionshould still be used when using these results for ensuing years since1983 was not a "normal" year. Although the industry section covers alllarge firms in its annual survey, the collection of data is slow. InJune, 1984, only about 50 percent of 325 large firms in the survey hadbeen processed. This illustrates the need for stronger compliance withCBS surveys.

14. Construction. The construction sector estimates areproblematical since the estimates, in part, depend on the commodity-flowapproach. Estimates of imported materials after 1979 are virtuallynon-existent, and medium and small firms producing constructionmaterials may not be covered well. Therefore, estimates based on thesedata are weak. Prices of imported materials are also weak since thetrade data have not been analyzed in detail since 1979. Improvements inthe method of estimation could utilize some administrative data such asbuilding permits (where they exist) to estimate square meters underconstruction and estimating cost per square meter by surveyingconstruction firms. Questionnaires could be administered to largeconstruction firms, and data from the proposed household census of

-105- ANNEX E

Page 5 of 15

1984/85 could also provide new information on type of houses and repairand maintenance. These data will also be useful for the imputed rentcharge for ownership of dwellings and rental units.

15. Wholesale and Retail Trade and Restaurants and Hotels. Thevalue added estimates of wholesale and retail trade depend heavily onthe commodity flow method. Since the estimated value of imports andlocally produced goods is somewhat weak as noted above, the estimatesfor this sector are correspondingly poor. Moreover, the estimates ofgoods distributed, margins and costs are based on informed guesses.Additionally, the trade sector of Ghana has changed sharply in recentyears; although production has decreased, attractive profits can be madein trading, and it is believed that more people are engaged in tradingand that profit margins may have increased substantially due to thescarcity of many goods. Estimates for this sector could be improvedthrough information obtained by sample surveys and in improving basictrade and production statistics. Also, since many agricultural productsare sold at retail prices (therefore including trade and transportmargins), there could be some double counting in this sector.

16. Transport, Communication, and Storage. Estimation of thissector poses many serious problems due to lack of reliable information.Reporting of public transportation is done by the State TransportAuthorities (rails, ports, omnibus, airlines), but private passenger andfreight transport statistics are fragmentary. For passengertransportation, the 1968-70 CBS census of vehicle population has beenused as a benchmark estimate and moved forward by adding newregistration of vehicles and depreciating the stock by assuming about 10years of vehicle life. However, in 1981-82, an experiment to check thereliability of the vehicle population by checking with the policeregister showed a wide discrepancy with the old estimate. From 1979 tothe present, many vehicles have been grounded (up to 70%) due to lack ofspare parts. The useful life of vehicles has declined, so CBS increasedthe depreciation schedule. Another factor that affects the gross outputestimates is the utilization rate of private passenger transport; partsand gasoline shortages have probably lowered the utilization capacitysubstantially. Moreover, goods transport is estimated by an index ofimported and domestically produced goods which are assumed to betransported; the commodity-flow approach is problematical since theseestimates may be unreliable. Air transport is underestimated sinceseveral international carriers are not included in the value addedestimates. These carriers could be covered by an annual postalquestionnaire. The constant price series, which is based on variousweak indicators such as registered vehicles (rather than how many areactually in working condition times distance travelled) andcommodity-flows could be erroneous. As with other sectors, theinput/output ratio of 1968, which is used to estimate value added fromgross output for the constant series, should be reviewed and updated.

17. Banking and Insurance. The methodology of estimating theconstant price series of banking and insurance was changed in 1979, but


a revision of the earlier series was not made in order to maintain aconsistent time series.

