RepowtNo. 7673.GH Ghana Public ExpenditureReview, 1989-91
Public Disclosure Authorized Cobr 30, 1989 WesternAfrica Region
FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized
Documentof theWorld Bank
Thisdocument has a restricteddistribution and may be usedby recipients only in the performanceof their officialduties. Public Disclosure Authorized Itscontents may not otherwise be disclosedwithout World Bankauthorization. CURRENCYEQUIVALENTS
Currency Unit 1985 1988 1/ 1987 j/1 1988
USl1 064.37 oleo 0162 0202.36 Cedi (0) 1 USSW.919s USSg.0094 USS. 62 USSIe6e
FISCAL YEAR
JANUARY 1 - DEEMBER 31
ABBREVIATIONS
AESC - Architectural and Engineering Services MIST - Ministryof Industries, Science and Corporation Technology AFDB - African Development Bank MOA - Ministry of Agriculturo AHP - Animal Health and Production MOEC - Ministrr of Education and Culture APPP - Agriculture Productivity Promoting MOH - Ministry of Health Project MRH - Ministry of Roads and Highways OCR - Benefit Cost Ratio MSD - .9.nagementServices Division BHC - Bank for Housing and Construction MTAC Medium Term Agricultural Development CAG - Controller and Accountant General Program CIDA - Canadian International Development MTC - Ministry of Transport and Communication Agency M'H - Ministry of Works and Housing CIDU - Crops Inputs Development Unit NORRIP - Northern Region Rural Integrated Program CSD - Crops Services Division ODA - Overseas Development Assistance DFR - Department of Feeder Roads OHCS - Office of the Head of the Civil Ssrvice DUR - Department of Urban Roads PAMSCAD- Programl of Action to Mitigate the Social EdSAC - Education Sector Adjustment Credit Costs of Adjustment EEC - European Economic Community PER - Public Expenditure Review EIB - European Investment Bank PIP - Public Investment Program Economic Recovery Program PIPTF - Public Investment Program Task Force ERR - Economic Rate of Return PHC - Primary Health Care FASCOM - Farmers' Service Company PNDC - Provisional National Defense Council GA - Ghana Airways PWD - Public Works Department CCAA - Ghana Civil Aviation Authority SAC II - Second Structural Adjustment Credit GES - Ghana Education Service SCC - State Construction Corporation GFDC - Ghana Food Distribution Corporation SEC - State Enterprises Commission GHA - Ghana Highway Authority SGMC - State Gold Mining Corporation GIDA - Ghana Irrigation Development Authority SHC - State Housing Corporation GIHOC - Ghana Industrial Holding Company SIC - State Insurance Corporation GOG - Government of Ghana SME - Small and Medium Scale Enterprises GOPDC - Ghana Oil Palm Development Corporation SOE - State Owned Enterprise GPHA - Ghana Ports and Harbors Author'ty SSNIT - Social Security and National Insurance GPT - Ghana Ports and Telecommunications Trust GRC - Ghana Railway Corporation TDC - Tems Development Corporation GWSC - Ghana Water and Sow-isag-Corporation TOR - Te-ms of Reference IDA - InternationalDevelopment Association TRP - TransportRehabilitation Project IFAD - International Fund for Agricultural TSC - Technical Services Center Development UNDP - United Nations Development Program ILO - International Labor Organization URADEP - Upper Region Agricultural Development JSS - Junior Secondary School Project MFEP - Ministry of Finance and Fconomic USAID - United States Agency for International Planning Development WSRP - Water Sect r Rehabilitation Project
1/ A dual exchange rate system was established on September 19, 1986 when a foreign exchange auction was instituted for specified transactions. The t90 rate applied to the first window (cocoa and residual oil exports, petroleum and essentia! drugs imports, and central government debt service contracted before January 1, 1988); the rate on the second window was established at the weekly auction. The two rates were unified with effect from February 20, 1987; all transactions are now valued at the rate merging in the weekly auction. In the week ending November 3, 1989 the marginal rate at the auction was 0289=US31. FOROFFMCIAL USE ONLY
GHANA: PUBLIC EXPENDITURE REVIEW 1989-91
Table of Contents
Page No.
SUMMARY OF MAIN RECOMMENDATIONS ......
I. INTRODUCTION ...... 1
II. MACROECONOMIC FRAMEWORK ...... 2
A. Overview ...... 2 B. Resource Availability ...... 2 C. Expenditure Trends ...... 5
III. ALLOCATION ISSUES ...... 6
A. Civil Service Wages ...... 6 B. Recurrent Expenditure on Goods and Services . . . . . 9 C. Subventions ...... 11 D. Capital Investment Levels and Allocation ...... 14
IV. IMPLEMENTATION ISSUES ...... 21
A. Norms and Recurrent Expenditure Allocations . . . . . 21 B. Discrepancies Betwef Program and Actual PIP Expenditure ...... 22 C. Supercore ...... I ...... 25 D. New Projects ...... 26
V. SECTORAL REVIEWS ...... 28
A. Overview ...... 28 B. Agriculture ...... 28 C. Manufacturing ...... I I ...... 50 D. Mining ...... 60 E. Water Supply ...... 68 F. Transport ...... 78 G. Posts and Telecommunications ...... 88 H. Highways ...... 94 I. Works and Housing ...... I . 102 J. Education ...... 1111 K. Health ...... 125
This report is based on the findings of a core mission that visited Ghana in November 1988 and a follow-up mission in February 1989. The core mission consisted of Stephen Mink (Task Mautager), Isabelle Tsakok (Agriculture), Benson Ateng (Manufacturing), Erol Haker (Cons. - Infrastructure), Rogati Kayani (Telecommunications), Thampil Pankaj (Roads and Highways, Transport), Nicholas Bennett (Education), David Berk (Health) and Long Ton (Macroeconomic framework). Jim Moose (Mining) contributed from Headquarters. Cristina Perez and Tania Hollestelle provided secretarial support.
Thisdocument has a restricted distribution and may be used by recipients only in the performance of theirofficial duties Its contents may not otherwise be disclosed without World Bank authorization. INDEX OF TABLES
Table Page No.
II. Macroeconomic Framework
Table 2.1 Actual and Projected Revenue Performance, 1984-1991 ...... 4 Table 2.2 Allccation of Government Expenditure, 1985-1991 ...... 6
III. Allocation Issues
Table 3.1 Civil Service Wage Bill - 1989 Policy Scenario ...... 8 Table 3.2 Relation of Recurrent to Development Expenditure, 1985-1989 ...... 11 Table 3.3 Budget Allocations, Recurrent Items 2-5 for Selected Ministries, 1987-89 ...... 12 Table 3.4 Recurrent Budget Subventions, Economic Classification, for 1988 ...... 13 Table 3.5 Recurrent Budget Subventions, Economic Classification, for 1988 ...... 14 Table 3.6 Public Investment Programme, 1989-1991 ...... 15 Table 3.7 Comparison of PIP and Macromodel Development Expenditure, by Funding Source 1989-91 ...... 16 Table 3.8 Investirentand Savings, by Public and Private Sectorq ...... - ...... la Table 3.9 Capital Expenditure by Sector, 1987-89 ...... 19
IV. Implementation Issues
Table 4.1 Public Investment Program, Program Actual Expenditure, 1987-88 ...... 23
V. Sectoral Reviews
B. Agriculture
Table 5.B.1 MOA Recurrent Budget, Disaggregated by Expenditure Items Approved and Provisional Estimates, 1987-89 ...... 32 Table 5.B.2A Forestry Department ...... 35 Table 5.B.2B Forestry Department ...... 35 Table 5.B.3 Proposal for Short-Term Rehabilitation Needs for the Departments of Extension, Animal Health and production, and Fisheries ...... 38 Table 5.B.4 Fertilizer: Retail Prices, Scale of Imports and Budgetary Requirements for Local Handling for 1989 Crop Year ...... 39 Table 5.B.5 Public Investment Programme 1989-1991 ...... 41 Page No.
C. ManufacturinA
Table 5.C.1 1987 End of Year PIP Financial Disbursement Report (Industry).54 Table 5.C.2 1988 PIP Mid Year Financial Disbursements.55 Table 5.C.3 Public Investment Program=e 1989-1991.56
D. Minina
Table 5.D.1 Public Investment Programme 1989-91 .63
E. Water Supply
Table 5.E.1 Project Costs, Funding Gap, Execution and Cost Inflation in the 1989 Multi-Year PIP .71
J. Education
Table 5.J.1 Public Investment Programme 1989-91 .113 Table 5.J.2 Budget Hearing for 1989 Estimates Agreed Levels of Recurrent Expenditure .119
K. Health
Table 5.K.1 Public Investment Program in Health .126 Tabl^ 5.K.2 MOH Recurrent Budget 1989 .130 INDEX OF ANNEXES Page No.
IV. Implementation Issues
Annex IV.1 Supercore Projects for 1989 ...... 27
V.E. Water Supply
Annex 5.E.1 Public Investment Programme 1989-91 ...... 77
V.F. Transport
Annex F.1 Public Investment Program 1989-91 ...... 85
V.G. Post and Telecommunications Corporation
Annex 5.G.1 Public Investment Program 1989-91 ...... 93
V.H. Highway
Annex 5.H.1 Public Investment Programme 1989-91 ...... 100
V.I. Works and Housing
Annex i.I.' Public Investment Prograrme 1989-91 ...... 110
V.K. Health
Annex 5.K.1 Public Investment Programme 1989-1991 ...... 132
Map of Ghana Summary of Main Recommendations
1. This Public ExpenditureReview was undertaken to assist the Government in its annual budget preparation. A number of recommendations made at earlier stages of the review have already been addressed by Governmentprior to the writing of this summary 1/. The focus in this summary is thus on issues that are still outstandingor which, because of their complexity,will need consistentand concertedattention over a number of years to be dealt with effectively.
2. This report builds upon the base of annual Bank reviews undertaken since 1985. The core work for the present report was undertaken during November 1988 in close collaborationwith the Ministry of Finance and Economic Planning (MFEP) and the sector ministries and agencies. A smaller, follow-upmission took place in February 1989 once the Bu,get had been finalized. The report contains recommendationson expenditure allocation issues, implementationconstraints, and detailed sectoral issues.
Allocation Issues
3. Civil Service Compensation. The Government is pursuing two objectives in civil service compe-sationpolicy, to at least maintain real wages and to target additional increasesat management and technicalgrade levels in order to retain and attract quality staff. The civil service compensationincrease for 1989 is a successfulstep towards these two objectives. It consists of across-the-boardincreases in basic wage and flat allowances,as well as stretchingof the pay scale through additional graduated increases, such that about 28Z of the distance to the target pay structurehas been covered. The Government is encouragedto continue followingthis prudent strategy,that should permit achievingthe target pay structurewithin two more years, subject to overall resource availabilityand macroeconomicstability.
4. Other Goods and Services. The 1989 budget makes commendablebut 1still partial progress in allocating sufficientresources to non-wage goods and services. The use of expenditurenorms for the first time in drafting recurrentbudgets for three key ministrieshas given a preliminary indicationof the recurrentresource .ortfallsthat need to be met through a shift in allocationof existing and orthcominggrowth in resources. The Governmentwill need to continue givir.,this issue priority over the next several years until the balance betweenwage and non-wage recurrent expenditure is appropriate.
5. Investment. In the aggregate,the planned level and composition of public investmentare consistentwith the Government'sgrowth strategy. One area of concern, however, is the significantdifference in the relative shares of donor and Government financingof investmentin a number of sectors. At present these divergencesresult more from donors and Governmenthaving differentpriorities than from a careful coordinationof total resourcesby Government. It is recommendedthat Government improve the allocationof donor finance through clearer articulationof public investment objectives,and stronger guidance of donor interests.
1/ This document incorporatesinformation and data availablethrough February, 1989. - ii -
Recognizingthe limits of donor flexibility,however, the Governmentwill need to improve its capacity to manage and balance total resources,such that it's own resourcescan be allocated strategicallyto sectors where there is inisufficientdonor interest. For this reason, it is important that donor-financedinvestment be fully integratedinto the budget process.
ImplementationIssues
6. RecurrentExpenditure Norms. The use for the first time of expenditurenorms for non-wage recurrentitems in preparing the 1989 budget was a qualified success upon which improvementscan be built. The immediatepriority is for the MFEP to review and refine the existing norms for the next budget exercise,on the basis of experiencealready gained during budget hearings and the norms' initial application. Filling gaps between actual and optimal recurrentexpenditure that are identified through applying the norms should be a prioritywith incrementalresources. As resource growth permits, norms should also be developed for higher education,the Ministry of Roads and Highwavs, and the Ministry of Works and Housing for use in preparing the 1990 lget.
7. Applicationof the budget nor.s needs to be accompaniedby an estimationof recurrentexpenditures that are being covered by externally- financed projects. In the initialyears of applying the norms, the implied budget requirementsfor Agriculture,Health and Education are expected to be substantiallygreater than can be financed out of the Government's revenueswithout undesirablecuts in other ministries' recurrentbudgets, or in capital expenditure. But donor resourcesfor proiects currently cover some recurrentcosts, and by specifyingthese and accountingfor them during budget preparation,the Governmentwill be more able to meet the budget norm targets while allocatingits own resourcesmore rationally. Over the medium term, it would be preferableto meet recurrentcosts out of the ConsolidatedFund rather than project resources,and this is attainable through continaed growth of tax revenues,better cost recovery,and through additionalsavings on the wage bill resultingfzom the civil service redeployment program.
8. Monitoring Investment Expenditure. There is concern about undermining of the Public Investment Ptogramme (PIP) caused by the discrepancy between programmed and actual expenditure. The reasons for the differencesare multiple, and there is no easy solution. The Government recognizesthe seriousnessof the problem and has already begun to take action on several cf the necessary actions for improvingmanagement of investmentexpenditure:
(a) re-establisha control mechanism to prevent commitmentsbeyond available resources;
(b) ensure that the PIP document'sdefinition of resource allocation by project is translatedinto the Budget Division'sallocation by accountnumber. It should become obligatorythat the project proposals that ministriessubmit to the PIP Task Force includea breakdown by Items 7-9, and by existing account numbers for projects already underway;
(c) restructure'umbrella' projects that consist essentiallyof multiple, but similar, sub-projects(school or health station - iii -
construction)into separate,phased projects, emphasizing initiallythose sub-projectswhich can be completed quickl:
(d) to facilitatemonitoring, provide more detail on projects' component costs in the PIP document, and improve cross- referencingof approved project and tender documents;
(e) improve the preparationof sectoral capital budgets by providing ministrieswith indicativecapital expenditureguidelines for their use in preparingdraft budgets;
(f) review the role of Architecturaland EngineeringServices Corporationto determinehow to re-establishin the public sector a competent, efficientand professionalmechanism for project design, documentation,implementation and monitoring;
9. Supercore. The supercoremechanism, designed to protect a set of key projects from disruption caused by fiscal shortfalls, is becoming less useful as fiscal management improves. It only begins to define priorities once there is about a 702 shortfallin Government resources available for capital expenditure,but provides no guidance for managing less critical expenditureadjustments. Considerationshould be given to implementingby 1991 a more flexible mechanism for coping with current year resource shortfalls or increases. This would involve categorizingall investmentprojects into several levels of priority. Lowest priority projects would be the first to be pared down, and the last to receive additional funds, if resource availabilitydiffers from projections. To establish this ranking, each Ministry should be renuired to provide a priority categorizationalong with the investmentprogram that ic submits for budget review,which would then be compiled for managementby the MFEP.
10. New Projects. The selectioncriteria for inclusionof new projects in the PIP need more rigorous implementation. The 1989-91 PIP contains 62 new projects, or nearly 202 of the total, with many of these only consistingof feasibilitystudies for projects whose justificationhas yet to be established. In addition,many on-going projects are de facto new projects because of such substantialchanges in scope and cost that they scarcely resemiblethe projects originally approved. It is recommended,firstly, that a "Studies"category by used in sectors' investmentportfolio, into which would be placed all projectswhich are still ir.the preparatorystage, thus clearly identifyingthem as requiring review and approval by the MFEP's Project SeleceionCommittee. Secondly, guidelinesneed to be establishedfor definingwhen alterationsin the scope of existing projects are substantialenough to warrant review as a new project.
Sectoral Issues
11. The reader is referred to the sectoral reviews of the main report for detailed recommendations. Several recurringthemes are grouped in the followingparagraphs.
12. Recurrent Budget Constraints. Strict applicationof recurrent expenditurenorms is impracticalin the near term because of resource constraints,but there are options for interim solutionsduring the transition to improve recurrentallocations. For instance, instead of all - iv - students getting a full sct of text books, costs could be reduced by small groups of students shaving sets, or several sets being kept in a school library. Such interim solutionsneed to be identifiedand implemented.
13. Proiect Phasing. Over-optimisticproject phasing in several sectors has led to divergencesbetween planned and actual investment expenditure. Phasing should reflect the actual performanceof implementing agencies in recent years. Also, in sectorsbenefitting from a rapid build- up in donor commitmerts,attention needs to be paid to ensure that there is a translationof these secured commitmentsinto actual disbursements.
14. InvestmentManagement. It is recommendedthat a number of projects should not be implementeduntil management arrangementsare clarified. This typicallyentails concludingagreements with joint partners or management teams. The key projects involved are the air freight terminal (CAA 002), State Gold Mining Corporationrehabilitation (MNG 007), Ghana ConsolidatedDiamnonds rehabilitation(MNG 004), and GIHOC Steelworks (INDC 003). In the case of projects in the postal sector, improving the management of Ghana Posts and TelecommunicationsCorporation is crucial, and should be an antecedentto any ambitious investment program.
15. Problem Projects. Several projects that have been raised in the context of the PIP are both large-scale,and of ambiguouseconomic merit, such that their justificationremains to be demonstrated. First is the Keta Coastal Protection Project (WH 016), which is discussed in some detail in Chapter V, Section I. The second is the Koforidua component of the Water Supplies for Pegional Capitals Project (WRT 005), which only in its scaled down version would be consistent with the Government's sectoral strategy.
Future Directions
16. During the course of work on this PER, two issues surfaced as important topics for analysis and improvement in future budget preparations:strengthening of intersectorallinks in setting expenditure priorities, and better analysis of future recurrent cost requirements of new investment. Increased attention is being paid to intersectoral links in discussions between the Bank and sector ministries, for example coordinating feeder road and agricultural developmeut strategies, or rural electrification and small scale industry promotion Underexploited complementary strategies need to be more consciously built into the PIP. Turning to the second issue, the incremental recurrent costs of new investmentis crucial, since unless they are met, the investmentstrategy will not be sustainable. The Bank proposes,if Government agrees, to study these two issues. GHANA
PUBLIC EXPENDITURE REVIEW (1989-91)
I. INTRODUCTION
1. Since 1985, the World Bank has conducted annual public expenditure reviews as part of its dialogue with the Government on the direction of the structural adjustment program. During this period, the Government has made substantial progress in reconstructing the planning and implementation components of the budget process that had become fragmented in previous years. An indication of the importance that the World Bank attaches to continuing this progress is the range of work that it is carrying out that directly relates to the budget process. This Public Expenditure Review (PER) is a companion document to these other efforts, and does not attempt to deal in depth with issues that are covered in them. The macroeconomic framework for this PER is presented in detail in the recent Country Economic Memorandum (January 23, 1989). Budget resource availability is addressed in Ghana: Tax Policy and Administration, An Agenda for Further Reform (forthcoming).