18. Business Services. The real estate subsector comprises rentalof housing and imputed value of ownership of dwellings. The methodologyof estimation has changed since the 1965 benchmark estimate of thehousing stock was made. The original method of estimation by usinginterest rates as a proxy for rental value of a house of a certain valuehas been revised by incorporating information on the rents paid by typeof house for estimating value added. The problem of using the interestrate as a proxy for rents is that, even though both interest rates andrents are controlled by the government, they may be controlled atvarying levels. The constant series, which uses the housing pricecomponent of the CPI as a deflator, is adequate. The recently completedpopulation census should provide information on housing that can be usedfor improv-ed estimates of the sector. The business services subsectorsuffers from lack of timely returns on questionnaires administered bythe national accounts section of CBS. The business registers are keptup-to-date by contacting various associations, but there may be someproblems in blowing up the total figure from partial returns since manybusinesses may have failed, but are still assumed to be in operation.It is acknowledged that some types of business services, such ascomputer services have not been included in these estimates. Formachinery and equipment rental, estimates are based on an index ofimports, but since 1979, accurate estimates of these imports are notavailable. Some of the subsectors are deflated by the CPI. This couldbe improved upon by using an index of wages and salaries of theappropriate sector.

19. Social, Recreational and Related Community Services. Thebasis of value added estimates are an ad hoc 1963-65 CBS study, postalsurveys and informal guess. The estimates are therefore quite weak, andcould be strengthened by conducting new surveys. The constant priceseries should use more specific price and wage or employmentextrapolation for educational and recreational services estimates (CPIis presently used). As in other sectors, an outdated input/output ratiois used to arrive at value added in the constant price series.

20. Producers of Government Services. Value added estimates since1979 are based on partial information of the government rather thancomplete government accounts. This situation should be improved as soonas the computer system of CBS is back in full operation.

GDP by Expenditure

21. Private consumption in both current and constant prices istreated as a residual; therefore its accuracy is dependent on estimatesof GDP by industrial origin. Private consumption should beindependently estimated from the commodity-flow method and fromhousehold surveys. Given the large amount of smuggling in recent years,the commodity-flow method of estimation could be inaccurate, but anindependent check would be useful nevertheless.


22. Estimates of fixed capital formation may not be very reliable,especially after 1979, since there is no accurate breakdown of importedcapital machinery and equipment. The construction component is alsosomewhat weak since permanent construction estimates are calculatedusing information on imported construction materials.

23. Exports and Imports of Goods and Non-factor Services. Exportsand imports of goods and non-factor services data collection is in astate of flux since the CBS trade system has not been maintained since1979. The system is presently being revived; this should greatlyimprove national accounts estimates. In order to make detailed tradedata for the most recent years (1983-84) available to policy makers forcurrent decision making, the external trade section should concentrateon these years and then work back to 1980. The totals for trade, nowdeveloped by the central bank on the basis of customs data and lettersof credit issued are probably significantly underestimated due tosmuggling (exports). The constant price series of imports is alsoconsidered weak since a detailed breakdown of imports is not available.Some estimates of imports by end use are made on the basis of lettersof credit, but they are unreliable since the imports often do notmaterialize. Exports in constant prices present no particular problemsince price and quantity data are available. The extent of smuggling,however, is thought to be substantial, so the level of reported trade isprobably underestimated.

24. The exports and imports of goods used by CBS in the nationalaccounts is not strictly comparable to those published by the CentralBank. An enclave industry, Volta Aluminium (VALCO), is excluded in Bankof Ghana accounts due to its special legal status. But for purposes ofthe national accounts, UN SNA concepts are used to define VALCO as aresident industry, and its exports of finished goods and imports of rawmaterials are included in the GDP by expenditure exports and importscomponents. Both the Bank of Ghana and CBS use data provided by theCocoa Marketing Board in lieu of data from customs for its estimates ofcocoa exports since customs do not report exports until the export dutyis paid (delays are often several months). This concept of exports isconsistent with UN SNA recommendation that goods crossing thegeographical boundaries of a country be counted in the national accountsestimates. In the case of factor service payments, the Bank of Ghanaconsiders sales of electricity by Volta River Authority (VRA) to VALCOand wages and salaries of resident workers as a credit in "otherservices". For national accounts purposes, however, payments of wagesand salaries to resident staff and local purchases of electricity andother raw materials are regarded as resident-to-resident transactions.Another adjustment to the External Trade Statistics that the nationalaccounts section of CBS makes is the inclusion of imported chilled orfrozen fish which are caught on the high seas and directly exported toGhana. The External Trade Statistics (based on customs data) do notinclude these imports because they do not have a country of origin, andthe Bank of Ghana does not make this adjustment in the balance ofpayments.


25. Although labor income should be included in factor servicepayments, the Bank of Ghana and CBS do not have adequate informationrelating to these payments to include them in this category. Therefore,labor income and migrants transfers are both included in transfers. Dueto the overvaluation of the cedi, however, it is thought that asubstantial amount of these transactions does not go through the Bank ofGhana, and is therefore underestimated. Since up to 10 percent ofGhana's population were estimated to be working in neighboring countrieson both a short term and long term basis, the receipts estimates offactor service payments and transfers are probably underestimated sinceforeign exchange is converted on the parallel markets due to morefavorable rates. The overall divergence between external trade in thenational accounts and balance of payments is slight since theadjustments tend to offset one another. The Bank of Ghana should makean increased effort to estimate these flows. Also, more of thesereceipts will go through the Bank of Ghdna as the exchange rate becomesmore realistic.

26. The conversion of foreign currency values of externaltransactions into cedis also needs to be reviewed and assessed by theBank of Ghana in conjunction with CBS's External Trade StatisticsSection. The breakdown of the trade system in 1979 has left the CBS andBank of Ghana with only partial estimates of trade details, and with therecent multiple exchange system and devaluations, the average exchangerate for 1983 of 20 cedis/U.S.$ is an estimate made by the Bank of Ghanawith IMF consultation based on quarterly trade data. The Bank of Ghanawill refine this estimate by using monthly data to work out the averageexchange rate for 1983. The Bank of Ghana supplies factor andnon-factor service payments data to CBS for the national accounts, butthe exchange rate used for conversion to cedis is not always made clearor is given incorrectly (See March, 1984, Quarterly Digest ofStatistics). Consultation between the Bank of Ghana, CBS and otherministries that work with trade issues should be made on a regular basisto ensure consistency of conversion factors.

STATISTICAL IMPROVEMENT FOR KEY ECONOMIC INDICATORS

27. The measurement of economic performance depends on a reliableset of economic indicators based on reliable basic statistics. Reliablebasic statistics can help policy makers make rational decisions, so anactive relationship between the suppliers and users of data is requiredto communicate the needs and availability of data. The importance ofdeveloping reliable up-to-date economic statistics is needed forpolicy-makers to respond quickly to changing domestic and externalshocks. Good macroeconomic statistics and their timely analysis play anImportant role in monitoring the recovery program, appropriate tradepolicies and employment and income programs. There is an urgent need toupdate trade data for the 1983-84 period in order to assess theperformance of the ongoing trade liberalization program; earlier tradereturns can be processed after these crucial recent figures have beendeveloped and analyzed. The government must be able to analyze theresults of recent shifts in trade policy in order to determine if they


are having the desired effect on investment and production. Ghana'ssystem is institutionally vell equipped to coordinate this interactionsince CBS collects such of the basic statistics, and CBS is closelyrelated to the Ministry of Finance and Economic Planning, the maingovernment economic policy making institution. This existing closerelationship in statistics development and institutional collaborationshould enable Ghana to create and maintain the needed flows ofinformation. The weak link in the system is the paucity, tardiness andquality of basic statistics which must be improved in order to build upa reliable set of key macroeconomic indicators for essential policyanalysis.

28. The CBS is the major collector of statistics in Ghana. It hasfour technical divisions and is further divided into several sections.The organizations, functions, and publications are indicated in Table 1.

29. The CBS publication list shows that there are some consider-able lags in some key areas; for example, migration statistics were lastpublished in 1972, labor statistics in 1974, and external trade for theyear 1979. To credit of the CBS, the collection of other primarystatistics, such as wholesale and retail prices is up-to-date, andpublication of industrial statistics has about a two-year lag. TheQuarterly Digest and the Economic Survey Report use these varioussources in national accounts estimates, and al;hough the most recent"'solid" estimates show about a three to four year lag, the division ismaking provisional estimates based on partial returns for 1983, andforecast estimates for 1984.