2. Fundamental institutional improvements remain to be made in the preparation of the budget despite substantial advances in the last several years. Improvements have come through establishment of budgeting on the basis of norms for non-wage recurrent expenditure, strengthening of investment budgeting through the work of the Public Investment Programme Task Focce (PIPTF), establishment of a project selection committee, and in recognitiorn of serious crl-oblems in expen.!iture control and monitoring, creation and staffing of a monitoring unit within the Ministry of Finance and Economic Planning (MFEP). Other problems include inadequate integration into the budget and management ot external donor assistance, lack of use of the final budget to guide spending by sector ministries, existence of a parallel system of expenditure controls operated by the Controller and Accountant-General (CAG), and lack of control over expenditure commitments. These institutional issues are fundamental to the establishment of an effective budget, but are only addressed selectively in this report since a separate Bank initiative is treating them comprehensively.
3. The following review is divided into four sections. The macroeconomic context for the budget is outlined in the first section. The second section focuses on allocation issues across the civil service wage bill, recurrent expenditure on other goods and services, subventions, and capital expenditure. Implementation issues are addressed in the third section, specifically, the use of recurrent budget norms, discrepancies between programmed and actual PIP expenditure, the superccre, and treatment of new projects. Detailed reviews of sectoral budgets comprise the last section. These each deal with the investment budget, while for the three key expenditure ministries - agriculture, health and education - there is also a review of recurrent expenditure. -2-
II. MACROECONOMICFRAMEWORK
A. Overview
4. Since the Economic Recovery Programmewas put on track in 1983, managementof budget aggregateshas reduced the 'narrowvbudget deficit (which excludes project costs covered by external financing)of 2.72 of GDP in 1983 into a modest 0.3Z in 1987. This successhas resulted primarily from a dramatic recovery in tax revenues,while keeping expendituregrowth under control. Along with increaseddomestic resource availability,a higher level of external assi3tancefor developmentprojects has enabled public capital expenditureto increase from only 2.5Z of GDP in 1984 to 7.82 in 1987, and an estimated8.3Z in 1988 1/. This higher level of assistancenotwithstanding, the program of increasedpublic expenditures should be sustainableover the medium term. Both domestic and external public debt-servicepayments are expected to decline in the near term; net liabilitiesto the banking system are expected to fall graduallyand the emphasis on increasedexternal concessionalfinancing is expected to lead to a lower external debt-serviceburden. Note that the "broad'definition of the budget deficit, which includes capital expenditurefunded by external donor resources,in addition to that funded from domestic resources,has increasedfrom 3.12 in 1984 to 5.5X, which reflects this improved availabilityof external resources.
B. Resource Availability
5. Revenues (comprisingtaxes, fees, and investmentincome) have recovered from a low of 5.52 of GDP in 1983 to 14.1Z in 1987. They have since fallen somewhat to an estimated 13.42 in 1988, mostly due to a decline in cocoa tax revenues. From the 1983 low point, the implementation of a first phase of tax policy reforms and strengtheningof tax administration,and adoption of a more realisticexchange rate, have contributedto the growth in revenues.
6. The Governmentis engaged in a multi-yeareffort to reform the tax system to meet multiple objectivesof the StructuralAdjustment Program. In general terms, the tax reforms aim to broaden the base of revenue collection,while minimizingdistortions to private savings and investmentand improvingthe efficiencywith which resourcesare allocated. The reforms,which include both policy changes and administrative strengthening,are expected to permit some improvementin the level of revenue generation. But a balance is being struck over the next several
1/ Accounts of public enterprisesare insufficientto permit full incorporationinto public accounts. Thus public investmentin this document only includes that portion of state enterpriseinvestment that is directly financed from budget resourcesor external donor assistance. State enterpriseinvestment that is financed from commercialborrowings or own funds remains categorizedas private investmentuntil improved accounts permit a consistentincorporation into public accounts. - 3- years between reforms enabling a quick generationcf higher tax revenues, and those that, althoughnot imiediatelycontributing to improved revenue collections,dre expected to benefit the economy over the longer term through their positive impact on the private sector.
7. Management of budget aggregatesover the next several years will have to cope with continuedslow growth of Government revenues in comparison to the rapid gains over 1984-86. This period of rapid recovery in budgetary resources is being followed by a period of consolidationand restructuringof the tax system, during which growth of revenueswill occur more slowly. Revenues are expected to recover slightly in 1989 to 14.1Z of GDP, and subsequentlyto 16.12 by 1991 (see Table 2.1).
8. Consolidationis necessary because the Government is confronting a squeezing of export tax revenues from cocoa (a fifth of revenues in 1987) over the medium term as a result of declining internationalprices and the Government'spolicy of raising cocoa farmers' share of the world price. Other tax sources - primarilypetroleum and sales taxation - will generate additionalrevenues, and provide the budget with a more stable resource base than in earlier periods when cocoa was the most important,but also volatile, source of tax income. But for severalyears it will be difficult to substantiallyincrease overall revenues since gains in other tax performancewill be offset by the falling share of cocoa export tax *evenues.
9. A principal feature of the ongoing tax reform is to expand revenue generation from consumptiontaxes, while de-emphasizingtaxation of trade. Sales tax rates were raised in 1988 and simultaneouslyconsolidated across domestically-producedand imported goods. Further, the Covernment is concernedto improve the efficiencyof sales tax administration,and is exploringoptions for improvingits current "ring" system which suspends taxes on purchases by registeredproducers, or replacingit with a credit system. Apace with improvementin the coverage and administrationof the sales tax, the Government intends to reduce the standard rate of sales taxation,which was brought down to 22.5Z for 1989 from 25Z the previous year.
10. The Government is also gradually increasingpetroleum and vehicle taxation to generate additional revenues,as well as to contribute towards improved recovery of the social costs of road use. The petroleum excise tax, introducedin 1986, is about 92 of tax revenues in 1988, and is expected to contributean even larger share over the next severalyears. For passengermotor vehicles, sales taxes are being raised,while import duties and the purchase tax will continue to apply to vehicles above a specifiedengine capacity.
11. The contributionof direct taxes towards total tax revenue is expected to declinemarginally just over 27Z of total tax revenues. Although the Government is continuingwith a phased reductionof marginal tax rates on personal income, implied revenue losses are partially compensatedfor by expansionof the tax base. Progress continues to be made towards inclusionof various types of cash and in-kind benefits that remain tax-exemptor under-valued. Poor coverage and collection of income -4-
tax from the self-employedis also being remedied through more aggressive identificationand collectionadministration by the tax authorities.
Table 2.1
GHANA: ACTUALAND PROJECTEDREVENUE PERFORMANCE, 1984-1991
1984 1986 1998 1907 1988 1989 1990 1991 ------Projctod------million codi Taxes on Income and Property 4126 6079 14121 24087 40614 47656 68573 65617 Porsonal 1656 860 5242 8129 11697 12466 16396 21247 Company 2402 4628 8296 14381 27649 33140 37831 41751 Other 73 371 684 1677 1768 2066 2346 2620 Taxes on DomesticProduction and Consumption 56e2 8365 23486 31417 48629 70669 91421 115389 Excise Duty 5121 7206 9866 13221 14891 22736 26393 29471 Sales Tax 441 le6 6820 12648 21893 32435 386e8 46701 PetroleumTax a 6 68o6 4878 11450 15609 26920 38605 Other 6 0 390 770 396 480 547 611 Taxes on InternationalTransactions 7668 16490 23819 39260 46079 44983 57493 59268 Import Duties 3159 7629 9868 12412 15615 20387 26091 26168 Export Cocoa Duty 4509 8881 13961 26838 24464 24576 32402 33091 Non-Tax Revenues 6792 10139 18909 28763 37788 64033 73397 81821 Income and Fe-s 3798 6562 7560 10111 13016 18144 20187 22620 Grants 1994 3677 11369 18842 24772 46889 63230 69301
Total Tax Revenues 17366 32934 61406 94764 129222 163278 206486 240286 Total Tax, Income and Fee Rev. 21163 39496 68965 104885 142238 181422 226563 262786
MEMO ITEMS: (As X of GDP) Tax Revenuis 6.61 9.7X 12.2X 12.71 12.2X 12.7X 14.06 14.71 Tax, Income I F-e Rev. 8.6x 11.61 13.6x 14.11 13.41 14.11 15.41 16.1% (As X of Total Tax Revenue) Direct Taxes 23.81 24.6X 23.6X 26.4X 81.4X 29.2X 27.5X 27.3X Sales Tax 2.65 3.65 10.81 18.2X 16.9x 19.91 18.81 19.41 Cocoa Tax 26.6x 26.91 22.7X 28.31 18.91x 1.1 15.8X 13.81 ------_------_ - - - - _ ------_------Source: MFEP, and Bank Staff projections,March 1969.
12. Trade taxation in the future will be contributingless towards total revenues. The Governmentbegan a phased restructuringof import duties in 1988 to create a lower and more uniform pattern of protection. This is intended to encourage the developmentof non-traditionalexports and efficient import-substitutionindustries. The reform involves lower standard rates and eliminationof the luxury import duty rate, since this role is being transferredto sales and excise taxation. In addition, the gradual eliminationof special import taxes, which provide temporary protection to key economic sub-sectorswith constraintsto adiustment,is under review,but may also entail some reductionin revenues over the next several years.
13. The scope for improvingdomestic resourcemobilization through cost recovery in the provisionof public services is as yet unclear. By law, public moneys collectedas fees by Governmentagencies must be paid into the ConsolidatedFund, and should be recorded as such by the CAG. In practice,collection and recordingof fees by agencies had become inconsistentwith the prescribedmechanisms. In addition, revoLvingfunds under the control of severalministries were created as a means to circumvent difficultiesin assu:ing timely allocationsout of the consolidatedFund. Further, some fees have not been adjusted to take into account i:flation,and are not generatingeven the revenues they once were in real terms. To address these issues, the National Revenue Secretariat has initiateda preliminaryreview and analysis of fee revenues,and may soon have an informationbase sufficientto undertake a more thorough investigationof their potentialcontribution to Government resources.
14. With respect to foreign resources,these are expected to continue playing an importantrole in financingpublic investment. Public investment is projected to increaseto 112 of GDP by 1991, with over half of this to continue being financedby foreign resources. Reliance on external assistance at this level is consistentwith probable aid flows reconfirmed at the meeting of the Consultative Group for Ghana in February, 1989. Although such recourse to external resources in recent years has already led to a significant increase in the stock of debt, the outlook is for a moderation in the debt service burden. The debt service ratio, after a temporary rise to nearly 70 percent in 1988, is projected to ease to 52 percent in 1989, and further to 25 percent by 1991. This favorably trend is due to (i) reduction of medium-term obligations that were used in the past to finance petroleum, (ii) a significant decline in debt service due the IMF as ordinary resources are replaced by ESAF, and (iii) an increased share of debt at concessional terms in total obligations. The assumption of additional foreign debt to support the Government's expenditure program thus does not create too great a debt-service burden, and is an appropriate funding strategy for the development program. This is unlikely to change in the medium term as improvements in domestic resource mobilization are expected to keep debL-service levels to manageable proportions.
C. Expenditure Trends
15. Government expenditure (narrow budget definition) during the Economic Recovery Programme has undergone substantial growth as well as changes in compusition. Total outlays jumped from 1OZ of GDP in 1984 to about 14Z in the next year, then stabilized at this level, with another increase to 15.32 projected in the 1989 Budget (see Table 2.2). Initially, most of this increase was absorbed in recurrent expenditure for the wage bill, which grew form 19Z expenditure ir 1984 to 362 in 1986, as the Government attempted to reverse years of erosion in the real wages of civil servants. Although capital expenditure also increased its share of expenditure, the share of goods and services more than halved to about 172 of expenditure. Since 1986, the Government has managed to gradually shift the balance between recurrent and capital expenditure, with the latter increasing to almost 24% of total expenditure in 1988. This has been accomplished by keeping a prudent rein on additional wage increases, by stabilizing the share of non-wage expenditure on goods and services, and through the benefit of a substantial reduction in the burden of interest payments. -6-
Table 2.2 Allocation of Governmnt Expenditure, 1986-1991 (U)
1964 1986 19" 1987 19U 1989 (0et.) Budget
(1) Current Expenditure 84.9 80.1 83.0 75.8 74.1 72.0 Wages 19.2 30.2 35.7 33.6 a3s. 32.2 GoodsA Services 39.6 27.0 17.1 17.4 17.6 16.9 Transfere A Subventions 18.7 12.3 14.7 14.6 16.5 14.9 Interest 12.5 10.6 1656 9.9 6.0 8.1 (2) Capital Expenditure, Governmnt Financing 16.1 19.9 17.6 21.9 23.9 25.6 (3) Special Efficioncy 6.6 6.6 6.e 2.8 2.0 2.3 Memo: Gov. Expenditure (1+2.3), X GDP 10.1 14.6 14.3 14.3 14.4 16.4 Cap. Expenditure, Donor Financing, X CDP 0.9 1.4 4.8 4.7 4.4 5.6 Source: MFEP, Bank staff estimates
16. Within recurrent expenditure, there is pressure to increase both civil service wages and non-wage expenditure on goods and services. Management level civil servants are still paid salaries well below levels found in the private sector and compared with historical levels. This remains a central issue for Government, which in addition to the 30Z nominal increase in basic wages effective Jaruary 1988, has granted two additional "bridging allowances' averaging 12.52 (June) and lOZ (November). The pace of increasing real compensation of civil servants is a critical issue, not only its own right, but because it constrains the scope for progress in financing operations, maintenance, and capital expenditure. Current expenditure on non-wage goods and services, remains on the whole quite inadequate to provide civil servants with the means to carry out their functions, and has yet to recover from its substantial reduction in real terms in 1985 and 1986. The introduction of detailed recurrent budget norms for preparation of the 1989 budget has improved the mechanism for estimating requirements, and has permitted moce prudent budgeting. Determining the appropriate level of allocations to non-wage recurrent expenditure remains an important 'ssue for the future, however, since refinement of the norms will need to be undertaken, and the implications of capital expenditure for the recurrent budget incorporated into budget planning.
III. ALLOCATION ISSUES
A. Civil Service Wages
17. Wage policy for the civil service for 1989 continues to pursue two principal objectives. One goal is to at least maintain the real level of civil service wages through across-the-board increases that offset inflation. Towards this objective, there was a general 30Z increase in civil service wages granted effective January 1988. In addition, the - 7 -
Government recognizesthat additionalincreases will need to be provided for management and technical grade levels in order to competewith the private sector for the quality managers .ieededfor the complicatedprograms being undertaken in the public sector. Progress in these two areas is constrainedwithin the wage bill cap of 5.52 of GDP agreed as part of the macroeconomicprogram for 1989.
18. Increasingthe relative pay of higher-levelcivil servants is a sensitiveand not always consistentlypursued objective,since it is difficult to embrace for a revolutionarygovernment that champions the common laborer in its developmentstrategy. Thus, a July 1988 compensation increase ("bridgingallowance') was granted that entailed a minor compressionon wage relativities,even though Governmenthad officially reviewed and accepted a study that recommendedan increase in the ratio of top to bottom compensationpackages from 5.7:1 (as in 1986) to a target of 13:1. This mid-year adjustmentconsisted of a non -taxed 15.2Z increaseof basic wage for the lowest grade level, falling to a 72 increase for the highest level. There was an additionalincrease in compensationgranted in November 1988, of an effective 10% annual rate applicable to all grades.
19. The pace with which the two pr'.Acipalwage objectivescan be achieved is partly linked to the Government'ssuccess in identifyingand redeployingcivil servants in excess of needed staffing levels. Unfortunately,despite fairly substantialgross redeployment,not much has been achieved on a net basis because of new hirings. The October 1988 payroll shows 282,788 public employees (exclusiveof security services and defense personnel) as compared to 280,788 in January 1989. Since this net reduction of 2,000 occurred during a period when approximately 8,000 civil servants were redeployed, the implication is that 6,000 new employees have been engaged. It appears that redeployment has occurred almost entirely in unskilled labor grade levels, while new hirings have been among professional levels. In addition, routine promotions during the year have shifted the civil service structure to higher pay levels. These structural changes in the civil service payroll result in an increase in the wage bill despite the net reduction in employees, and before consideration of any increase in individuals' compensation. The change in structure has thus made more difficult further achievement of the twin objectives of a general wage increase and decompression in the 1989 budget. A large share of the approximately 6,000 new hirings during 1988 have been by the Ghana Educational Service (GES), despite an official cap on its hirings. Hiring by the GES needs urgent review, and discipline improved if progress towards priorities of civil service wage policy are to be achievable.
20. Limitation of the wage bill to 5.52 of GDP will permit only partial achievement of decompression targets in 1989. But an important first step can be taken, and as part of a phased program over 2-to-3 years should permit full achievement of this target. Three scenarios of the civil service wage bill are explored in Table 3.1 to show the trade off between general wage increases and increase that are structured to allow for decompression. All three scenarios assume thas the mid-1988 compensation increase is incorporated into the basic wage structure, including an additional amount sufficient to just cover the tax and social security obligations incurred once this is done. The November compensation increase is not taken into account, however.
21. In Scenario I presented in Table 3.1, progress of over 70Z towards the decompression targets could be accomplished in 1989 in conjunction with an additional 1OZ across-the-board increase, while still remaining under the cap of 5.5Z cf GDP. With a 20Z across-the-board wage increase, the scope for progress on decompression drops to about 40Z.
Ablo 3.1 Civil Service WageBill - 1999 Policy Scenarios
'. Percent of CDP ------__-- : :: Additional1989 Basic Pay Adjustment
:Achievement :: 10X 1SX 206 zof Target ------:Decompression:: I II III I II III I II III :Ratio, X ------…
: :: 4.66 4.66 4.69 4.81 4.81 4.74 4.98 4.98 4.90 10 :: 4.78 4.75 4.71 4.96 4.91 4.88 5.11 6.08 6.04 20 :: 4.91 4.84 4.84 6.08 5.01 6.01 6.24 6.17 6.17 30 :: 5.03 4.94 4.98 6.21 5.10 5.04 6.38 6.27 6.30 40 :: 6.16 6.03 5.09 5.33 6.20 6.26 6.61 6.37 6.44 60 6.29 6.12 6.22 5.47 5.30 5.40 5.65 6.47 6.57 6: :: 6.41 5.21 6.34 6.60 5.39 6.63 6.67 70 :: 6.64 5.30 5.47 6.49 80 :: 6.40 6.69 6.68 90 :: 5.49 100 :: 5.58
II. Cedis, billions ------______: ::.Additional 1989 Basic Pay Adjustment :Achievement :: 10X 15S 20% :of Target ::------:Decompression :: I II III I II III I II III :Ratio, ::------…-…---
6 59.9 69.9 69.0 61.9 61.9 61.0 64.8 64.0 63.0 10 61.6 61.1 60.6 63.6 63.2 62.7 65.7 65.3 64.7 20 63.1 62.3 62.2 86.3 64.4 64.4 67.4 68.6 6.65 30:: 64.7 63.6 63.8 67.6 65.6 66.60 9.2 67.8 68.2 40 :: 86.4 64.7 86.6 68.6 66.9 67.7 70.9 69.1 69.9 60 :: 68.0 86.9 67.1 70.3 68.1 69.4 72.8 70.3 71.6 66 :: 69.6 67.0 68.7 72.0 69.3 71.0 71.6 70 :: 71.2 68.2 70.3 76.6 80:: 69.4 72.6 71.8 90 70.6 100 :: 71.8 SOURCE: Bank staff estimates. NOTE: ScenarioI - Bridgingallowance of mid-1988 is convertedintc a 16.2% across-the-boardincreaso of the 1988 basic wage, includingan additionalsum sufficient to cover the tax liability of this increase. Scenario II - same as Scenario I except that decompressiononly applies to Grade A40 (entry-level professional)and Higher. Scenario III - same as ScenarioI except that assumes that not redeploymentof 12,000 people occurs during the year. - 9 -
22. Table 3.1 also shows two other scenarios. Scenario II investigates the scope for decompressing the pay structure if this is only done over the professional grades (A40 and higher) rather than over all grades. All grades still receive the across-the-board, basic adjustment in pay. This strategy provides a bit more scope for decompression, allowing for progress of 901 towards the target in ;989 in conjunction with an additional lOZ across-the-board wage increase.
23. Scenario III shows the potential for decompression in addition to what is possible in Scenario I if the impact of redeployment oxi the wage bill is considered. It is assumed that 12,000 net civil servants are redeployed over the course of the year, primarily from low skill grades that have been chosen to correspond with actual redeployees in 1988. The Government is currently committed to redeploy 12,000 in gross terms in 1989, but since no information is available on potential new hirings during the year, the analysis here assumes that these will be held to a minimum. Such redeployment would save about 1 billion cedis directly from the wage bill (although termination benefits entail costs under the Special Efficiency budget item). In comparison with Scenario I, with a 1OZ across- the-board increase in basic pay, the redeployment scenario allows an improvement of about an additional 8 percentage point towards the decompression target. While this is a modest gain in one year, redeployment will be an element of managing constrained fiscal resources so as to enable achieving the decorpression targets. It is estimated that successful redeployment will permit achieving the target salary structure within another two years, rather than at least three without it.
24. In the event, the salary increase finally selected by Government in early 1989 entailed achieving about 28 percent of the target decompression ratios for total compensation, with the resulting wage bill expected to hold within 4.9 percent of GDP. Instead of incorporating the bridging allowances of 1988 into the basic wage for 1989, a simple 25.2 percent increase was applied to the 1988 basic wage for the lowes, grade level, with this plus additional increases being stretched across other grades to achieve decompression of the pay structure. In addition, there is to be a 15 percent increase in flat allowances.
B. Recurrent Expenditure on Goods and Services
25. There are two principal components in the analysis of the appropriate level of expenditure on non-wage goods and services 1/. The first component is determining the ap,:ropriatelevel of expenditure to maintain and operate existing capital stock as well as to support the activities of public employees. Work to establish what constitutes this
1/ Items 2 through 5 in the Budget classification constitute the non- wage recurrent expenditure items under consideration here. Item 2 is for travel and transport, Item 3 is for general expenditures, Item 4 is for maintenance and repairs, and Item 5 is for supplies & stores. Item 1 is for personal emoluments. Item 6 - "subventions' - is functionally part of the recurrent budget, but is not included as such for the present analysis because of its mixed composition. - 10 -
appropriatelevel is underway. First, to redress a period of rapid growth in the civil service, the Management ServicesDivision (MSD) of the Office of the Head of the Civil Service (OHCS) has begun to identify possible staff reductionsthrough detailed, agency-by-agencyreviews. These findings are beLig incorporatedinto the Government'sredeployment program. Frogress on the non-wage componenthas occurredwith the establishmentof non-wage recurrentbudget norms for goods and services,and their use in preparing the 1989 Budget proposals for the ministriesof Health, Agriculture and Education. Adequate implementationand refining of these norms for the existing three ministrieswill take at least several years, since institutional,informational, and financialconstraints are all present and need to be overcome (see sectoral discussionfor details). While progress is being made on these constraints,the next priority is to develop and extend implementationof non-wage recurrentbudget norms to the remainingministries, which still account for half of such recurrent expenditure.
26. The second componentof budgeting recurrentcosts is planning for the impendingbudget needs to operate the new investmentthat the Government is adding to the existing capital stock. Decisions on new roads, schools, and healtb centers that are being planned currentlyneed to be informed by estimatesof their recurrentcost implications,and the Government's ability to finance these. The relation between new investment and future recurrent costs is an important information gap in the current budget process, and is an important priority for systematic analysis.
27. The latter component is particularly important to take into account in Ghana's case because of the rapid increase of investment in the last five years, since the Economic Recovery Programme began to mobilize donor assistance. It will be important to undertake detailed empirical work to estimate the incremental recurrent expenditure associated with different types of investment in the various sectors of public investment. Analysis in a number of countries has established such coefficients of incremental recurrent costs, but these depend critically on the nature of investment and are not safely applied out of context. Table 3.2 demonstrates,however, that the aggregaterealized recurrentexpenditure coefficient,although improvingmodestly in the last two years, is still low. Rea! incrementalexpenditure on non-wage goods and services has only been 3-4Z of investment. In the Ghanaian environment,this may be about right for investmentin buildings,paved roads and water supply, but is almost certainlytoo low for health, education and agriculturalinvestment.
28. One informationproblem needs to be resolved,however, before strong conclusionsare ventured. A range of recurrentcost associatedwith donor-financedprojects are currentlycategorized as capital expenditurein the fiscal data. This would obviouslyneed to be addressed systematically before undertakinganalysis of the adequacy of recurrentspending. Sustainabilityof the Government'sdevelopment program will require that recurrent expendituresbe covered by resourcesmobilized domestically. It is thus critical that such costs that are recordedat present as capital expenditurebe identifiedand properly categorized. One possible approach is to undertake a special review of the PIP to establisha more accurate - 11 - classificationof expenditurebetween capital and recurrentcomponents. For future rounds of preparing the PIP, project files should contain this breakdown of project expenditure,as well as an estimate of future recurrentcost (both wage, and other goods and services)implications of the new investment.
Table 8.2 R-lationof Recurrentto DevelopmentExpenditure, 1986-1989
1986 1966 1967 1988 1989 Est. Budget Growth, noeinal,X: Non-wagegoods A services 19.8 -8.2 48.4 41.5 26.6 Developmentexpenditure/I 106.9 128.1 61.9 61.4 37.7 Real Increm ntal Non-Wage Goods A Sorvices,X of DevelopmentExpendituro/2 -2.2 -8.86 3.2 8.7 4.4 Source: MFEP and Bank staff estimates. 1/ Includesdonor funded capital expenditure 2/ Incr-manitalnon-wage G&S (yeart) adjustedwith GDP deflator,divided by developmentexpenditure (year t-1).
29. This data problem notwithstanding, the outcome of applying the budget norms for the 1989 Budget has resulted in quite different trends in allocationsto Items 2-5 across the Ministries of Health, Agriculturearnd Education (see Table 3.3). These differencesreveal several factors that complicatethe applicationof the norms, and that may take several years to work through before budgeting for recurrentexpenditures becomes more routine. First, the three ministries have started from quite different initial levels of recurrentexpenditure. Agriculturehas started from a very low level of resourcesallocated to Items 2-5 as a consequenceof substantialreal cuts in 1988. Applicationof norms has resulted in a reversal of this cutback,with the 1989 allocation for Items 2-5 representinga 184Z real increase,and comprisingabout 49Z of the total recurrentallocation. In contrast,Education had a substantialincrease in its 1988 allocation for Items 2-5 from the prior year's very low base, in support of a sectoral reform program, and this has limited the need for a further shift in resourcestowards these expenditurecategories in 1989. In addition, these three sectorshave differing access to donor funds to finance substantialportions of the recurrentbudget needs that the norms identify,but these costs are removed to the cap;tal budget. Hence the budget allocationsfor Items 2-5 both understate the true expenditurethat will occur for these categories,and disguise the relative progress being made across the three sectors.
C. Subventions
30. The 'subvent3r.s'category of expenditurecomprises roughly 12Z of the recurrentbudget and is receivingincreased attention from Government as it strives to assure effectiveuse of resources. This category consists of the budget for higher education, support to a range of - 12 - semi-autonomouspublic agencies,subsidies to a several state enterprises, grants to private organizationsthat perform a quasi-publicfunction, as well as fees and membershipsto internationalorgani2ations. Effective management of this expenditurecategory is made difficultby the large number of entities receivingbudgetary funds and the functionaldiversity of these organizations. Table 3.4 presents data on Budget allocaticnsand actual expenditurefor 1985-88. There were expenditureoverruns avere.ging 14Z in 1986-87. Education,which includes universitybudgets, accounts for nearly 40Z of subventions.
Table 3.3 BudgetAllocations, Recurrent It.mn 2-5, for Selectedministrigs, 1987-89
1987 1988 1989 (codi;) :Agricultur- 792406 6006ee 1638489 Health 3388666 4683066 8364616 :EducationA Culture 966966 6012GM0 6820321 Other 11138696 11481400 16510658 TotalBudgeted 16268666 22677000 33332066 :Note:Total Actual 18861666 26333066 (1984cedis) :Agriculture 4121 1979 6822 Health 17604 18136 28734 :EducationA Culture 6038 23793 23429 :Other 67924 46436 6e718 TotalBudgeted 84687 89343 114604 :Note:Total Actual 96729 104207
(real grth, %) :Agriculture -62.0 184.1 Health 3.6 68.4 :EducationA Culture 372.2 -1.6 -Other -21.6 24.8 :TotalBudgeted -32.7 6.6 28.2 :Not-:Total Actual 6.2 7.7 (I of Items 1-6) :Agriculture 42.0 26.9 49.1 Hoalth 52.4 60.4 6e.3 :EducationA Culture 6.4 22.2 18.6 :Other 43.0 3M.L 39.7 Total Budgeted 32.0 31.3 34.6 Source: UFEP- BudgetDivision, and Bank staff estimates.
31. PreliminaryGovernment reviewshave categorizedthe entities in four groups. Government-controlledentities with their own income- generating activitiesdivide into two groups. Before such agencies are included under subventionsin the national budget in future years, they will be required to make a case for subventionby presenting revenue projectionsand the institution'sexpenditure plan. The Government intends to take completely off the budget the group of institutions that are capable of operatingon their own. The group of institutionsthat need to remain on subventionwill receive grants only for certain expenditures, - 13 -
while the rest of their expenditures will be financed from their own resources. A third group of beneficiary organizations will receive grants for all their operations bu. will be reorganized or restructured for greater efficiency, with staff remuneration to be made consistent with the civil serv.ce pay scale. The final category of subvented institutions consists of research and strategic institutions which will remain fully funded to allow them to improve the fulfillment of their mandates. Finally, payments of various international fees and dues are also accounted for in ministries budget item for subventions.
Table 3.4 Recunrent Budget Sub6ent;oa, by K;nieiny, 1985-88
1985 1986 1987 1988 1989 :SECTOR/ORGACIZATION ------Al location Actual Al location Actual Al lo"stion Actual A.llcsto,m Actual Al locatiwon ACRICULTURE 414.7 nM.. 627.3 761,6 1000;4 974.1 761.5 n.s. 1197.7 :INDUSTRIES, SCIENCE AND TECO1NOL0CY 211 6 n.&. 321.4 682.5 491.1 866 1 647.5 n.a. 1144.6 EDUCATIONAND CULTURE 993.1 n.s. 242.4 2218.7 b/ 5142.0 4431.1 b/ 3700.0 b/ n.S. 6617.7 b/. ROADSAND HIQHAYS 299.4 nM.. 492.4 360.0 71,2 687.4 1992.9 n.S. 2005.6 HEALTH 85.8 n.a. 178.9 411.4 524.1 617.6 738.0 M.S. 965.2 INFORMATION 245.4 n.s. 407.1 678.8 567.9 993 7 765.6 n.e. 1256.7 :F:NANCE AND ECONOMICPLANNINC 99 8 n.S. 166.8 198.3 201.6 275.5 1912.6 n.S. 1944.0 OTHER 1182 2 na. 3863.7 a/ 1950.0 1813.6 2408.8 1831.8 n *. 2492.8 TOTAL 3531.0 6300 0 7201.3 9811.9 11153.2 12357.9 17621 n .MEMOITEM: Share of Recurrant E.penditu,r, S 9.7 9 5 11.8 12.0 13 8 12.3 12.4 .Shar, of CP, S 1.0 1.4 1.4 1.6 1.S 1.3 1.4 Source: MFEP, CAC, *nd World Bsbk stiesates. It.- 1 - Peronal Emol-rents, Its. 2 - Trenel A Tr.nepo,t, Its. 3 - General Eupsditwtr., Item 4 - M,inten.arc, Ito. S - SPppl me A Stor.. */ Includea Culture ard Higher Education b/ Includei Higher Education
32. While this categorization is useful to establish review and budgeting procedures, it is not sufficient to address several key issues related to subTventions. An alternative brea':downof subvent ons, presented in Table 3.5 for 1988 allocations, attempts an economic classification by state-owned enterprises, Government (by Items . - 5), the private/household sector, foreign payments, and other. This categorization is Dreliminary, particularly for most subventions in the Government sector, since there is anly partial information on the breakdowrninto Items 1-5. Shares of these Items in the indicative budget of the 1988 Budget Circular ware used as proxies to allocate unspecific subventions across recurrent expenditure Items.
33. While it is noteworthy that only two SOEs, the Ghana Railway Corporation and the Posts and Telecommunications Corporation, received subvention allocations in the 1988 Budget, a more important issue is that roughl; half of subventions, or 5.9 billion cedis in 1988, appear to have consisted of wages. This compares with 48.9 billion cedis identified separately in the Budget as the civil service wage bill. An unknown share of these subvention wages are directly tied to the civil service pay structure. This is an critical information gap that needs to be filled as soon as possible. The wage element of subventions is not currently included under the salary cap of 5.5Z of GDP within which the Government is - 14 -
constrainedLo operate in 1989. As a consequence,the economic concept to which the salary cap applieswould appear to be impreciselydefined, and thus of reduced effectivenessin achievingthe economic objective that is intended. It would be advisableto review the issue of the salary cap to ascertainwhich concept of the wage bill (civil service, central government or public sector) makes sense to apply, and to then revise the level of the salary cap to permit consistent incorporatiLno. the portion of subvention wages that is relevant to the chosen definition.
Table 3.5 Recurrent Budgt Sub ntione, Econie Clsification, for 1o9s (cedie million*)
Pri.ete/ Foreign Othe.r :SECTOR/ORCAMIZATION State -- l------Coneralornment Secto------Houehold Sector :Ent.erprie Sub-Total It-- 1 It-- 2 Item 3 Item 4 Item B Sector :ARICULTLUE 0.0 761.5 517.8 30.5 22.8 15.2 175.2 0.0 0.0 0.0 :LANDS ASD NATLRAL RESOLURCES 0.0 71.9 48.9 2.9 2.2 1.4 16.5 1.7 16.4 0.0 :FUEL AND POWER 0.0 0.0 0.0 0.0 0.0 0,0 0.0 0.0 0.0 0.0 TRADE AND TOU.RISI4 0.0 70.0 47.6 2.8 2.1 1.4 16.1 0.0 0.0 0.0 ;WORKS AND HOUSINC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 0.0 12.9 .INDUSTRIES, SCIENCE AND TECHNOLOCY 1.0 645.0 603.5 20.5 11.5 3.5 6.0 0.0 0.0 0.0 ,TRANSPORTAND COtIrICATION 406.8 138.7 94.3 S.5 4.2 2.8 31.9 0.0 0.0 0.0 EDUCATIONAND CULTURE 0.0 3624.0 2464.3 145.0 108.7 72.5 63.4 0.0 64.0 0.0 ROADS AS HIChVAYS 0.0 1993.0 744.0 43.2 402.1 187.8 615.9 0.0 0.0 0.0 ,YOUTH AND SPORTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 132.6 :HEALTH 0.0 738.0 29.5 22.1 14.8 169.7 0.0 0.0 0.0 0.0 :LOCAL COVERNMENTAM SOCIAL WELFARE 0.0 44.9 30.5 1.8 1.3 0.9 10.3 0.0 0.0 0.0 :OFFICE OF THE PSYDC 0.0 470.7 320.1 16.6 14.1 9.4 108.3 0.0 0.0 0.0 ADMINISTRATION OF JUSTICE 0.0 27.4 4.8 0.3 0.2 0.1 1.6 0.0 0.0 0.0 MOBILIZATION AND PRODUCTIVI`Y 0.0 64.4 S8.0 3.3 2.5 1.6 18.9 18.0 5 4 0.0 FOREICN AFFAIRS 0.0 10.7 7.3 0.4 0.3 0.2 2.5 0.0 0.0 0.3 INFORMATION 0.0 662.3 450.3 26.5 19.9 13.2 152.3 92.4 10.9 0.0 FINANCE ANI ECONOMIC PLANNING 0.0 481.4 313.7 18.5 13.8 9.2 106.1 0.0 1451.2 0.0 :EXTRA MINISTERIAL DEPARTMENTS 0.0 217.3 147.8 8.7 6.5 4.3 50.0 0.0 3.0 0.0 INTERIOR 0.0 8.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DEF9OCE n.6. n.e. n.e. n.a. n.&. n.a. n.D. n.e. n.e. n.e. TOTAL 406.8 10029.4 So62.5 360.8 627.0 493,4 1393.9 114.0 1571.0 145.7 Sourc*: MFEP., CAC, and World Bank eeti;mtee. Item 1 - Pereonal Emolueenue, Item 2 - Tervel A Traneport, Item 3 - General Expenditure, Item 4 - Maintenance, Item S - Suppleie A Storee
D. Capital InvestmentLevels and Allocation
34. The Government'sproposed Public InvestmentProgramme for 1989- 91 is summarizedby sector in Table 3.6. Total PIP investmentfor 1989 is projected at 132.3 billion cedis, rising to 198.1 billion cedis in 1991 (in constant 1989 cedis). Financingfor the 1989 project costs is covered by donor assistance (53Z, with 93? secured),budgetary resources (30Z), and other sources (17?, comprisingforeign and domestic commercialborrowing, and own funds). For the subsequenttwo years of the 1989-91 PIP, donor assistancecontinu-s to cover about half of financingneeds, although the share of secured resourcesdiminishes. The financingproposals also show a decline in the share of budget resources,which is offset by greater reliance on other sources. Table 3 6
PublicIneteo Pr.ogreas, 199 1991 Cost. end Sources of Funding cotent 1969 cedis, illiona)
PROJeCTCOSTS 1/ : SOURCESOFP RNDS 1990 199 1989 1990 1991 - 1989 DUOm 4/: ODA 2/ OR 3/ OTtO 4/ ODA 2/ 88 3/ OTHtO 4/: ODA 2/ 883/ SEWJtED TOTAL TOtAL SWSWVE TOTAL SW.UR TOTAL TOTAL SSM, TOTAL SECTOR [it. of Project.] ::. SECUREDS TOTAL TOTAL SECURED TOTAL
2.452 S.8,S" 11.596 U.5 0 3.115 [74] 18,005 18,239 9,830 9,850O 3_3 C 2 557 6.883 9,861 3.672 0 Agricuturs ~~~~16,035 5,459 2,374 3,342 3.666 0., 6.936 2.335 3,167 (39]i 11,624 16,418 18,947 4,687 5,113 3,416 1,535 3,293 :3,165 7,617 2.063 :Industry -3,971 4.936 3.386 238 1.233 4.201 5.974 3.067 300 Lands A &ts.Resource (18] 6,57 9,554 11,044 5,140 5,148 2.209 206 1.210
1.401, 2,6361 2,769. 5.825 2,0665 0.748 3,017 :2,206 6,51 4.487 1,906 3.162 Water ~~~~~~~~~~7,63710,8917 14,135 2,31;' 8.465 1,5,54 4.20 lB 10,954 11.620 2.409 689 2,159 11,716 15,654 4,467 0 6,84 1.78 1.0 ArnsrtTeleco.e . 16,166 28,605 36,272 S.5,6I 19,215 so 0 22,032 22,655 44,064 41,297 :12.302 13.480 627 4,019 6.748 9,531 16,872 640 2,042 24,562 Ful Pse t36 0 2.296 -1,292 19,212 10.50 0 2,113 [43] 25,03' 29,634 32,150 9.585 10,156 12.312 0 2, 567 9,150 15.64" 11.692 Roas£ iwy : 229 2,371 6, 36 0 44173 2,642 7.267 0 12 -Worka IAItucns 24] 5,516 6,763 9,911 585 1,246 4.235 0 37
0 -1,686 1,6us 1.1in 00 : 7,526 2,621 2,8618- 3,947 3,947 3,579 0 0 1,534 1,536 1,066 0 :Educaton (141 0 -1,905 2,601 3.8 0 00 5,769 -2.256 2.256 3.547 0 0 -2,247 2,766 2. 94 0 H.. l t (2(i)6 5,623 5,712 37 : 0 1660 as ] 1,711 1,330 1,710 : 97 127 1,541 0 23 : 24 64 1,229 0 Loca IcGarneant 4,401 5,204 668 0 282 2.27? 2,5wos6 1.099 0 1ea :PAM6CAO[6 3,640 6,154 3,869 3,294 3,369 191 0 80 57.624 90,572 43,864 6,400 46,561 : 43,32 96,219 47.616 4,6W1 62,162 TOTAL [342] 132,36: 179,977 196,199 65,094 69,759 39.268 6052 23,312: SlXLMEC: 9WE, PIP T..& Fore-
1/ Constant 1989 Cadia. Cadis/UIS * 260. 2/ O.ersea donor ad.- 3/ Bu,dgatry resorce, including cout-erpat funds n. e adg 4/ Dosetic and foreign. co -rcil lborr-ig,.ad -. funds. - 16 -
35. The PIP's investment and funding proposals for 1989 are consistent with the Bank's macroeconomic projections. In the two subsequent years, the PIP's total investment levels may be marginally high, primarily because of over-optimism on the anticipated external donor flows. A comparison of the PIP with the Bank's macroeconomic projections for donor and budgetary resources is shown in Table 3.7. Note that the PIP figures have been converted from constant 1989 cedis to current cedis by applying the projected domestic and international inflation rates, and exchange rate. The PIP needs to be more cautious about the likely pace of aid disbursements and new donor commitments. Some additional stretching of project phasing may be necessary to bring aggregate investment levels to a slightly lower level over the next three years.