30. The efforts of the CBS divisions responsible for producingquality macro-economic data of Ghana are constrained by some of thefactors mentioned above. The situation seems to be improving, but muchneeds to be done in terms of thoroughly reviewing and assessing theadequacy of the methodology, coverage, concepts and definitions used inmaking the national accounts estimates. During recent years, due tounavailability of data and structural changes in the economy, some ofthe methods of estimation from the benchmark have been done in an ad hocmanner. As improvements are made and information from new surveysbecome available, the national accounts division will have theopportunity to revise and systematize the accounts to ensure consistencyand timeliness.

31. In the short to medium term, several improvements can be madein the statistical system and the estimate of national accounts in termsof quality and timeliness. The following areas are important aspects ofthis process:

Table 1

Central Bureau of Statistics Tedmihcal Divisions

last issuDlvision/Secticgi Furictio Publication (Publication Date)

A. Prlmary Statistics Division

1. Industrial Statistics Section Survey of Irdustrial Establish- Industrial statistics 1979-1981ments (Amwal & Quarterly) Indiex Nos. of Indus. Productim (1983)

1979-1981(1983)

2. EBternal Trade Section Preparation of Trade Returrks lctemal Trade Statistics of G=ana 1979 (1984) *Ghanm's Foreign Trade-ithly Review Jm 1982/Jnm 1983

3. Dlstributive Trade Section hholesae 6 Retail Trade Statistcs Distributive Trade Statistics

4. Transport & Cnimication Section )ator Vehicle Reglstration Statistics Motor Vehicle Statistics 1970 (1973)Civil Aviatimn Statistics Civil Aviation Statistics 1974 (1980)Migratiom Statistics Migration Statistics 1972 (1977)

5. labor Statistics Sectiom E mp1c,ment Survey of Estsblishents labor Statistics 1974 (1983)

6. Price Statistics Section Caisr Price Index Conwer Price Index (mnnthly) Oct. 1983UWhlesle Price Index Wholesale Price Index (Quarterly) (Mar. '84)Index of Prime Building Cost Irlex of Prime &ldirg Cost (Q'tly) Jtu '83

7. Education Statistics Student enrulmnt in schools,Uhiversities

8. Judicial Statistics Crime Statistics etc.

B. Ecaqcc Research & NatiamaliAcoouns uivision

9. National Accamts Sectim Compilation of National AccountsPreparation of Eco. Survey Report Eaom&ic Survey Report 1981 (1983)

10. Fiaucial Statistics Section Finmial Statistics Section ofPublic Corporatlon6

Basim mid FinancePublic Finace Statistics

11. Infnornmtion & Publications Departmetal Publication Qarterly Billetin of Statistics Sept. 1983Section

C. Methods i Starlards Divisim Camputer processing of data

D. Davgrayphio & Social Statistics Div. Population Census ° h0

Sre: CBS* Data for 1980 are rno available.

- 111- ANNEX EPage 11 of 15

Improvement of Basic Data:

The collection of quality basic data is essential to thecompilation of reliable national accounts estimates. The key economicindicators needed for policy analysis and the basic data needed are asfollows:

Key EconomcImdicatoms Basic Data Requred MetIod of lprovemsnt

Alg2ELtre U(i) Area planted & harvested re Sut rveys(ii) Yields, stage "

(ili) Input/Output Coefficients Re-estimte coefficients(iv) WaPs, Salaries Frequem Surveys(v) No. elAyed It(vi) Prices(vii) Percentage I

Mining M(i) Tput/Oatput Coefficients PR-estimte coeffients(1i) Wages and Salaries Preqjxit Surveys(iii) No. employed(iv) Coverage of "African Diggers"

dCanstruction (i) Register of constnctiom Co. /k}Lzistrative in£fozmticu(ii) Estimte of Z ccpleted of Sbuvny Qes aimlxsre, On-

Project site inspectiom(ii) MWges and Salaries Frequent Surveys(iv) No. aTlayed(v) Fst. of input/output/sq. ft.