Table 3.7 Comparisonof PIP an* MacromodelDevelopment Expenditure, By Funding Source: 1989-91 (currentcedis billion)
I Donor Fundirg I Budget Resources I Total
Year I PIP Macro I/a Macro II/bi PIP Macro I Macro II I PIP Macro I Macro III I-- I --- -- …i…- --- I 1989 l 69.7 72.4 69.1 l 39.2 38.1 38.1 l 108.9 110.6 107.2 1990 I 106.1 91.0 108.6 I 48.8 49.1 49.1 l 163.9 140.1 149.7 1991 l 122.2 99.3 118.0 l 67.1 86.0 e6.0 l 179.3 164.3 183.0 Source: MFEP - PIP Task Force, and Bank staff projections a/ macro-frameworkof Country Economic Memorandum,January 23, 1989 b/ macro-frameworkof Country Economic Memorandum,with adjustment made for revised aid pipeline projections.
36. Over the next several years of the structural adjustment program, the level of investment by the central governmenL is being programmed consistent with growth of GDP at about 5Z per annum, while not stifling the private investment that the Government is trying to foster as a keystone of its growth strategy. Government investment is being managed to avoid the potential "crowding out" of desired private investment via pushing up the cost of capital through competing for domestic credit, and by establishing dominance in output markets through direct investment in production activities. The level and financing of public investment, as well as its sectoral compoeition, are being oriented so as not to create disincentives to private investment. Public investment in Ghana is not necessarily in competition with private investment, since there is an important need to continue recent rehabilitation of infrastructure after years of neglect. Investment in economic infrastructure such as feeder and all-weather roads, railroads, telecommunications, ports, and in social capital such as education (including extension) and health, serves to assist and complement the recovery of private sector investment. - 17 -
37. The composition of investment from Government budget resources does not indicate a direct, public sector over-involvement in production activities in competition with private sector investment. Investment of budget resources is predominantly in infrastructure and social services, which together have accounted for 87Z of planned budgetary capital outlays in 1987 and 1988, and closer to 90Z of actual outlays in 1988. Direct Government investment in production sectors - agriculture, industry, forestry and mining - actually fell from 162 in 1987 to lOI in 1988. There is a significant increase in the proposed investment program for 1989 to 212 in these production sectors, but this is not a major concern since the increase is largely accounted for by investment in research institutes and by initiation of a major project to reform public regulation and management of forest resources. The impact of parastatals in private investors' perceptions of potential markets is harder to judge, but is essentially a separate issue from the direct impact of investment from budget resources, since budget resources going to parastatals are substantially reduced in comparison with past years.
38. Public investment has been much more huoyant over the last several years than private investment, more than tripling to 8.3Z of GDP in 1988 compared with 1984 1/. Private investment declined initially, then recovered marginally to 4.2Z of GDP over the same period (see Table 3.8). The emphasis on increased public expenditures in these early years of the program reflected the judgement that public services and physical ard social infrastructure needed urgent and extensive rehabilitation as a prerequisite to renewed private investment and growth. But this was done prudently, to ensure the private sector had access to adequate resources. Increased public investment was Linanced out of improvements in public savings and foreign donor resources, with a sharp reduction in domestic borrowing. The ratio of net public domestic borrowing to gross public investment fell dramatically from 442 in 1984 to 142 by 1986. Subsequently, the Government has actually been using current budget savings to reduce its net domestic cre-it obligations, by the equivalent of 0.7% of GDP in 1988. This -eduction has the effect, within the domestic credit ceilings forming part of the IMF program, of fieeing resources which banks can then lend to the private sector. It is anticipated that the Government will continue with this course for at least the next several years. Thus, despite public investment projected to increase over the next several years to 11.1% of GDP, and the public investment-savings gap remaining over 62 of GDP, adequate foreign financing will permit the Government to continue reducing its borrowings from the domestic credit market. This partial perspective from the demand side of Government's impact on domestic credit markets thus reveals no major concern that the level of Government investment is raising the cost of borrowing for private investors.
1/ Data on investment are subject to great deal of uncertainty. Coverage is only partial given the dated indu trial census, now being revised, and the lack of information in the agricultural sector. Public investment is estimated from budget expenditure, the public investment program, and estimated aid inflows. Private investment is derived as a residual. - 18 -
Table 3.6
Innee-mnt end Savings, bPublic end Private Soctor. (I of t6p)
Eot i tod ------Pro;ctod ------1004 190 196" 1907 166 19609 1'90 191
.PUmIC SECTORSAVIOS -0.6 0.1 1.7 3.} 3.0 3.O 4.0 4.8 0.: .. Inv.timent/1 2.5 4.2 7.J 7.6 6. 8 9.6 10.9 11.0 Gap, Savings - Investment -3.1 -4.1 -5,6 -4.6 -5.3 -6.6 -4.9 -6.2
PRIVATE SECTORSAVING 4.6 5.4 8.7 2.7 8.4 3.7 4.5 4.7 Cror. Investient/2 4.4 5.5 2.4 S.0 4.2 4. 5.1 5 .6 Cap, Savings - Iene* tnt O.0.2 -0.1 1.8 -0.8 -0.6 -0.9 -0.6 -0.8
FOREIGN SAVINGS 2.a 4.2 4.2 4.9 6.0 7.6 7.6 7.1
Total Cret Do_stic Investment 6.9 9.6 9.7 10.8 12.5 14.3 16.0 16.5 Net Public Do-etic Borrowing 1.1 1.2 1.0 -0.4 -0.7 -0.6 -0.8 -0.7
(Public Saving. la". Net Public -68.9 -26.8 9.7 46.9 44.8 37.2 43.8 60.4 Domestic Borro ing)/Cro-a- Public Invowtent, Net Public Domestic Borro ing/ 28.5 21.7 46.2 -13.3 -15.6 -14.1 -17,1 -13.5 .Croe Privat. Invest. .,t, Source: COC. nd World Bank for e*timates and projection. 1/ Include. stat. enterprise investment financed by *etornal donor fund, or Budget funds. 2/ Include. state enterpr4s investment financed fo. cowsArcial borroeing or on funds.
39. The total envelope of public resourcesavailable for investment are categorizedby the authoritiesinto overseas developmentassistance (ODA) and budgetary funds (includingnet lending and counterpartfunds from sales of commodityaid). The Governmenthas considerablecontrol over the latter resource category, includingthe ability to adjust sectoral allocationsduring the fiscal year accordingto circumstances. Management of ODA resourcesto fit Governmentpriorities is much more difficult,since their initialcommitment also reflectsdonor priorities,and their disbursementis rarely flexible across projects, lct alone sectors. The official Budget reflects this distinctionby not incorporatingthe ODA resourcesand expenditureinto any of its presentation.
40. Planned and actual shares of investmentexpenditure by sector are shown in Table 3.9. Expenditureis shown for total public resources, and its two components,ODA and budgetary resources. Several features stand out. First, budgetary shares dedicatedto infrastructureare declining,from 54.7Z in 1987 to a proposed 42.2Z in 1989, led by Transport & Communicationsand Roads & Highways. The decline in this funding has been somewhat compensatedby ODA financing,however, and the share of total public resource allocatedto infrastructureis budgeted at 50.9Z in 1989. Planned shares from budgetary resourcesfor agriculture,water, energy, health and educationhave been relativelystable. Industry'sshare has increasedquite rapidly, but this is attributableprimarily to increased investmentin research institutions,which are grouped under the industrial sector budget. TabI. 3. 9
C.pitl Ep-ndt-ur by S.t.o, 1987 - 89
19 9 1987 198/b Actual D-nor - Dnor P.Plann.d Actual - PI.nned ------FunJi n - un -n9 ------e udget Dnor Publj Proyin I Fi PIP InD Public e udget Donor Public Budget Donor PObfl c 8u get Donor Publi Seetor/Hini*tr'y ources/b Re -oureo/h Funding :Re -urce/ Bgoet Enti_t. Estimt- .R.-ource./ Reource- Funding R- ourc-- R -ourc. Funding R-ourc../- R.- ourc- Funding R-
1 0 11 81 5 71 16 01 9 71 3.5 13 21 11 21 7 21 14 IS Agriculture 9 n 6 7n 11.71 9 2% 8 21 9 8% 6.71 91 2 4% 4 91 2 91 2 .3 3.3 7 11 6 8% 7 31 Induetry 5 01 1-21 7.01 4 1 1 8% 5 61 3 41- 68 S 2 71 1 31 3 6% 4 71 1 9 6 21 6 19 4.49 7 Lend. A t-url Rsoure-- 11 81 2 43 16 71 8.51 I 1 13 19 18.43 9 41 24.51 17 S3 7 71 22 n7 24 41 16311 26.86 27 91 Sub-tot1 26 8% 10311 35.4% 21 81 11 1i 28.1
3.01 4.91 4.36. 1 2.51 a 51 3 41 2 71 3.81 3.85 2.49 4.5 41, wter 6 3 2 91 8.21 : 16 71 1606 O0 13 81 10 61 4 91 14 561 13 5 7 S3 17 02 11 71 4 tl Trangport A Co_.nic.tion- 16.4S 9.51 20 01 12.31 10 13 172 81 12 12 1 19 19.6% 7 16 0.02 12 23 11 71 1.2% 1931 E-srgy 11.19 2.51 15.71 6.8 0 21 10 18.4z S3 11 24.21 22 31 22 01 32 09 16 58 1l *8 24.71 14 n6 Redo & High..-. 23.21 39.91 14.51 21.51 31 51 15 23 3.26 5 71 10 31 2.6% 4 41 171 569% 46N 8.41 16 Wo-h- A H-.ueng/c S. 50 01 54 91 43 35 62 .8 51.61 43 4 56.212 60 9n 42.21 5731 s7o Sub-totl- 57.11 54.71 583% 49 01 44 21 52
711 579- 4.16 71 6 2 6 06 5 81 6 21 5681 7.21 511 63 Education- 4 7 7.51 3S3S 6 0 S 3J7 321 5.11 2 0% 107 4.8I 6 4 4 71 6.71 3.21 He-lth 3 39 3S81 3S11 61S 941 731 231 5 .61 0 01 1.09 2.3S O.S 1 42 3.IS 0-29 0.41 Local Co- ornent/c 0 481- 4.2 2911 0 51 4 51 0.5 0.11 0.71 3J06 045 PANSCAD/d 09 0.01 0 o 001 001 0.01 4S 17 o0 12.71 18.01 24.51 14 86 15o3 17.3S 13S 9 12 71 Sbu-total a.80 11 35 4 3 14 11 IS IS 13 51 14
68 8 11 12 31 3031 n1 131 24.1 6.75 963S 2221 n-a Oth-r /- 819 2371 n. 1509 29 61 6
100 01 100 Os 100 01 100 01 100 09 100.01 10.011 1oo0006 100 0 100.01 Totel C-pit.l E...nditur-/f: 100.01 100 01 100 01 100 01 100 01 100 01
Sour:e HEPIInd World Bank that th CoG rnent Budget doe not includ d*onor fundin, age, frgo euntrpert fund.. */ Su_ Budget r-eoure (including counterpsrt fund- *nd not landin9) *nd donor funding. lote through -econd quart.,; adjueted to ebine *ith annual figure. en dr fnding b/ D*-elopent npendstur- actuslo &aileble throgh third quarter only, ad n-t lending e/ Dat for Worfk. & ouing and Local Coernent only anaielab reo 19668 d/ PA16CMS etatbliehad only fro 1986 lending and inn-at-nt not in PIP */ For donor funding, nclude. other tehniceal aeeietnc.; for Budgt ruourece include. net F/ .Enluding Spcial Efflciency - 20 -
41. Planned expenditure from budgetary resources have been distributed rather differently from ODA resources. They have been concentrated less in the productive sectors, and more in the social sectors. Planned donor expenditure in the production sectors was 352 in 1987, and fell to 242 in 1988, but is proposed to increase to 28% in 1989. The shares of actual donor expenditure in the production sectors in total donor financing are somewhat below the planned allocations, but still over twice the share of Government's allocation to these sectors. Significant divergences also exist in the infrastructure sectors; donor funding is more heavily concentrated in water, transport and communications, and energy sector investments, and less in roads and highways, than is the case with Government resources.
42. The different sectoral distribution of investment by source of financing appears to result from difficulties in coordinating ODA resources in line with Government priorities. The allocation of budgetary resources most accurately reflects the Government's priorities at present, and strengthening the capacity to manage the composition of the total resource and expenditure program is a clear priority for the medium term. There is some scope for Government to improve the allocation of donor finance through clearer articulation of public investment objectives, and stronger guidance of donor interests. However, there are limits, more pronounced with a shorter time horizon, to how significantly the sectoral balance of donor assistance can be shifted. Thus, the Government will need to cosmbine sectoral investment objectives stated in terms of total resouices, with a detailed view on potential sources of financing, such that Government's resources can be allocated strategically to sectors where there is insufficient donor interest. This approach may still lead to a divergence in sectoral allocation of investment from the two sources of financing, but it will be planned, and preferable to, the current unplanned divergence.
43. Actual expenditure shares, as well as levels, have differed markedly from planning intentions. Expenditure shares in the social sectors from budgetary resources substantially exceeded intended levels in both 1987 and 1988, led primarily by health programmes. In 1988, one third of investment from budgetary resources was spent in the social sectors. Other sectors fell substantially short, such as Works & Housing, and Agriculture in 1988. Reasons for this discrepancy between planned and actual expenditure are discussed in the next section.
44. Heavy emphasis at this stage of budgetary reform on determining the optimal sectoral share of investment expenditure is probably misplaced. The continued wide discrepancy between planned and actual investment expenditure from budgetary resources, and the lack of ODA disbursement data by sector point to the need for improved budget performance and controls, and strengthened information and monitoring, as a first step to meaningful judgments on matching sectoral allocations to objectives. - 21 -
IV. IMPLEMENTATIONISSUES
A. Norms and Recurrent ExpenditureAllocations
45. Inadequatelevels and allocationsof non-wage recurrentbudgets as discussedpreviously have severelyhampered ministries in carrying out their programs in priority areas of activity. To redress this situation and to establisha more systematicmethod for estimatingnon-wage recurrent budget needs, the MFEP establisheda task force to study the establishment of budget norm guidelinesfor the major sectors, beginningwith the Ministries of Agriculture,Health and Education. This study was completed in late 1987, and adapted into an operationalmanual for applicationof the norms. This manual was then used by the three ministries in preparing the draft budget for 1989.
46. The norms that have been establishedare essentially standardizedresource needs (quantityand price) for identifiable activities,such as running an extensionvehicle, operatingan office machine, or maintaininga public health building. The immediatepriority is to review and refine these existing "unit-cost'norms. In many cases, the defined norms more closely reflect existing conditions rather than the 'ideal" situation. But the experiencealready gained in applying the norms, and newly developingcapacity to monitor discrepancieswith actual expenditure, will be a good basis for a review. Preliminary observations on the norms are as follows:
(i) Both the line ministries ard the MFEP are supportive of continued use of the norms. These provide a rational basis for budget requests, and reduced considerably the haggling over non-wage recurrent items in the Budget Hearings.
(ii) A major oversight continued to exist late into preparation of the 1989 budget in that the CAG had not yet been fully informed of the new budget norms. These norms have re-classified the sub-categories under the non-wage recurrent budget items, such that these no longer correspond to the account categories and numbers used by the Treasury system. It will not be a simple task for the CAG to instruct its agents on the change, to redesign manual ledgers, and reprogram its computer system on short notice. There is thus the major risk in 1989 of substantial confusion between a Budget and accounting system that do not match, with attendant difficulties in monitoring and controlling recurrent expenditure.
(iii) The norms that were established for a number of expenditure categories using establishment post (staff size) as a proxy need review. Technical departments for instance, with low staff numbers but substantial machinery and equipment, are allocated insufficient recurrentbudgets through applicationof the general - 22 -
norms. Such cases need to be identified,and more realisticnorms agreed upon.
(iv) Applicationof the budget norms needs to be accompaniedby an estimationof recurrentexpenditure that are being covered by externally-financed projects. In the initial years of applying the norms, the impliedbudget requirementsfor Agriculture, Health and Educationare expected to be substantially greater than can be financed out of the Governament's revenueswithout undesirablecuts in other ministries' recurrentbudgets, or in capital expenditure. But donor resourcesfor projects currently cover some recurrentcosts, and by specifying these and accounting for them during budget preparation,the Governmentwill be capable of meeting the budget norm targetswhile allocating its own resourcesmore rationally. Over the medium term, it would be preferable to meet recurrentcosts out of the ConsolidatedFund rather than project resources,and this is attainablethrough continued growth of tax revenues,better cost recovery through fees, and through additionalwage bill savings resulting from the civil service redeploymentprogram.
(v) Additional informationis still needed on basic inventoriesto which the norms are applied, not only for vehicles,but also equipmentand facilities. It would be prudent for the MFEP to have independent checks on inventoriesproduced by spending ministries to assure their accuracy.
(vi) Recurrentbudget norms should be developed and extended graduallyto other Ministry activities. Establishingnorms for higher educationwill be possible in 1989 on the basis of ongoing studies and surveys in preparationfor a reform of the national university system.
B. Discrepanciesbetween Program and Actual PIP Expenditure.
47. Newly availablemonitoring data show that here have been substantialdiscrepancies between programmed and actual PIP expenditurein 1987 and 1988. Over-expenditureis a problem in some sectors,and under- expenditurein others (see Table 4.1), with the problem even more pronounced at the project level. There are several factorscontributing to this budget performance. Problemswith insufficientimplementation capacity is one of these. For example, in the Works and Housing sector, the Government'ssubstantial increase in programmed investmentfor 1988 to meet perceived crisis conditionswas not matched with sufficientproject preparationand developmentof implementationcapacity. As a consequence, actual expenditurehas remainedwell below programmedexpenditure. Start- - 23 -
up and on-going implementationproblems also affected individualprojects in other sectors.
Table 4.1 Public InvestmentProgram, Budgetary Finance: Progr" and Actual Expenditure,1907-88
:Provl.lon Actual :Proviion Actual Act., U of Prov. : Act., X of Total Sector : 1987 1987 1988 1988 : 1937 1988 19#7 1983 ….: (cedismillions) : (cdi millions) :Industry 136 64: 362 319: 39 166: a 1: :Health : 870 2194 : 1824 4442 262 274 : 12 16 .PAMSCAD1/ : 148 0: 0 a: :Trans. A Coam. : 1676 727 : 1334 788 : 4 69 : 4 3 :Lands A Nat. Res. : 51 123 : 476 1312 : 242 279 : 1 4 :LocalGovernment 1/: : 1874 1096 : 58 : 0 4
:RoadsA Highways 9172 7381 : 7693 8444 : 86 110 : 40 28 :WorksA Housing 1/: : 3637 1974: 64: 7 .o/w Water : 657 428 : 867 : 65 : 2 :FuelA Power : 674 63 : 242 1688 : 9 449 : 0 4
:Education : 1726 1344 : 1834 6002 : 78 273 : 7 17 :Agriculture 823 1423 : 1587 2234 : 173 141 : 8 7 :Other : 2630 4824 : 2492 3188 183 128 : 28 11 :TOTAL : 18214 18662 : 23237 29886 : 102 129 : 166 100 Source: MFEP 1/ Thea. sectors were not yet includedin the PIP in 1987, and are thus includedin *other".
48. A factor contributingto acceleratedexpenditure in several major projects is the lack of project detail in the PIP document. In cases where approved allocationsinvolve a substantialparing of Ministry requests,the lack of detailed descriptionof the remainingapproved project concept leaves the Ministry with only an allocationand general guide to define investmentexpenditure. Faced with these shortcomingsof the PIP as an implementabledocument, it appears some ministries continue to keep as many sub-projectsgoing as possible within the approved general project, submittingexpendi. are claims to the MFEP regardlessof PIP ceilings, fully aware that the new PIP has yet to completeiy supplantthe ingrainedhabits of uncoordinatedexpenditure approvals. There has also been a breakdownof the controlmechanism which exists in principal to prevent ministries from entering into expenditurecommitments when funds are not available. These are particularproblems in the investment programs of the health and education sectors,which contain several "umbrella"projects which in fact consist of hundreds of sub-projects,on which the PIP contains almost no detail with regards to phasing, technical - 24 - plans, and component costs. The PIP Task Force is aware of this problem and is making some progress in trying to address it, but more work will need to be done in this area.
49. For several sectors there is an additionalsevere constraintin many sectors consistingof the legal requirementthat all projects be implementedby the Architecturaland EngineeringServices Corporation (AESC) or Public Works Department. These technicalagencies are mandated tc design technicalplans, establishquantity and cost estimates,prepare bid documents,supervise contractors, and certify completionof work as a condition for payment of contracts. Not only are the agencies overwhelmed with the volume of work, but their professionalintegrity is being publicly questionedin front page newspaper articles. The original objectiveof establishingthese professional,technical agencies is being defeated, as their arrangementswith contractorsare resultingin certificationsfor payments well in excess of contract amounts. The MFEP is being swamped with certificatesfor contractpayments, particularlywith respect to several health and educationprojects. These often entail substantial increases in costs from original estimates,in some cases because of large changes in exchange rates and domestic prices since the contracts were originally signed, but in other cases for less obvious reasons. The MFEP is under pressure to honor contracts, but has few resources with which to monitor their validity. Confronted with systemic and deep-rooted problems in how project contracts are technically designed and implemented, the MFEP has taken the interim step of suspending all education and health contracts awarded since October 1988 because of 'indiscipline in the award of contracts".
50. The Bank needs to take more coordinated approach in supporting the Government as it deals with the problem represented by AESC. The Urban 11 project is preparing TORs for a review, as agreed with Government, but other sector ministries, particularly Health and Education, need to be involved in this issue. Re-establishmntatby the public sector of compeLent, efficient, and professional mechanisms for project design, implementation and monitoring is a crucial building block in establishing a workable investment budget that the MFEP can effectively control.
51. Within the MFEP, improved monitoring and implementation of control mechanisms to prevent commitments beyond available resources are needed. Steps are being taken in this direction with the establishment in late 1988 of a Monitoring Unit in the MFEP. An additional step that can be taken immediately to facilitate monitoring if development expenditure is to ensure that the PIP document's definition of resource allocation by project _.stranslated into the Budget Division's (and Accountant-General's) categorization by account number. It should become obligatory that the project proposals that ministries submit to the PIP Task Force include a breakdown by Items 7 - 9, and for projects already underway, by the existing account numbers.
52. Finally, the task of annually preparing the three-year PIP will be facilitated by providing, as part of the Budget Guidelines Circular, indicative allocations to the ministries. Indicative allocations are already provided for recurrent expenditure, and should be possible for - 25 - capital expenditure because of improved information available from the Policy Analysis Department and the International Economic Relations Department of the MFEP. The indicative allocations should specify both budgetary and external donor resources likely to be available to each sector Ministry.
C. Supercore
53. The superccre mechanism has been in place since 1987 to protect a subset of FIP projects that are critical to the Economic Recovery Programme fromicuts forced by shortfails in bud-et resources. It is lot a list of priority projects; projects that are important, but that are fully funded by donor aid, with no reliance on budget resources, are not included in the supercore. The supercore operates as a special account overseen by the Budget Division of the YFEP, which is credited with sufficient funds at the beginning of each quarter to fully meet the planned investment program of the included projects. The supercore in 1988 consisted of 29 projects accounting for 27Z of total budgetary expenditure on PIP investment. The supercore proposed for 1989 (see Annex IV.1) has expanded marginally to 33 projects, and 29% of investment from budget resources.
54. Supercore designation cannot by itself assure adequate implementation, and the projects involved suffer from the same erratic performance as PIP projects overall. Through the first half of 1988, there had yet to be any budgetary expenditure for five supercore projects, while for six others, expenditure already exceeded the full-year budget allocation. In aggregate, 93 percent of the total supercore provision was expended by the half-year mark. It is clear that supercore designation has, at most, removed the resource constraint; other implementation constraints continue to impede effective execution of the programmed expenditure.
55. With the gradual improvement of fiscal management, the supercore concept has become too blunt an implement for dealing with resource fluctuations. it only begins to define priorities ouce there is about a 70% shortfall in resources available for capital expenditure, but provides no guidance for managing the investment program under less critical circumstances. Further, a more sophisticated respor.seto changed resource availability is needed than across-the-board adjustment in all project allocations.
56. To transform the supercore into a more flexible instrument for management of budget resources spent on public investment, the project portfolio could be desegregated into categories represer*ing several levels of priority. For e:xample,with four levels, each representing 25Z of the total claim on budget resources, the top priority level would be the last to be cut in the case of an overall resource shortfall, and the first to receive unanticipated resource surpluses. Conversely, the lowest priority category would be the first to be pared down, and the last to receive additional resources. To establish this ranking, each Ministry would be required to categorize the investment program that it submits for budget review, which would then be compiled by the MFEP. With this categorization, the task of routine management reviews of the budget - 26 - situation is considerablysimplified, since it will already have been determinedwhich subset of projects are to be rephased.
D. New Projects
57. The 1989-91 PIP contains 62 new projects,and drops 34 which were completed or still lacking a feasibilitystudy, thus raising the total from 314 to 342. This is an ibsue because many of the new projects actually consist of a feasibilitystudy, which only if favorablemay lead to further investment. There is a hazard with includingprojects individuallywhose justificationhas yet to be established,since doing so suggests a Governmentcommitment before this has in fact been made. It would be preferable to present for each sector a "Studies*investment category, under which each project under considerationwould be identifiable,yet clearly need to pass review by the MFEP's Project SelectionCommittee.
58. Guidelines also need to be strengthenedthat define when alterationsin the scope of existing projects are substantialenough to warrant review by the Project SelectionCommittee as a new project. The 1989-91 PIP contains numerous ongoing projectswith such substantial alterationsin the economic, financial , and administrativeimplications that they scarcely resemble the project originallyapproved. Regulation 45 of the FinancialAdministration Regulations (LI 1234, 1979) provides guidance,by now outdated, on what constitutesa new project, but this needs to be revised and more rigorouslyimplemented to ensure that altered projects continue to be justified.
59. "Umbrella'projects, such as exist in the education,health, and water sectors for rehabilitationor constructionof comparable facilities at many locations,have been particularlysusceptible to continual changes in compositionas new sites are added to ongoing projects. These projects are very difficult to implementand monitor, and have resulted in scarce resourcesbeing spread so thinly that works take years to complete. Each umbrella project should be divided into separate,phased projects, designed to concentrateat first oui works under way that can be completed quickly. - 27 -
Annex IV. 1 Super Coro Projeet. for 1969
------__------__------PROJECT PROJECT PROJECTCOST BUDGETARYRESOURCE FINANCING NUMBER (millioncedis) (millionc¢dis) AGRICULTURE Agric. Serv. Rehab. Proj. MOA012/06 1424 57 Rinderpeet Control AMP 004/08 So 16 Bovino Brue liloslaControl AHP O96/SO 13 13 Trypanotolereni'Cattle Br.d 1 ng Contre AlP 966/1 1 10 Dawhenys Irrl. Rehab. IDA 001/88 86 51 AsuteuareIrri. Rehab. IDA 962/8I 20 21 A'#qyme Irri. Rehab. IDA 003/88 16 18 NORRIPPhase II SP 961/57 453 35 VORADEP SP 966/16 14d t46 URADEP SP no/so 64 64 INDUSTRY Grain Development Proj. INDR 113/86 8n8 as LANDSA NATURALRESOURCES Forest ResourceMgt. Proj. FOR013/89 1366 412 WATER Water Suppliesfor RegionalCapitals WTR006/86 1720 709 Rural Water Supply Schom II (Handpump) WTR008/86 779 187 Rural Water Supply Scheme II (landw.ll) WTR009/86 163 90 WORKS A HOUWSING Accra Dist. Rehab. Proj. VH 961/sI 428 155 EDUCATION 1st Cyclo Inst. Rehab. ED OOB/88 642 353 HEALTH Health StationsRehab. A Compl. Prog. MED006/86 600 e6e District Hospitals Rehab. Project MED 968/86 617 460 PAUSCAD Decentraizod Com. InitiativeProj. PCAD 906/88 130 22 TRANSPORTA COMMUNICATIONS Mateo ObsorvingSystem MET 002/88 290 280 Resurfacing of KIA CAA 002/86 190 156 First Railway Rehab. Proj. RLY 001/86 490 467 SoecondRailway rehab.Proj. RLY 002/86 69a 96 VLT Petroleum Handling VLT 003/j8 564 ENERGY National Eleoctrification Scheme MFP 003/8I 1091 6e9
ROADSA HIGHWAYS Periodic maintenance of Fe-edr Roads DFR 961/86 1161 527 Dev. A Maintenanceoof Cocoa Rd.. DFR 003/86 1136 Fourth Highway Proj. HWY 91/8" 362 Road saint. Backlog ClearanceProj. HWY064/I8 3817 2309 Yapei-Morno-Kintampo Recons. HWY963/86 1243 1243 Rehab. of Accra City Rdn. HWY 012/86 144 26 Rehab. of Kumasi City Rdo. HWY014/86 1099 1099 TOTALSUPERCORE 24087 10461 Share of Total PIP, U 16.2 29.0 ------__------_------28 -
V. SECTORAL REVIEWS
A. Overview
60. The following sectoral reviews provide details of the proposed 1989 investmentbudgets for agriculture,industry, mining, water supply, transport, communication,energy, roads and highways,works and housing, education and health. These sectors accounted for about 872 of development expenditurein 1988. For the key expenditureministries - agriculture, education and health, there is also discussionof recurrentexpenditure proposalswhich for the f':st time have been based on expenditurenorms. Two components of the PIP -- prcjects of the Ministry of Local Government, and of the PAMSCAD -- are not reviewed,nor are the investmentproposals for non-PIP ministries. The Government expects to limit the latter to 101 of developmentexpenditure in 1989.
61. Since the PIP conceptwas put into place in 1986, annual reviews of the sectoral investmentproposals by the World Bank have concentratedon contributingto project choice, design, and phasing. Since a number of ministries are still in the process of strengtheningtheir capacity to establishwell-structured investment programs, the project focus of World Bank reviews that follow, the focus is on projects, and their links to sectoral objectives and strategies. The World Bank's objective over the next several years, however, should be to move away from such project-by- project review, towards more topical reviews that assist the MFEP and sector ministries to define and make choices among strategicoptions in the Budget.
B. AGRICULTURESECTOR
1. SECTOR OVERVIEW a. Background
62. Role of Agriculture. Agriculture,including forestry, fishing and livestock,is the backbone of Ghana's economy. It contributesroughly 50 percent to GDP in the 1980s, and absorbsnearly 60 percent of the labor force. Agriculturalimports account for roughly 20 percent of importsbut the sector supplies approximately75 percent of export earnings. Other than food -- cereals and root crops, which occupies 50 percent of cultivatedarea, cocoa is the single most importantsubsector. Alone it contributed9 percent of GDP, 54 percent of export earnings and 16 percent of Government revenues in 1988. The contributionof forestry and logging is much less, though still significant. In 1988, it contributed4-5 percent to GDP, and 10 percent to total exports of goods and non-factor services. Fisheries and livestockare minor components of the agricultural GDP.
63. Main Features. Agriculture is primarily rainfed, it is predominantlysmallholder, and productivityis low. Cultivable land is - 29 -
relativelyplentiful: only 30 percent of the 10 million hectares of cultivable land is cultivated. Only .07 percent of total cultivated land is irrigated. In recent years, the main contributorsto the agricultural GDP are non-cocoa crops at approximately62 percent, cocoa at 18 percent, forestry at 10 percent, livestockat 8 percent and fisheriesat 2 percent. As land is abundant,most farmerspractice shifting land cultivation,using simple hand tools and very little fertilizer-- estimatedat 7 kg. of nutrient per hectare. There are, however, more densely populated areas in the north and the south, where shifting cultivationhas been replacedby permanent cultivationand where the maintenanceof soil fertility is of growing concern. Over the longer term, the pressure on land will intensify as population growth continues at approximately3.0 percent per annum, (projected for 1985-2000period), with serious implicitiotzsfor the progressivedestruction of forestsby shiftingcultivation, and environmentaldegradation.
64. Recent Performance. In the short term and given the level of technologyand market development,agricultural performance is mainly determinedby the timelinessof rains and the levels of producer incentives. Since rains and prices are highly variable on a year to year basis, so is annual output performance. Over a longer-termperiod, the impact of the incentiveenvironment dominates. Thus, the incentive environmentwas strongly negative throughout the seventiesand output of both food and cash crops deciined steadilyat a rate of roughly 0.3 percent per annum. Under the combined impact of improved incentivesunder the ERP and timely rains of 1984, output grew at roughly 10 percent. However, following the bumper harvests of 1984, prices of major cereals and root crops fell sharply, adversely affectingincentives and productionin 1985, and estimated growth fell to 0.6 percent. Rains were timely in 1986 and output grew at 3.3 percent. The 1987 and 1988 output performanceagain reflected the behavicr of rains: negligiblegrowth in 1987 caused by poor rains, and a 5 percent growth (preliminaryestimate) in 1988 caused by excellent rains.
65. Prior to the ERP, cocoa was heavily taxed, and marketed amounts declined from a high of over 400,000 tons in the sixties and the seventies to a low of 159,000 tons in 1983/1984. Since the Fm.%P,incentives have impLoved markedly, resultingin increasedpurchases by the Cocobod, although annual fluctuationscontinue to result from the weather. Cocoa purchases rose 9 percent in 1984/85 (174,000tons), 25.9 percent in 1985/86 (219,000 tons), 3.4 percent in 1986/87 (226,000tons), but fell by 15.5 percent in 1987/88 (185,000tons). Provisional1988/89 estimates are 305,000 tons.
b. Sector Objectives
66. The Government'sshort- to medium-termobjectives are to maximize supply response to the improved incentiveenvironment, in food and cash crops, includingcocoa production and irrigatedrice; to improve rural incomes and national food security,and to optimize utilizationof Ghana's forestry resources,whilst ensuring sustainedyields over the long term. In so doing, it would increaseagriculture's contribution to incomes and domestic food supply, to productiveemployment, to net export earnings,and - 30 - to government'srevenues, while conservingand improving the agricultural resource base. Over the long term, it seeks to diversify the production base as a means of reducing Ghana's vulnerabilityto cocoa price fluctuations.
C. Sector Strategy
67. The government'sshort- to medium-term strategy focuses on: (a) rehabilitationof basic infrastructure(including irrigation structures) and the delivery of basic services, (b) improvementsin the timely availabilityof fertilizerthrough progressiveprivatization and subsidy reducticn; (c) promotionof private sector particinationin agricultural investmentin general and the SOE reform program in particular; (d) developmentof a cost effective food security program; (e) implementation of forestry policy and managementreforms and (f) the strengtheningof MOA's capacity for policy formulation,monitoring, evaluation and coordination.
68. This strategy seeks to address some of the key physical and institutionalconstraints identified. A basic physical constraint,which is economy-wideis poor trarsport. The run-down state of much physical infrastructureresult in high transportcosts, which inhibit output expansion and efficientmarket development. For example, unit cost per ton-km for transportingcocoa is estimatedto be much higher than comparablecosts in Nigeria. Over the last decade, the share of transport costs in the market price of some farm products have soared. Segmented markets in turn cor.tributeto high output price volatility,with market prices rising sharply in times of shortage and plummetingin times of surplus. As a result, producers'incentives and consumers'welfare suffer and the Government'sobjective for promoting food productionand for securing food for all at stable and affordableprices is undermined. A basic institutionalconstraint which is sector specific is the poor delivery of extensionservices: for rainfed and irrigatedcrops, for fisheries and for livestock,and of commercialinputs: fertilizerand seeds. In addition to organizationalproblems, MOA-managed services, includingGIDA's, all suffer from chronic budgetaryconstraints, resulting in lack of mobility and regular training for staff, and lack of supplies to conduct extension.