(I) Total ccll-rc vehicle Samle SurveyP1wation, Type and AgeStructure

(ii) Pe-estiute d atqr &Utillzatimn

(iii) Estimte of Mlles/Yr.(iv) Update register of caWii es,

estimte informal tmd, biBse

Otber Services (i) Inowe & bcexditue Data Sple Surmey(ii) No. ezlyed I(iii) improve coerage Sample SurvWy, Tade Associatim Info.

Prices Ci) ,etail, 1h& esale prices Bar quality, cistey of datacollected. Caiputrize data colect-ing allysiBs.

-112 - ANNEI EPage 12 of 15

Keyr Ewvwcindicators Basic DNta Requred Method of Trwxuit

Iwvesbmit (i) Plb4ic & Private Ines t S9uv of buimess p&Ltc finmwe info.(ii) lnvestmimt by ECRrc Activity urvey by Swctr

Ci1i) Invegut by Type l9wved trade data adlyesi

E() Value, Prices, Vohm by ove nforti I withsteSIIX Gmups tradirg offices to CBS, cc£Anie for

tinly reportng. lmpve c,sto, datacollcticm, link wth CBS eaernl tradesectiLis, ccs-n cwpzter p=esuiof trade system

(i) Value, Price, Volume by Iprwe acstai data collctcn, ca-Sim Groups Puterize systm mPve rive

with CBS extenal trade section. Cwumcwa pOcssig of systa

dbi.c Finoce (i) Reveme & Btpenditure Acm Re-inestitute dluterizatic of wwezuuetflunce statemts. )*wv timlie

Balce of (i) See Export & Imports above

(i) No. eipoyed by secto Sa,2azvys as noted above In ewhLength of work wek sectorleel of skl11, sidil

32. The improvement of basic data collection and analysis needed togenerate several key economic indicators was discussed with various CBSofficials, and the following areas require strengthening:

- Increased use of the computer to improve quality andtimeliness;

- Upgrading and efficient use of staff;

- Cooperation between CBS and other statistics generatinginstitutions and users;

- Staff training;

- More frequent use of small, efficient sample surveys, and a newhousehold survey;

- Overall improvement of the CBS environment;

- 113- ANNE ZEPage 13 of 15

- Improved transport and communications.

The shortcomings of the present statistical system are recognized, aAd animprovement in the quality and timeliness of data generation is of greatimportance for making well informed policy decisions.

Technical Assistance Needs

33. Although the CBS probably has an adequate number of staff, itis short of highly qualified personnel. In the long term, it will haveto rely on local staff to carry on the statistical development, so theCBS must be able to attract and retain trained staff. Until such localstaff are recruited, outside technical assistance will be required. Twosections, national accounts and external trade, have UNDP experts. Keyadditional areas of technical assistance needs are in the following CBSsections:

(i) Industrial Statistics Section: A high level experiencedindustrial statistician is needed. A UNDP volunteer ispresently working in this section.

(ii) Trnssport and Communications Section: The section does nothave a graduate to direct the section, so an experiencedstatistician is required.

(iii) Labor Statistics Section: Upgrade staff; the section isthought to be an "Achilles heel", since employment statisticsare key inputs into other sections.

(iv) Price Statistics Section: The updating and collating of datashould be computerized for quality control and timeliness. Theprice statistics section collects a lot of data which is usedas a major input in key economic indicators. The pricestatistics seem to be collected adequately; however, prices ofseveral important items in the Accra CPI were not reported inthe Quarterly Digest due to unavailability of data; this mayreveal a weakness in the price collection process that mayrequire improvement.