69. Agreed prioritiesin specific sub-sectorsare to: (i) rehabilitatebasic services in extension,livestock and fisheriesin the short term and develop an effectivenational extension system over the medium term; (ii) rehabilitatesmall-scale irrigation schemes in the short term and develop improved irrigationagronomy over the medium term; (iii) progressivelyprivatize fertilizerprocurement and marketing in particular and improve delivery of seeds and other inputs in general; (iv) manage forest resources,including rehabilitating existing plantations;(v) promote cocoa production,including rehabilitating cocoa feeder roads; and (vi) develop a cost-effectivefood security program in the medium term and export diversificationover the long term. - 31 -
2. PUBLIC EXPENDITUREPROGRAM
70. The following review of the public expenditureprogram in the agriculturalsector discusses first the recurrentbudget, then the ir.veatmentbudget. Specifically,the review of the recurrentbudget focuses on: (1) the level and structureof the recurrentpublic expenditure (1987-1989)to assess how it should be improved to support delivery of basic services,with particular referenceto the applicationof the recer,t expenditurenorms as set out in the Manual developedby the Budget Task Force; (2) proposed estimates for short-termrehebilitation needs for the Extension, Animal Health and Production,and Fisheriesdepartments to assess the priority these needs deserve in the departmentalrecurrent budgets and the adequacy of the mechanism to integratetham in the budgetary process; and (3) budgetary implicationsof the ongoing fertilizer subsidy reductionand privatizationprogram. The review of the investment budget focuses on: (1) discrepanciesbetween approved allocationsfor PIP projects (especi4llyfor those in the supercore) and actual allocations, for 1987 and 1988. These discrepanciesemphasize the importanceof timely availabilityof budgetary funds in effective implementation;(2) the consistencybetween agreed sectoral and sab-sectoralstrategies on one hand and proposed investmentprojects for the 1989 PIP on the other; (3) adequacy of implementationcapacity as evidencedby the pace of the SOE reform program; and (4) proposed compositionof the 1989 supercore. a. Recurrent Expenditure
(1) General
71. Recurrentexpenditures of the Ministry of Agriculture (MOA) are set out in Table 5.B.1. Table 5.B.2 sets out correspondingestimates for the Forestry Department of the Ministry of Lands and Natural Resources. Both the approved and provisionalestimates are shown for 1987 and 1988, along with the tentativelyapproved budget for 1989. These two estimates of ex-ante commitmentsare conceptuallyand numericallydifferent. Neither capture actual expenditures. "Approved"refers to estimatesapproved by the MFEP after the final budget hearings in preparing the new Budget. 'Provisional"refers to MFEP allocationsfor the first quarter, which have in practice been quadrupledby the ministry to indicate likely resource availabilityfor the whole year. Actual resource availabilitydepends on drawing limits issued via the AccountantGeneral on the basis of the MFEP provisionalallocations, and the ability of the differentbudget officers to capture these funds, rather than on "approved'amounts. Since approved budget estimateshave not been publishedand distributedin recent years, first quarter provisionalestimates have served ministries as a rough proxy for actual resource availabilityfor the year, although it is known that these provisionalestimates still overstateactual resource availability since drrwing limits are typicallybelow provisionalestimates. The salient features of the budget based on these ex-ante commitmentsare the following: (1) major downward revisionsfrom approved to provisional estinmate;(2) the availabilityof provisionalestimates only for the first quarter, which severely limits the planninghorizon; (3) the major share of the budget allocated to personal emolumentsand consequentlythe minor share allocated to Items 2-5 for the delivery of basic services; MOA R.--r.t Budget.0igg.td by E.p.ndit-~r It ... App--vd a.d P-o;sion.I EIti..to.. 1987-1989
III I THOrSAlf CEDIS I II II ('OCO CEDI) P8SNL TRAVEL A GENERAL I AINTENANCE SUJPPLIES ISUBVENTIONS TOTAL TOTAL DIL= BU RASPR EAR AXEEIL~5STORES I IAPPROVEDI/ PVET.2/ IPROV. /APPROVAL (1) (2) 3 (4) ()(6) I (2-5) 1987 1 ~ ~~~~~~~~~~~~~~~~~~~~II MOA 1093514.0 143450.00 5378-C 1622.00 488955.0 1000379 00 792405.00 2806298.Ov 1307269.0 045 CROPS 58W. DIV.487954.00 I 6017300 ~11000.00I 5000-00 I 4400.00 I 120173.00 60127.00 55626.002 FISHERIES 71519-00 I 20184.00 I 8595.00 I 53231.00 I 4804.00 I 86814.00 158433.00 93713.00 0.59 ANIM. HEALTH A PROD.I 239244.00 I 28200.00 I 1605000 I 19450-00 I 407003 00 II 470703.00 I 709947.00 236408.00 0.34 -VETRB. SER. I 125333.00 16000.00 12900.00 I 14000-00 I 35580800O 398706.00 I 524041.00 ANdIM.'HI&O 113911.00 12200.0 1000 5450.00 I 51195.00 I 71995.00 165906.00 PERCENTACGES 3101II MO)A I 0.38 0.05' 0.021 0.041 0.171 0.351 0.271 1.00 CROPSSERV. DIV. 0.60 0.10 0.02 I0.01 0.07 I 0.20 1.00 FISHEIES 0.45 I 0.13 0.05 I0.34 0.03 II0.55 1.00 AHP 0. 34_ ...... 0.04 0.02_ 0.....03 I04 0.57 II0.66 1.------I00
MBA ~~~1361607.00141061.00 553.0 10820 169544-00 85000000M 500000.00 2711607.00 2507204.00 0.92 CROPSSERV. DIV. 376073.00 2492 00 9348.00 4674.00 I 59443.00 I98393.00 474466.00 382916.00 0.81 FISHERIES 48906.00 8024.00 2649.00 33571.00 I 2707.00 I46951.00 958657.00 75804.00 0.79 AHP 266986.00 35944.00 19553.00 51726.00 I 30459.00 I137682.00 406668.00 325428.00 0.80 EXTENSION 294569.00 31160.00 7790 OC 3739.00 I 45170.00 8 7859.00 3824628.00 287273.00 0.75
MOA 0.50 0.0 .0 0.06 .5 I310.18 1.00 CROPS 50.DIV. 0.79 0.05 0.02 0.01 I0.13 I0.21 1.00 FISHERIES 0.51 0.06 0.03 0.35 I0.03 I 0.49 1.00 AHP I 0.66 I 0 09 0.05 0.131 0.07 I0.34 1.00 EXTENSION 0.77 0.061 0-02 0.01 I0.12 II0.23 1.00 PROVISIONAL 1988 IIIII ------~ ~ I II MIA I 2043144.00 II I 464b0.000 2507204.00 CROPS SE8W DIV. I 308004.00 I II 74912.00 382918.00 FISHERIES I 40056.00 III II 35748.00 15804.-00 AHP 220312.00 II II 105036.00 325428.00 ETBJSIONd 199512 001 I II 8776100O 267273.00
PROVISIOWAL 1988 IIIIII
MCA I 0.81 III 0.191 1.00 FISHERIES I 0.53 II II0.47 I1.00 AHP~ ~ I 0.68 I I 0.321 1.00 1989 3/II I MOA 16481001 399115 00 I 507186.00 I 76975.00 I 653213 00 I 1197734.00 I 163C489.00 4.529204.00 CROPS SERV. DIV. 3712-00 I 56694.00 I 61007.00 5440.00 I 138116 00 II 261257.00 618969.00 FISHMIES I 75954.00 I 12649.00 I 3713000 8286.00 I 3888 00 II 61973.00 1370~27.03 AHP 322846.00 I 81320.00 1 58009.00 I 15541.00 I 259216.00 I 340898.00 736932.(0 (ENSDI(WN 4838162.00I 149042.00 I 182219.00 I 7455.00 I 232769.00 I 571485.00 1055297.0~~ PERCEWTAGESII II MOA 0.37 0.09 I 0.11 I0.02 I0.14 I0.26 I0.36 I1.00 CROPSSERW DIV. 0.58s 0.09 I 0.10 I0.01 I0.22 II0.42 I1.00 FISHERIES 1 0.55 0.09 I 0.27 0.06 I0.03 II0.451 1.00 AHP 0.44 I 0.11 I0.08 0.02 I0.35 I0.00 I0.56 1.00 EXTENSION 0.46 I 0.14 I 0.17 0 31 I 022 II0.54 1.00 1Q09 ALTERNATIVE II
RCA 1361607.00 I 134219.00 55665.00 I 124543.00 I 161321.00 I 827517.00_ ... 475748.00 2664872.'00 Source: Ministry of Agriculture Wut..: I/ Approved ...... pprn...dafter the Eudget h-.aig. .ith MEEP. 2/ P-oision.l estimates are based on esti.at.s of first quart-r Th.s. -vertate actual level of *vpendit.rem since drawing li.its are usually esee than vrovi,ional setesete. 3/ Thee. .. timates resul t from th. epplication of -ore set out in the Budget Manuel (1988). 4/ Resource guideline given to MOA. Resource Guideline is roughly hlsf of a.ppr-vei total. - 33 -
(4) growth, if any, of resourcesallocated to Items 2-5 from 1987 to 1989; (5) given the applicationof norms, the shares cofeach item in the 1989 budget as compared to the correspondingshares in 1987 and 1988 budgets, and (6) the total 1989 "tentativelyapproved' budget compared to the resource guideline. These features quaritifythe recent deep cuts in the budgets, the continualuncertainty that surroundsbudgetary releases,the limited funding of operations,all of which have combined to severely inhibit the institutionalcapacity of the MOA to serve agriculture.
72. Budget Constraints. Actual releases as measured by provisional estimatescontinue to fall short of approved amounts, a'though there was a definite improvement11. 1988. In 1987, the provisionalamount for MOA as a whole was 50 percent of the approved,with the incidenceof shortfall varying from 34 percent for the Animal Health and Production Departmentto 90 percent for Crops Services Division. In 1988, the overall ratio rose to 90 percent. Except for Crops Services,there was also an improvementin the ratios for selected departments. Therefore, although in nominal and real terms, the 1988 approved budget was less than the 1987 budget, the provisional198U budget was nearly twice that of 1987. In both budgets however, the significantshortfalls from approved to provisionalhighlight the need to reassess the scale and structureof MOA's operations,to determine priorities for which adequate funding can be assured, within constrainedbudgets.
73. Short Planning Horizon. In Lecent years, the planning of the annual operations for MOA departments continues to be hampered by the uncertaintv in resource availability. Despite the formal approval of their annual budgets, departments must wait for the authorization by the MFEP of their provisional allocations for the first quarter (usually available only late February) and for instructions from the Accountant General throughout the year on their drawing limits before they can commit resources to operations. In the words of some departments, resources are too little, too late and too undependable. The process is time-consuming and frustrating. To obtain resources requires ad hoc personal interventions by senior officials. This continual uncertainty, exacerbated by having to devote significant time and resources to actually obtain funds, severely curtails and cripples the delivery of basic services in the sector. The funds that are eventually extracted are often so limited that they cannot be used effectively. Budget officers point out that the most important improvements are timeliness and dependability of these limited funds. Only then, will the budget process become meaningful and rewarding.
74. Severe Underfunding of Items 2-5. A repeated complaint of the MOA (including the Ghana Irrigation Development Authority) and of the Forestry Department of the Ministry of Lands and Natural Resources, is the severe underfunding of Items 2-5. 1/ Typically, personal emoluments (Item 1) are fully funded, and the share of other items, already low in the approved budget, is further reduced in the provisional budget (see Table 5.B.1 on MOA Recurrent Budget and Tables 5.B.2A/B for the Forestry
1/ Travel and transport - Item 2, general expenditures - Item 3, maintenance and repairs - Item 4, and supplies and stores - Item 5. - 34 -
Department). The percentagesfor 1987 are for the approved,not the provisionalbudget. The provisionalamounts for Items 2-5 were half the approved levels of 30Z, while Item 1 retained 40 percent of the approved budget. The share of Item 1 was thus protected,while that of 2-5 was drasticallyreduced. In the 1987 budget, the other major recurrent expenditurecategory was subventionsto various internationaland domestic- developmentrelated organizations,at 30 percent. For 1988, the share of Item 1 in the approved HOA budget was 50 percent, rising to 80 percent for the provisionalbudget. Comparing the nominal growth in approved allocationsfor 2-5, the 1988 allocation is 37 percent below the 1987 level, while the 1989 approved estimate based on norms is over 5 times higher than 1988 level. The wide differencebetween the 1989 and previous years' estimates emphasizes the value of using norms to reverse the chronic underfundingfor Items 2-5. For the Forestry Department,the dominant share of Item 1 in the provisionalbudget, and its increase in actual expenditurereturns (which are availablefor the Department)is even more evident: its share rose from 89 percent to 93 percent for 1987; and from 92 to 95 percent for 1988 (Januaryto October). Tables 5.B.2A/B also show the substantialshortfall in actual expenditureon Items 2-5 from provisional budget estimatesbecause of the subsequentneed to finance salary increases.
75. Applicationof Norms to the 1989 Budget. The applicationof norms is welcomed by MOA and individualdepartments, although some departmentsargue that revisionsfor certainnorms are necessary. On the positive side, the norms provide an objectiveand agreed criteria to assessing funds required for differentbudget categories. They have also helped to reduce the arbitrarinessin budget discussionsand to focus these on content and scale of operatiens. They require that the MOA systematicallyreassess the adequacy of the data base for costing its operations. On the negative side, some norms are arbitrary. Needed revisionswere identifiedfor Items 3 (generalexpenditure) and 4 (maintenance). These norms were establishedas a percentage,averaged over 1984-1987, of establishedposts. This approach is somewhat arbitrary;and since 1984-1987were lean budget years, it is not surprising that the norms are biased downwards. FisheriesDepartment officials pointed out that a better approach for Item 4 would be to inventoryexisting equipment,with an assessment of the costs and benefits of maintainingit versus those of replacingit. Moreover, the 45 percent of establishedposts allowed for Item 4, though raised from an initial 5 percent allowed for other departments,is still too low, given the age and condition of current fisheriesequipment. Animal Health and ProductionDepartment pointed out that the assessment of Items 3 and 4 should also be based on the scale of their planned operations,e.g. scale of vaccinationcampaigns for estimated herd size. However, these departmentsalso realize that the approachmay become too complicatedand need to be simplifiedsomewhat. Overall, however, the response to the norms was positive, and departmentsfelt that one-to-twoyears of experienceand familiaritywith the norms is desirable before changes are introducedagain. They were also anxious to see whether the use of norms per se would improve releases and reduce the gap and uncertaintybetween approved budget and actual releases. In other words, they want to see whether the use of norms will by itself contributeto an objective improvementin availabilityand dependabilityof approved - 35 -
resource flows, as opposed to simply a procedural improvement. To reduce the chronic underfundingmay requirea reassessmentof the very operations which these funds are to support, and the delivery mechanisms employed.
Table 5.6.2A Foreetry Deartent Recurrent Expenditure Returns January - uece-or 1967
ITE4 PROVISIONAL TOTAL Dtl!DSTlURE ALNM I A EST NATIM tRE 19187 (1) (2) (1) - (2)
1. Personal Emolument 176792000.00 247711111.00 -7091931.00 Thire was a ealary adjustment in January 1987 2. Travelling and Transport 16732000.00 146t42S0.00 2097780.00 Expend i ture 3. General Expenditure 3397250.00 2972594.00 42463.00 Only WS0 of the provision in the provisional estimates 4. Maintenance, Renewala and 793000.00 693875.00 99125.00 for tte fourth quarter was Repair* allowed to be u ed by the treasury on government S. Other Current Expenditure 1251000.00 1094625.00 136375.00 instructions. Hence the be lance.. 6. Subventions TOTAL 199015250.00 26715675.00 -6141625.00
1. Peraonal Exolu_nt 0,89 0.93 2. Travelling and Tranaport 0.06 0.05 E.pendi ture 3. General Expenditure 0.02 0.01 4. Maintenance, Renewals and 0.00 0.00 Reaier* S Other Currant Expenditurs 0.01 0.00 6. Sucbntiona
TOTAL 1.00 1.00 ------:: ___ __ Source: Forestry Departent
Table 5.8.29 Forestry Department Recurrent Expenditure Raturns January - October 1986
1T964S PROVISI ONAL TtOTAL EXPEtDITURE BALANCE REMARKS ESTIMATES 19s (1) (2) (1) - (2) 1. Personal Eaoluant 220980000.00 321680000.00 -100700000.00 Salary adjustments 305 effective J;nuary 1968 and 12-1/21 effective July 1988 2. Travelling and Tranaport 11660000.00 10484930.00 1175070.00 Expend i ture 3. General Expnditure 7093000.00 4135960.00 2957040.00 Inadequate drawing limit to bacb expenditure, hoee 4. MFnt.nance, Renewale and 920000.00 666950.00 253050.00 the poSitive balance Repair* for iteme 2-5 S. Other Current Expenditure 142000.00 127000.00 15000.00 240795000 .00 337094840 .00 -9629940 .00 P8RC5EtTACE 1. Personal Emoluaent 0.92 0.95 2. Travel ling and Traneport Expenditure 0.05 0.03 S. General Expenditure 0.03 0.01 4. Maintenance, Renewals and Repairs 0.00 0.00 S. Other Current Expenditure 0.00 0.00 TOTAL 1.00 1 00 ------c ------f-Lands and a R- rc- - -- - Source: r r-stry D>eprtent, Ftinistry of Landa and Nbturel Resources - 36 -
76. Salient Features of the 1989 *tentativelyapproved' BudRet. On the basis of available data, it is (a) doubtful whether 'approval'will be more meaningfulthen before and (b) unclear whether or to what extent the applicationof norms imply a higher share of the overall MOA budget allocated to Items 2-5. The 1989 budget for HOA is almost two-thirds greater than the approved total for 1988: at 4.5 versus 2.7 billion cedis. The total for Items 2-5 is significantlyhigLar than the corrpsponding totals in the 1988 approved budget, by roughly 3 times (see Table 5.B.1, column 7, Items (2-5)). On the basis of this expansion,the share for Item 1 is around 37 percent, the share for Items %-5 would be around 36 percent, with subventionsaccounting for the rest. If so, this would be a significantdeparture from recent budget structures. It is evident that the use of norms has resulted in a major absolute increase for Items 2-5.
(2) Assessmentof Short-TermRehabilitation Needs for Selected Departments
77. Rationale. Basic extension services are an importantcomplement to improved incentivesin prompting farmers to increase output. In addition to organizationalproblems, the chronic underfundingof Items 2-5 has seriouslyeroded the delivery of basic extension services of the MOA. Lack of mobility, of equipmentand supplies,and of short-termtraining have contributedto underminingextension servicesof several departments: the Extension Department (createdas a separateunit in 1988) dealing mainly with food crops; the Animal Health and ProductionDepartment (createdby merging VeterinaryServices and Animal Husbandry in 1988) dealing with vaccinationcampaigns, disease control and breeding stock improvement;and the FisheriesDepartment in charge of, among other things, improving techniquesof aquacultureamong fishermenof the vast inland waters. There is an immediateneed to strengthenthese extension services because of their central role ir the Government'sprogram to generate a supply response in the sector. In the longer term, the Agriculture Services RehabilitationProject (ASRP),will lay the foundationsof an effectivenational extension system and improve the supply of drugs and vaccines in AHP operations. Given the potential as well as the need for productivityincrease in food crops, animal husbandry and fisheries,the poor state of extensionhas significantopportunity cost. This cost in terms of foregone output is currentlyhighlighted by the achievementsof the Global 2000 project.
78. Identificationof Short-Term(1989) RehabilitationNeeds. Following discussionsbetween the MOA and IDA in early 1988 on how best to increase agriculturaloutput in the short term, it was agreed that MOA should utilize sotileASRP funds to rehabilitatebasic extension servicesof the Extension,AHP and Fisheriesdepartments. The departnmentshave identifiedthe followingpriority short-termneeds: (1) mobility of field extension staff; (2) adequacy of field equipmentand supplies; (3) adequacy of office facilitiesand equipment,including laboratorysupport in the case of AHP; and (4) regular short-termtraining for field staff. These are no other than Items 2-5 in the recurrentbudget. Given that these needs have been largelyneglected by recent budgets, complete rehabilitationis viewed as a multi-yearprogram and action in 1989 as the first major step. These departmentshave estimatedand prioritizedtheir - 37 -
1989 needs of both capital purchases and operationand maintenancecost which need to be funded through the recurrentbudget.