34. Data Processing Division. A data management expert is neededto tie all the statistical sources of information together, introducestandards, assure consistency and reliability of data, and to ensure thatdata needs of policy matters can be met. A systems analyst is alsorequired to set up the reporting, updating, validation, retrieval, andanalysis packages of the system. The systems analyst will also reviewcomputer hardware and software needs. A mid-level programmer is alsoneeded to supervise the local programmers.

35. Census Office. CS recently completed data collection for apopulation census, but it has not tabulated and analyzed the results.CBS has requested technical assistance from the United Nations to help


process the data on CBS' Wang computer. The preliminary census resultswere published in June, 1984; the results give a regional breakdown.

36. Computerization. The old computer system was used until 1979,and a new system was created in 1982 which is being used by the externaltrade and public finance sections. CBS should continue its progress inusing the computer in these two areas (placing particular attention tothe prompt reporting of trade data), and expand its use in other crucialareas such as labor and price statistics. The national accounts sectionwould benefit from a computerized system which could perform consistencychecks and analysis and make its data easily available for furtheranalysis and projections work.

Recommendations

37. In sum, the planned re-organization under which CBS will gaingreater autonomy and become a "Board" will enable it to recruit andmaintain high-level and experienced staff, and give more managementflexibility. CBS needs re-vitalization and well qualified staff to carryout improvements in the system. The following are some specificrecommendations:

38. Cooperation in Data Collection. The ieorganization of CBS intothe Statistical Service Board should enhance its capability to coordinatedata collection sections of the various ministries. It should set up aninteragency committee to work out agreements on the type of data to becollected, means of dissemination, management and uses of the data.Timely responses to questionnaires should be mandatory. Improvements incomunication, collection and dissemination of data will greatly enhancequality and timeliness.

39. Staff Training. Staff training is presently carried on by CBS,and should continue to be expanded. The CBS staff need a "sense" ot"feel" for the data they work witb on a daily basis; statistical trainingcan enhance their ability to produce an improved product.

40. Use of Sample Surveys, Household Expenditure Survey. Thereview of improvements in key economic indicators, (see para 31) shbristhat more reliable data could be generated through the use of moresurveys. Many economic sectors are extrapolated from base-year valv"s inan ad hoc manner with unreliable extrapolators. Surveys should be usedas a test against the extrapolated data, and where deficient, adjustmentsmade. A household expenditure survey is planned for the near future.This should provide information to use as a validity check onconsumption, employment, housing etc.

41. Overall Improvements in CBS Environment. The status and pay ofCBS staff in government is low. Staff are not well motivated and it isdifficult to retain good staff since salaries in the private sector areoften more attractive. Reorganization should strengthen the service andboost pay and morale. Better communication with suppliers and users ofCBS data can also bring about improvements.

-115 - ANNEX EPage 15 of 15

42. Transport and Communications. One of the bottlenecks of basicdata collection in Ghana is the lack of adequate transportation for fieldstaff. For example, those conducting agriculture surveys in remote areasof the country are often unable to get to remote areas, and some of thereports may lack adequate field estimation. Telephone and mail serviceeven in the capital is unreliable; this impedes the information flow andadds to delays in developing sevaral national accounts estimates.

Conclusion:

43. The above summarizes the review and recommendations of themission with respect to the shortcomings of statistics in Ghana. Theimportance of developing reliable up-to-date statistics cannot beover-emphasized; without adequate basic statistics, the monitoring andanalysis of program performance is severely constrained.

- 116 -

A N N E X F

AID COMMITMENTS AND DISBURSEMENTS

IN 1984

Note: Aid data are subject to errors due tovarying exchange rate assumptions.

-117- ANNEX F

Page 1 of 3

TABLE F.1 - AID COMITMENTS(US$ Million)

1983 1984

Members of the CG for Ghana

Canada 12.3 52.8France - -Germany 24.6 0.9Italy _Japan 34.5 10.4Switzerland - 6.3UK - 7.9USA 5.0 29.1Arab Bank for Economic Develop-ment in Africa - -

African Development Bank - 32.1European Economic Community 8.3 53.4European Investment Bank - 6.9IFAD UNDP 5.0 5.2WFP 13.0 72.2World Bank 73.3 125.0

Observers at the CG for Ghana

BrazilChina 2.5Korea - -Netherlands - 12.7SpainSaudi Fund for Development

Others

Bulgaria 10.0IndiaLibyaUSSR _OPEC 1.5

TOTAL 190.0 414.9

of which: bilateral 89.0 120.1multilateral 101.0 294.8

Source: Ministry of Finance and Economic PlanningBank staff estimates

TABLE F.2: AID COMMITMENTS IN 1984 BY TYPE OF ASSISTANCE AND DONORS(US$ MILLION)

Commodity/ Program/ Technical Of WhichDonor Project Food Sector Assistance Total Grants


Canada 7.1 7.8 37.9 a/ - 52.8 a/ 52.3France Germany 0.9 - 0.9 0.9Italy - - - - - -Japan - 0.3 9.7 0.4 10.4 1.2Switzerland - - 6.3 - 6.3 6.3UK - 3.3 4.6 - 7.9 7.9USA - 29.0 - 0.1 29.1 29.1Arab Bank for Economic Develop-ment in Africa - - - - - -

African Development Bank - - 30.5 1.6 32.1 -European Economic Community 15.7 6.9 30.8 - 53.4 24.6European Investment Bank 6.9 - - - 6.9 - -

IFAD _ _- - -_UNDP - - 5.2 5.2 5.2WFP - 72.2 - - 72.2 72.2World Bank (IDA) 32.0 - 76.0 17.0 125.0 -

Others

Brazil - - - - -Bulgaria - - - -China - - - -India - - - - -Korea - - -Libya - - - -

Netherlands - - 11.5 1.2 12.7 12.7Saudi Fund for Development - - - - - -Spain - -USSR - - - - -

TOTAL 61.7 120.4 207.3 25.5 414.9 212.4 0

_ _ ~~~~~~~~~~~~~~w

a/ This includes C$38.5 million (US$32.08 million) for Petro-Canada's oil exploration,which is an amount additional to the normal commitment authority for Ghana.

Source: Ministry of Finance and Economic Planning.

I I , W Z >I I i A 1 ALil A L!

Commodity/ Program/ Technical Of WhichDonor Project Food Sector Assistance Total Grants


Canada 6.5 3.9 34.2 - 44.6 44.0Prance - - - -

Germany 18.0 0.9 1.0 2.3 22.2 0.9Italy - 1.0 - - 1.0 1.0

Japan 5.1 2.9 5.6 - 13.6 8.5Switzerland - - 6.3 - 6.3 6.3

UK - 3.3 4.6 - 7.9 7.9USA 8.8 29.0 2.4 - 40.2 31.4Arab Bank for Economic Develop-ment in Africa -- - - -_

African Development Bank 9.3 - 7.0 - 16.3 -

European Economic Community 11.6 6.9 26.6 - 45.1 18.5European Investment Bank 3.5 - - - 3.5 -IFAD - - -- -

UNDP - - 4.4 4.4 4.4WFP - 17.4 - - 17.4 17.4

World Bank 20.0 - 38.0 2.5 60.5 -

Others

Australia - 0.4 - - 0.4 0.4Brazil - - - -

Bulgaria - - 5.0 - 5.0 -

CFTC - - - 0.9 0.9 0.9China - _ 5.0 - 5.0 -India - - 1.0 - 1.0Korea - - - -

Libya _- - - -_

Netherlands - - 8.0 1.2 9.2 9.2OPEC 0.4 - - - 0.4 - 'F'Spain - - -

Saudi Fund for Development - - - - -

USSR _- - - - -

TOTAL 83.2 65.7 144.7 11.3 304.9 150.8

Source: Ministry of Finance and Economic PlanningBank staff estimates

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Documents

Public Disclosure Authorized Ghana Managing the Transitiondocuments.worldbank.org/curated/en/... · Since Oct. 10, 1983, US$1 = 30.00 IBRD/IJDA LNDG (June 30, 1984) Since March 25,