79. ProDosals for Rehabilitationin 1989. The revisedproposals for rehabilitationof the Departmentsof Extension,AHP, and Fisheriesare summarizedin Table 5.B.3. The rationalefor the rehabilitationis clear: to provide mobility, supplies and training for more effective extension. The capital requirementscost of US$3.24 million is well within the ASRP credit. Integrationof the O&M cost estimates in the recurrentbudget gives rise to concern, however. The O&M cost for the newly purchased equipment for each departmentexceeds the budget for Items 2-5 in 1988. For 1989, despite the use of norms, the estimated recurrentrequirements for Extension is 41 times the approved estimate,AHP is nearly 54 times higher, and Fisheries over 138 timesl In addition, although the estimated O&M costs are high compared to budgets in the past, they are on the low side when compared to the capital purchases. For Fxtension,O&M costs average 15 percent of total capital expenditures;for AHP and Fisheries, O&M costs average only 4 and 9 percent of capital purchases, respectivelv. (See Table 3, colu.-n3, of the Proposals.) For veh'cles, an average closer to 20 percent is more realistic. On the basis of availabledata, there are insufficientfunds in the 1989 budget to satisfy these needs. On the basis of recent experience,there is also the risk that this 'approved"budget will be drasticallyreduced by drawing limits. Although funds are available during the ASRP project period to cater for O&M, adequate provisions from the recurrentbudget are important if the benefits from rehabilitationare to be sustainable.
(3) Budgetary Requirementsfor Local FertilizerHandling
80. Current Situation. Under the ASRP, the MOA and the World Bank agreed on a program of gradualprivatization and subsidy elimination. Under the program, MOA, which now both imports and distributes,would withdraw from wholesalingduring 1988-1989,from retailingduring 1990- 1991, and from imports thereafter. For the 1989 crop year, the current subsidy of 30 percent is to be reduced to 15 percent, and completely eliminated in 1990. ASRP provides for 25 million dollars of parallel financingby the AFDB for imports of fertilizerand chemicals. There is also financingavailable from the EEC, Dutch and Japanese. For 1988, the 41,375 tons of importsarrived at Tema port only in April-May-June,after the main planting, and the payment from MFEP for local handlingwas availableonly in September. The local financing requirementwas roughly 246 million cedis, with IFAD contributingfunds for handling 5,000 tons, the FASCOMs for 9,155 tons and the balance of 27,220 tons amountingto 190.5 million cedis being paid for by MFEP. The delay in imports and in local financinghas been a recurringproblem. - 38 -
Table 5.6.3 Proepesls for ahort-t.rs rehabilitations need, for th Department of Emteenaon, Ah; iI Health A Production, and Fisherie ------__------__------
CAWAL OPTIWN OM4A/&ITAL EST. KOeT FOR OA/&.D FORxrusE' COST HM ANCE COST (2 5) (2 - 5) DWARrEWT 6 CDI (2)M/C) PROVISIONAL A YPF0VDPPOVISIONAL APROVE A. WC4ION 1. PSIL 4265.00 2. EIIJPe?T FIED 56U52.00 3. EI,Iu T OFFICE 48816.00 4. ARICLTUAL DE'UTS &OIMO.00 6. INF03'ATION SUPPORT 20000.00 6. TRAINfl9 221346.00 7. RESEARO4/(TEMSION LIWAOE 50000.00 S. STATIONEY 1l000.00 9. OPERATION MAINTENDACE 23437060.00 0.18 87761.00 571488.00 7.01 41.01
SUBTOTAL (1-6) 61603 .00 SUBTOTAL (1-9) 901384.00 8. AMP 1. MOSILrTY 1261000.00 15147000.00 2. FIELD EWQIPMENT 198310.00 51150.O00 3. LABORATORYEQUIPMENT 176400.00 1561250,00 4. OFFICE EWQIPMENT 68000.00 1100000.00 5. PILOT PRDJECT ON BY-PROXUCTS 134400.00 500000.00 6. TRAINING 114000.00 7. OPERATION a MAINTENANCE 0.04 105039 rO 340868.00 174.41 63.74 S4UITOTAL (1-4) 1720930.00 18319750.00 SUlTOTAL (1-7) 1969330.00 1881'750.00 C. FISHERIES 1. MO8ILrTY 160200.00 4666200.00 2. fIELD EWUIPMET 20000.00 3. ASHIAMANFIELD EW.JIPMEWT 6000.00 1750000.00 4. OFFICE EQUIPMENT 31420.00 300000 .00 5. COMNICATION EWQIP. * MATERIALS 49000.00 1750000.00 6. FISH HOLDING TANKS 3000.00 37500.00 7. DUGOlUTCANOE 23000.00 70000.00 S. OPEMATIONA MAINTENANCE 0.09 35748.00 61973.00 239.84 138.35 SU8.TOTAL (1-8) 373620 .00 8673700 .00 GAND TOTAL 3244334.00 27393450 .00 Source: Department. of Ext.n.ioen,Anima- He lt,h Production*e. F e; of (N_oeI r 1med198 IIYeubuibon.). s;e
81. Cedi Budget for Local l"andlingof Imported Fertilizer for 1989 Crop Year. Although foreign funding for fertilizeris assured, there is as yet no budgetaryallocation to finance the local handling of fertilizerfor the 1989 crop year. An EEC contributionfrom its food aid counterpartfund will be used to handle 25,000 tons. In June 1988, a revolvingfund of approximately250 million cedis was created out of the proceeds of fertilizer sales, but its use is restrictedto purchase of fertilizer imports, and excludes local handling. Prior to June 1988, the fertilizer funds were included in the recurrentbudget of the Crops Services Division. The Crops Inputs DevelopmentUnit (CIDU) of the CSD has estimated the budgetary requirementsfor local handling to be 212 million cedis, (8,000 - 39 - cedis per ton for 26,500 tons), excludingcontributions from the EEC for 25,000, CIDA and Dutch for another 15,000 and from IFAD for 3,500 tons (see Table 5.B.4 on fertilizerprices and budgetaryrequirements). Since timely delivery of fertilizerto farmers has been a chronic problem, the concern now is that this will again to be a problem in 1989, although foreign funding and a portion of local funding are assured.
Table 5.6.4 Fertilizer; Retail* Pric... Scale of Imorts end Bhdetary Require.nta for Local HIndling for 19WO Croo Year 1/ (Cedi.)
SULHATE OF CoueM c4OJND I AMeONIA 15-15-15 20-20-20
A. PRICF__
CIF (CIVI/SC KC) 2/ 1f45 2457 2433 WHOLESALF 2504 5S9 3569 REAIL 2754 3958 3926 RETIL AT 15% SUBSIDY 2341 33S4 &.R37 RECOEL8D FARMERLEVEL RETAIL 2350 3350 3350 19S8 RETA'L 1600 2300 2300 1987 RETAIL 84! 1380 1380
DONORCON- I AAE F -. S. COSTS OF LOCAL HAW II. IPORTS COST PER TON TOTAL COSTS TRISLTIONS i ALAJE jFINAMINC (TONS) (CEDIS) (CEIS) (TONS 3; (TONS) (CEDIS) 1989 CROP YEAR 1 70000 |08000 0 40000560 26500 | 212000000 1
1988 CROP YEAR 1 41375 1 7000 1 289625000 1 5000 1 27220 190540000 1 I - I - - - 9155 SOUJRCE;1/ CROPS SERVICES DIVISION OF MOA. CROPS INIPJT DEVELOPMENTLNIT (DJ) 2/ CIF COST BASED ON EXCHANCERATE OF 1 ECU = 255 CEDIS. 3/ DONORSARE: 1989 - EEC, DrJCH, CIDA AM IFAD; 1988 - IFAD, AND CONTRI3UTION FROM FASCOMS. b. Capital Expenditure
82. Overview. The review of the MOA investmentprogram highlights the importanceof timely availabilityof domestic financing,consistency of the proposed program with sectoral priorities,and adequacy of implementationcapacity. Although domestic budgetary funds are only a minor portion of overall funding, they have in the recent past been erratic and have thus inhibitedthe effective implementationof projects, even those in the supercore. Although most projects are supportiveof agreed priorities,there are two that seem to run counter to a major initiativeof the current reform package, namely the policy of privatizationin the delivery of farm inputs. The pace of reform under the SOE program raises concern about MOA's ability to effectivelyimplement 74 projects.
83. Funding. Compositionand Size. Funding in 1989 for the proposed Public InvestmentProgram (PIP) in non-cocoa agriculturefor the 1989-1991 period is estimated at 16.0 billion cedis of which 3,626 million are from budgetary and 9,850 million from foreign resources. Except for 20 million cedis of unsecured foreign currency, (for the Drought Resistance/Tolerance project) the entire contributionfrom foreigndonors is secured. For 1989, the ratio of foreign to domestic financingis roughly 1.6 to 1. The total - 40 - for net lending from the Governmentbudget is 90 million cedis. The program consists of 74 proposals of which 9 are new. In forestry,the total financing requirementfor the 8 pro?osals is 4,744 million cedis of which 1,709 million are from budgetary and the balance of 3,035 million cedis are from foreign resources. In forestry,the ratio of foreign to domestic resources is thus 1.8 to 1. See Table 5.B.5 for a summary of investmentproposals, listing governmentand foreign contributionsby proposal for 1989.
84. DiscrepanciesBetween Provisionsand Releases. A comparisonof provisions and releases for 1987 and 1988 (up to September) shows wide and seeminglyerratic discrepancies. Budgetary support of sectoral priorities is undermined if releases bear little resemblanceto allocations. For 1987, total releases exceeded provisionsby nearly 73 percent (1.4 billion versus 0.8 billion cedis). Despite the overrun, funding for the six supercoreprojects was erratic,with releases as a percentage of provisions ranging from zero percent for Aveyime Livestock to 60 percent for NORRIP. The Ghana Seed Company received 423 percent of its provision, despite being a zompanywhich is to be divestedl Of the remaining31 projects in the 1987 PIP, the percentagewas in general low and erratic except for 3 projects which benefitted from the excess: Department of Crops Services Building,Sheep and Goat Improvement,and Rehabilitationof Irrigation Projects. For 1988, the problem has reversed,with expenditureshortfall an overall pattern. Through third quarter, only 35 percent of the investment budget was spent: 0.5 billion versus 1.4 billion cedis. Even if the remaining 65 percent were to be released in the last quarter, it is doubtful that the resources would be efficiently used. The main beneficiaries of the 1988 releases are rinderpest control, irrigation rehabilitation, agricultural mechanization and some agricultural development projects of the Crops Services Department. Only two supercore projects, Rinderpest Control and URADEP benefitted significantly. 1988 (through September) releases of 0.5 billion cedis is less than 1987 releases for the corresponding period, namely of 1.1 billion cedis. Releases therefore have deteriorated in absolute as well as percentage terms.
85. Provisions versus Releases: Forestry Department. For the Forestry Department, releases also bore little relationship to initial provisions. However, unlike the situation for the MOA, releases exceeded provisions for both 1987 and 1988. In 1987, releases were 2.4 times provisions (Cedis 123.2 million versus 51 million); in 1988, they are 4.5 times (Cedis 175.4 million versus 39 million). These funds benefitted not only projects with a PIP provision, but also those without any PIP provision. For example, National Forestry Inventory, a U.K.-supported project, (FOR 002), with a provision of Cedis 3 million in 1987 received Cedis 5 million instead; in 1988, it had no provision but received Cedis 6.6 million. Similarly, the Establishment of Forestry Plantation (FOR 003) received 2.7 times its PIP provision in 1987, and a total of Cedis 85.6 million in 1988, even though it had no provision. - 41 -
- - -- e-- -- N -- - - C - -4 - - - -9 -~ - -
------
-C. -- - -.
C ------
- j . tO C C' .0 ~ - -- - N - - - -
2------~~~~~~~~----
- a a- a ------
a ------4%~~~
C - .4 - C~~~~~~~~~ -- ---
C. C C C .0 ------C'~-
- C C. CN N . N COO ~~~'0.4------
- £ C - N - -C-- - N ------42 -
I ~~ ~ ~ ~ ------
.- ~~~~~~~~5 ~ ------
o~ T ~ ~ ~ ~ ~ ~ ~ ~ ------
r.4 W - ~ ~ ~ ~ ~ ------
0 7~ ~ ~ ~ ~ COO ~0* ' 0 *~
* 0 N - - ~~~~N- ~~- - ~~~-2
S ------~~--
U C O - - K~- - - - -. - - - 4 - -
-~ ~ ~ ~ ------
* U C 00 -- -- 0------. - --
* a - - - -- =------00 - -00------
U = t I-~~~~~ !
Z~~~~~~~~~~~~~~~~
S - 4 - ~ ~~ ------Table 5.B.5 (Cont.)
PURLtICINVESTMENT P!OGRA4E 1989 - 1991
FUMDING SIAIUS - ANALYSIS Of S"RJCES OF FENCING FOR 1909 (!N MILLION CEDIS)
I I I cE~~~~~~~OA 11 BUDGETARYRESOUJRCES flOINER SOURCESOF FUNDING II I
-- --I------I 0 I I I I ~ ~~~~~~~BUD)GET I NET FOREIGN C(NMUICIAL I am OGNEStic Tj AGRICUILTURE I IPOET SECURED I TGN~ IIC'PART FUNDS I LENDINiG 11 SECURED I fUN I FUNDS I RIBW G A I I P~~FROJECTICo 1----rj ---- I_ ---i ------I------1 ------I------I------I------E I Exchwnge Rate USSI 260 Cedis INUM4BER 11 9 8 91 FC IC I C I C 11 C I LL FC II 1F LC I I FC ILC IFC IIC IFC LC S
IBASIFIBRE DFVFLOPNENT OBRO II I I I I I I I II I I I I lBast FibreDev. It Prod. l*f*001/8.8 I 17 I 1 1I II1 I I I I I I I I I II '' I (DEPT. OFPHECH.AND TRANSPORT II I I I I I I I I I I I I I I lAgricM4ech in N Savanrvah IOM1 001/866 22 15 I III 1 I1 I II I I I I I I I II 22 II (Agric Nech. in AframxPlains IDNI 002186 546 1 I I1 416 1 10 Ij 1 I I I I I I I II S166
IDeptof Nechl rans 1oS./Building5 IDNT1004/86 I 317 I I I 11 227 1 90 1 I I I I I I I I II 317 (I" IAtebib~uAgric.Sersices. Station IDFT005/88 18s I I I II I 18 I I II I I I I I I I II 18 II
IDEP1.-FNECII AND TRANSPORTSUB-SECTOR TOTAtS 1 4 903 I is I I I 643 I 245 1II I I I I I I I II 903 1
IPOLICYPLANNING WMOITORING It EVALUATIONDEPI.1 I I I I I II I I II I I I I I I I II I IPIaniningResearch II A,,alysis IPPME001/861 103 I I I I 11 10, I II I I I I I I I II 103 I IAgric.ProduJctivityPromotion Prog./GOG IPPME002/891 52 I I 52 I II I I 1I I I I I I I I II $2 I
(PPME SUB-SECTORTOTALi 2 1 55 I I 52 1 I II I 103 I I II I I I I I I I II'1 IS
ICO9IERCIALPROJECTS I I I I 1I I I I II I I I I I I I II )oil Palm Proj Phase 11 ICP 001/86 1317 I 1231 I 25 1 I II I I I I I I I I I 61 11 1317 I iTwdifoSmallhotder Oit Proj. ICP 004/86 1 244 1 196 I II I I I I I I I I 48 II 2164I IGrainStorage II hanvdling IC 005/86 11238 1858 1 I H I I ifI I I I 300 11 1238 I IRtibber EstatesRehab. (CP 006/88 1 506 1416 1 I 1I I I I 90 1( I I I I I I I II UK I lPretsesaOilPalm Dev. ICP DO//861 3481338 1 I I 1I I I I II I I I 1101I I 11 348I ITongu A-nth Rehab-£ Expan. ICf 008/88 I 1 1 I I II I I1 I I II I
ICCMIERCIAEP'ROJECIS SUB SFCTORtOTAlS I6 I 3653 3D19 I 25 1 I I 1 90 I! I I I I I 90 409 II 3653 I Table 5.B.5 (Cant.) PURLIC INVESIMFIS PROGRAIR4 1989 1991 FUNDING SIAIUS ANALYSIS OF SOURICESOF FUNDING FOR 1909 (IN MILLION CEIDS)
I I I I ~~~~~~~~~~~~~~~~~~~~ODASUDGEFAR- RESOLJRCES 11 OTHER SOLOCES OF FWODING 11 I I
I I I I I II~ ~~~~~~~~~~~~~~~BUD)GET NEIIE ~~~ FOREIGN CWMI*CIAL OWN OWNESIIC t I ~~~~~AGRICULTUREtI SECURED I FTRN IIC'PART FUNDS LENDING SECURED I from FtMDS SORR0I MG A IPROJECT IPROJEC' ------I---- - II ~------[--I------I------I------I------I------I Extchawe Rate UISSi 260 Cedis INUMBER ICOS1 19091 FCt C I fC ILC 11 FC I C IFC I LC 11 FC I LC IFC ILC IFC ILC IFC I CC 11 S
ISPECIALPROJECTS I I I I I I II I I I II I I I I I I I 11 I 1NORRIPPhase II ISP001/8 1I 10181 7?81 I I II I 350I I II I I I I I I I II 1071I IRuralProg Daanongo/Biuibills ISP DD2/a6 1 711 35 I 1 II I 36' I II I I I I I I I II 71I IONCNO Secer.suilding/Logistics ISP 003/88 I 38 I I I II1 7 1 311 II1 I I I I I I I II SoI ISocio-Eco. Dev. ONCHO Freed Zones fSP 00 I81 94I I I I II 1 9 31I II I I I I I I II 9' I IVORADEP jSP 005/86 I 1461 I I 1 If 104I1 41 1 II I I I I I I I 146 1II JU.RA.DEP ISPD006IMI 641 I I I II I 641 I HI I I I I I I I if 64 1 , IURADEP (WEST) ISP007/88 I 611 I I I II I 611 I II I I I I I I 1 4 IAveyime livestockDev.Pro,ect ISP008186 1 3111 2611 I 1 1I I soI51 I 1I I I I I I I 11 31111
ISPECIALPROJECTS SUB-SECTOR TOTAtS I a8 1863 I10241 1 112 I I27 1 II I I I I I I I II 1863
IDEPT.OfEXIENSION SERVICES I I I I I I 1I I I I II I I I I I I I II IwTJeifarsers'Prograhuhme IFKT 001/M8I it. I I I II I I'I I 1I I I I I I I I "1I lAgr;cProd'tivity Promotion Prog- lINT 007/89 I 8531I 853 I I II I I I II I I I I I I I II 53 linteg.Agric Dev'tomtninAshanti IFXT003/861 ?4I 20 1 I I II I 'I 1 I I I I I I I I II 4' IRuralLivestock Extension Prog. IFXT004/89 1 31I I I II I 3 I I II I I I I I I I II 3 lAgrmc Fxt, in NorthernRegion IEII 005187 I 641 I I I II I U4 I II I I I I I I I II 8 I lAgricExt.fluilding & Logistics Proj. IFXT 006/89 1 41 1 I I II I 241 1 I I I I I I I 2I' iCropExitensionOe. Programse IEXIOD7i89I 10I I I I (I I 10I I II I I I I I I I II 101
IDEPI.01 EXI SERVICESSUB-SECTORt tOTA[S I I 992 I 20 853 I I II I 119 I I II I I I I I I I II 99I
IAGRICUtTURE SECTORTOTAL$ I 741 16035181851 1645 1 201 11 8631 2675 1 I 9011 I I 801I 1 710 11338 1 1 409 11 160331 - 45 -
86. Factors Contributingto ExpenditureDiscrepancies. Without a systematic institutionalreview of the budgetarymechanism, it is possible to gather only piecemealand anecdotalviews on factors contributingto the pervasivenessof these discrepancies. There are delays both at the initial and subsequent stages of project implementation. At the initial stages, there are often substantialdelays in obtainingbids, selectinga contractor,issuing purchase orders, and actuallypurchasing supplies, the latter problem being largely due to liquidityproblems of local contractors and their banks. For tha subsequentstages, MOA and Forestry officials attribute expenditurediscrepancies to the multiplicityof separate bodies involved in the budget process, particularlyto the lack of coordination between MFEP and the AccountantGeneral. The Budget Task Forces on the recurrentand the PIP budgets are not adequately integratedin MFEP. The InternationalEconomics Di-ision of the MFEP and the Office of the Accountant General do not attend the budget hearings. There is no mechanism to ensure that budget decisionsmade at the hearings will be implemented. In addition,MFEP is overburdened. Since there is always a long queue at the MFEP, departmentsfeel they have to send senior staff to personally follow up and keep pressure on MFEP. Staff from the regional offices are at a serious disadvantage,since they may have to devote several days away from office and home and often do not have the personal connectionsnecessary to move the process forward. As a result of these various problems, effectiveplanning and efficientuse of resources are seriouslyundermined.
87. Consistencywith SubsectoralPriorities. One of MOA's major concerns is the rehabilitationof basic extension services for crops, livestock and fisheries. The current PIP addressesthis concern through a number of existing and new initiatives:the ASRP (MOA 002) which is not only funding new pilot projects, but also the rehabilitationof short-term priority needs for the departmentsof Extension,Livestock and Fisheriesso that more extensionworkers can have mobility,necessary supplies and short term training to be effective; the APPP (EXT 002, wholly USAID-funded) which will also be fundingmobility, supplies and training of extension staff; Livestock (EXT 004), and Crop Demonstration(EXT 007) to benefit livestock and yam production,respectively; and Buildingsand Logistics (EXT 006) to provide basic office iaJ'litiesfor extension staff for the newly created Departmentof AgriculturalExtension (DAES).
88. Chronic underfundingof O&M for both irrigationand the !.A departmentshas resulted in the sneedto rehabilitateinfrastructure. Thus problems of underfundingin the recurrentbudget inevitablyspills over into the capital budget. The rehabilitationis both directly production- related, as for irrigationand indirectlyproduction-related, as for the various departmentsof MOA offering extensionservices to farmers and fishermen. The IrrigationSector Review (December1986) identifiedas one priority the rehabilitationof small scale irrigationschemes, Dawenya (IDA 001, 200 Ha.), Asutsuare (IDA 002, 640 Ha.), and Aveyime (IDA 003, 80 Ha.). Rehabilitationof these schemes has already begun, and the aim should now be to complete them as soon as possible. The AgriculturalSector Review (August1985) identifiedthe logisticaland infrastructureproblems which seriouslyundermine the MOA's ability to contributetowards the economic recovery effort. These problems are partly being aC4 ressed by the short- - 46 - term rehabilitationiritiatives discussed above. However, given the magnitude of these needs, support is needed from the investmentbudget as well. There are 12 projects that deal with the rehabilitationof buildings,office and field equipmentdistributed across MOA headquarters (1), the Departmentof Crop Services (4), the Departmentof Animal Health and Production (2), the Gl.anaIrrigation Development Authority (1), the Grains Legumes DevelopmentBoard (1), the Departmentof Mechanizationand Transport (1), the Policy, Planning,Monitoring and Evaluation Department (1) and the Extension Department (1) (see Table 6 for details).
89. There is one project that seem to be contrary to the agreed policy of MOA's gradualwithdrawal from input supply, including land clearing services. This is AgricultureMechanization in the Afram Plains (DMT 002). One of its objectives is to provide land clearing and related repair services to farmers. This is not consistentwith the agreed privatizationpolicy and raises again environmentalconcerns over the impact of the land clearing on soil erosion. This project thereforealso needs to be reviewed.
90. SOE Reform Program. Under the ASRP, MOA agreed to a timetable for the reform of 17 agriculturalSOEs. Continuedbudgetary support remains a concern and is compoundedby the slow pace of implementation. So far, decisionshave been made with respect to only 6. The State Fishing Corporationis to be sold, while the Kwahu Dairy Farm is to be liquidated. The Ghana Seed Company is to be privatized,but yet to be determined is whether it should be totally divested or become a joint venture. Consultantshave been hired to evaluate its assets and submit an implementationplan by May 1989, which is one of the conditions for the tranche release of USAID's AgricultureProductivity Promoting Project (APPP). There is no provision for the Ghana Seed Company in either the subventionsfrom MOA or the PIP. This does not mean there will be no budgetary support, since GSC received 4.2 times its budget provision in 1987, and 22 million cedis in 1988 although it had no PIP provision. Ghana Oil Palm DevelopmentCorporation is being privatizedand shares were offered to the public from February to August 1988, but responsewas apparentlyvery limited. The Governmentof Ghana will not be providing any net lending to GOPDC. The Ghana Cotton Company is already a joint venture. The FASCOMs have drawn up plans for their privatizationand have advertised in the papers. The Ghana IrrigationDevelopment Authority (GIDA) is to be twinned. The contract with a Korean firm has been drawn up but has not been signed. Action on the Ghana Food DistributionCorporation (GFDC) is to await the findings and recommendationsof the Food Security Study. Implementationof the Study is awaitingMOA's approval of the Terms of Reference and work proposal, submitted in June 1988 by Lhe World Bank. Although there is no evidence that the recurrentor the capital budgets will be supportingSOEs which should not be supported,this is no guarantee that there will not be any budgetary support,as in the case of GSC. The slow pace of implementationof the program is anothermajor concern. Even when the DivestitureSteering Committeeof the MOA was operational, progress was slow. The Committee ceased functioningin June 1988, since all SOE reforms are being handled by the State EnterpriseCommission. - 47 -
91. Adequacy of ImplementationCapacity. Given the experience in implementingthe SOE reform program and MOA's limited implementation capacity,the current set of 70 proposalsshould be prioritizedand reduced. It is particularlyimportant that only the most important projects be implementedand completedon schedule,since the MOA, in collaborationwith the IDA, is envisagingthe developmentof a Medium Term AgriculturalDevelopment Plan, which is expected to generate new projects in the near future. The next section suggestspriorities for the 1989 program.
92. Proposals for the 1989 Supercore. The three priorities for the supercoreare rehabilitation,livestock disease control and the completion of ongoing supercoreprojects. In line with the priority given to the rehabilitationof infrastructureand extension services so as to strengthen supply response,the followingprojects should be added to the supercore list; ASRP (MOA 002), and rehabilitationof irrigationat Dawenya, Asutsuare and Aveyime (IDA 001, 002, and 003 respectively). Although Cocoa TRehabilitation(CMB 001) is another key project, it is not included because it does not draw on budgetary resources. Ghana Cocoa Marketing Board (Cocobod)and foreign donors fully fund it. Livestockdisease control continues as a major concern of Government,with three projects address this concern, namely Rinderpest,Bovine Brucellosisand Trypalosomiasis control (AMP 004,005, and 006 respectively). Finally, there are three ongoing area developmentprojects, NORRIP, VORADEP and URADEP (SP 001, 005, and 006) which should be completed. The total budgetary requirementfor both new and old projects is 744 million cedis. Following the completion of the Medium Term AgriculturalDevelopment Plan (MTADP),scheduled for the second half of 1989, the investmentpriorities for the sector as a whole and subsectorswithin it, will be reviewed. This will then form the basis for structuringpriorities within the PIP.
3. SPECIAL ISSUES
93. RecurrentBudget. The 1989 recurrentbudget should supportand facilitatetwo major activities,the phased zehabilitationof basic extension services,and the phased privatizationin the delivery of fertilizerand mechanizationservices. With respect to the first, non- budgetary funds through the ASRP will be drawn upon for short-term rehabilitation. There is still, however, the need to integrate the operatiunand maintenance requirementsof this rehabilitationexercise with the recurrentbudgetary mechanism. The issue here is that funds for O&M in the 1989 budget seem grossly inadequate. The inadequacyof these O&M funds may call into question the entire structureof allocationbetween Item 1 on personal emoluments on one hand and Items 2-5 on the other. At issue may be the size of the MOA staff itself, its delivery mechanisms,the priorities and the scale of its operations. These basic questionswill be addressedwithin the context of the MTADP. With respect to the second, although donor funds are fina,ci,ngthe dollar cost of imports and the EEC is also contributingcedis through the use of its food aid counterpart funds, there is still the urgent need to allocate local funds for handling fertilizerfrom port to farmer. The issue here is that there is as yet no budgetary allocation for local handling and the concern is that delays in delivery will again hamper timely application. - 48 -
94. Capital Budget. There are two issues, one on the content of the Pl' and the other on the process affecting timeliness of approved releases. With respect to the content, the basic concern is the timely implementation of the privatization program with respect to input supply and to SOE reform. While most of the PIP is in line with agreed policies and priorities, one project seem to run counter to the policy on privatization. This is the Mechanization in the Afram Plains (DMT 002). Since the policy calls for the gradual withdrawal of MOA in input supply, this project should be reviewed. Since June 1988, the Divestiture Steering Committee of the MOA has ceased to meet. Henceforth, all SOE reforms are to be handled by the SEC. Of the 17 listed in the reform program spelled out in the ASRP, decisions on only 6 have been made. It is unclear what the timetable is for the remaining 11. Indeed, the concern is that reforms in agriculture will not receive sufficient attention by the SEC. With respect to the process, the erratic and undependable nature of releases threatens to undermine the significance of the entire expenditure review process. So-called supercore projects do not receive guaranteed protection against budget cuts. A review of the entire budgetary process is needed to identify the key bottlenecks to be removed.
4. RECOMMENDATIONS
95. Focus on Sustaining Benefits of Rehabilitation Through Adequate Provisions for O&M: The use of norms helps to focus the structure of the recurrent budget on improving availability of funds for O&M. The emphasis on short-term rehabilitation for 1989 should be complemented by ensuring adequate provisions for O&M, thereby sustaining the benefits of rehabilitation. Indeed, rehabilitation is meaningful only if its benefits can be sustained through the recurrent bud'etary process.
96. Adhere to the Agreed Policy of Privatization: MIOA has made an important start on implementing privatization in input supply and SOE reforms. Therefore, proposed projects that may undermine this initiative should be carefully scrutinized. Given the continued budget constraint, it is particularly important to promote private sector participation, so as to release scarce public funds and management capacity for priority areas where the public sector has a legitimate role to play.
97. Reassess Priorities for Constrained Recurrent and Capital Budgets. Given that budgetary resources (including implementation capacity) will continue to be severely constrained in the near future, major improvements should be in terms of defining the priorities these resources are to support, and in terms of improving the dependability and timeliness of the limited resources approved. Improvements in these two areas will require (a) sectoral analyses to reassess priorities and (b) institutional analyses at the macro level to suggest how best to reduce expenditure discrepancies and wastage in the current system. The sectoral analyses envisaged are to identify priorities for crop and livestock agriculture, including fisheries and to identify developments in internal marketing, foreign trade and storage needed to improve the cost effectiveness of the Government's food security policy. The MTADP and the Food Security Study should help define the new focus for both recurrent and - 49 - capital budgets. Close collaborationbetween MOA and IDA in furthering these sectoral analyses will be essential. - 50 -
C. THE MANUFACTURINGSECTOR
SECTOR OVERVILV
98. Sector Backp.round.The manufacturingsector has made remarkable progress over the last three years in its attempt to adjust its cost and price structureto the more competitiveand liberalizedmarket. In spite of depres6cddomestic demand, production levels of enterprisesare increasing,largely because of the improved supply of raw materials. The capacity utilizationrate is, in many cases, higher than in previous years, and company sales have grown. However, improved output levels have not been associatedwith any significantincrease in labor demand, as firms are able to utilize the excess labor they carried forward. Use of domestic resources is increasingthough the sector still remains heavily dependent on imported inputs. The use of palm oil in the manufactureof soap has replaced a significantportion of tallow (imported),and sheanut and citronella plants are currently showinggreat promise in cosmetic preparations. The textiles subsectorthrough the Ghana Cotton Company has successfullygrown and ginned cotton replacingalmost 30Z of imported inputs. In the case of the brewing industry,a program is underway for partial replacementof barley malt by locally grown cereals (sorghumhas been identifiedas the initial grain). This innovationis being pursued jointly by all breweries. Non-traditionalmanufacturing exports are respondingpositively to currency depreciationand other incentives. The value of such exports was estimated at US$45 million in 1986, compared to the estimatedvalue of US$18 million in 1984. The subsectorsthat have shown positive response include cash crops, processed fish, and wood products.
99. With an appropriateincentive frameworknow in place, Ghana can develop an efficient resource-basedmanufacturing sector. The country has an excellentpotential to develop agro-processingenterprises, given the emergence of agriculturalsurpluses of various kinds (fruits,vegetables, etc.). Possibilitiesexist to significantlyincrease the value added to wood and other agr3-basedproducts which also have export markets. Non- traditionalexports such as fresh agriculturalproduce (including horticulturalproducts), marine products (e.g., canned tuna), processed wood products (furnitureparts and joinery) and other manufacturedgoods (includingprocessed "ethnic"food) have ready export markets, and export earnings could, therefore,be increasedquickly.
100. The Governmenthas taken steps to reversemost of the negative effects of its past actions on the business environmentand to establisha more positive politicalclimate for private entrepreneursand professionals to respond positivelyto improvedpolicies and incentives. A more responsible,cooperative relationship between workers and manage... ent has been encouraged,for example, by activation of the TripartiteCommittee (on which they are represented,together with the Government)to advise on issues such as wages and salaries. Greater efforts have been made to communicateGovernment policies to private businessmen,and to represent them on policy-makingbodies such as the National Economic Commission. Efforts are underway to streamlineand reorient the Ghana Investments _ 51 -
Centre. An area where further improvementis required is the regulatory system, especiallywith respect to establishingand operating small-scale enterprises. At present, a small-scaleentrepreneur wanting to start a business is confrontedwith a confusingregulatory environment, where a variety of governmentministries and departmentsare responsiblefor the issuance of licenses,authorizations, registration, etc., required for start-up businesses. This issue is being addressed in the context of the SHE Project.
101. The limited availabilityof term resourcesand equity financing, insufficientworking capital as well as weaknesses in the institutional support system constrain the developmentof the sector.
102. The age and sophisticationof equipmentused in the manufacturingsector varies considerably,and obsolete equipment is prevalent in a number of enterprises. Most plants have equipmentwhich is at least 10 years old (up to 20 years in some of the food processing, textile and metal processingplants). Much of it needs replacementand modernizationwhich has been neglected because of shortageof foreign exchange and term credit.
103. The manufacturingsector is diversifiedand includes consumer, intermediateand capital goods industries. According to the 19^7 industrialcensus the total number of manufacturingenterprises in the medium and large-scalecategory (definedas those employingbetween 10 and 29 workers or more, respectively)was 420; formal small-scaleenterprises (definedas those employing up to 9 workers) were in excess of 3,000. Value added to the modern sector is dominatedby food processing, beverages, tobacco, textiles,garments, and wood products. These subsectorsaccounted for about 52Z of total manufacturingvalue added in 1970, 59Z in 1980 and 78Z in 1984, and for over 602 of total manufacturing employment. Large and medium-scaleindustrial enterprises are also found in aluminum and other basic metals, chemicals,petroleum refining,building materials, rubber, plastics, and paper. Apart from aluminum and sawmilling industries,Ghanaian manufacturing firms produce primarily for the domestic market. The sector is highly import-dependent(77Z of total materials consumed in 1984 were imported). Food processingand other agro-based industriesare the most importantsmall-scale industrial activities, followed by tailoring,bakeries, wood-related industries, shoemaking and shoe repair,manufacture and repair of metal products,motor fitting and bodyworks, and electric repairs. Other small-scaleindustrial activities include black- and gold-smithing,handicrafts, pottery, and printing.
104. The post-independencestrategy of a leading role for the state in industry raised the share of production in firms with public ownership or participation. The increasedrole of the state has come not so much through the number of firms it controls but through the relativelylarge size of these firms. Whereas the number of firms with state ow-nershipor participationranged from 20Z to 28% of medium and large-scale manufacturingfirms over 1962-84, their share of gross output rose dramaticallyfrom 19? to 63?, and of employment from 27Z to 53Z during the same period. The shares of output, value added, and employmentof the relatively small privatewholly Ghanaian-ownedfirr s are only a fraction of - 52 - these firms' 412 share of firms in the medium-and large-scaleenterprise sector. Private joint Ghanaian-foreignenterprises, however, are considerablylarger than wholly Ghanaian ones, with output, value added, and employment shares roughly in proportion to their 33Z share of all firms.
105. Sector Obiectives. The Governmenthas two broad concerns in orienting its industrialstrategy to facilitatethe adjustmentprocess. One objective is the deve.opmentof a more internationallycompetitive industrial sector. Growth is to be encouragedparticularly in local resource-basedindustries for exports and efficient import substitution. The second key objective in the sector is to generate employment,with an emphasis on job creation in small- and medium-scaleenterprises (SMEs), thereby contributingto absorptionof new entrants to the labor market and redeployeesfrom the public and private sector.
106. Sector Strategy. The Governmenthas indicatedthat it will continue to promote industrialrecovery and further development,but it intends to do so through appropriateincentives and public investmentin improved infrastructurerather than in production facilities. Macroeconomicpolicies are to continue to have a major influenceon the incentives in the industrialsector. The exchange rate and tariff reforms already in place, and further refinementsin these policies, should ensure that existing enterprisesadjust their operationsand new investorsdirect their resourcestoward efficientimport substitutionand export production. The proposed financialsector and tax system reforms should help remove the presently more serious constraints on investments in rehabilitation, expansionand new activities. Further, the ongoing state-ownedenterprises (SOE) reform is fostering increasingly commercial operation of manufacturing SOEs, including through divestiture.
107. Improved availability and access to information of use to potential private industrial investors is being addressed. A national census of industrial establishments is complete and the results have started to become available through publications beginning mid-1988. Small-scale, and medium to large-scale enterprises are being covered by separate national surveys in 1988, and the Ministry of Industries, Science and Technology (MIST) is preparing for the regular release of information from such surveys, as well as other reports and reviews of industrial prospects and conditions. Other specific measures already being implemented include vigorous export promotion, an entrepreneurship developmentprogram, and several industrialtraining activities. Industrial research is also undergoinga reorientationto improve incentivesfor private research and development,and to find the most effectivemandate and use cf resourcesfor public research agencies.
108. The Governmenthas also taken some important steps towards strengtheningthe institutionalframework for providing support to industry;restructuring has commencedin the ministries responsiblefor physical infrastructure,the MIST, the Export PromotionCouncil, the National Board for Small Scale Industriesand the Ghana InvestmentCentre, while strengtheningis intended for the research and training institutes and the Ghana StandardsBoard. The Governmentis undertakinga - 53 - comprehensivereview of agencies providing technicaland support services to industry,including research and development. One focus of this effort is to improve institutionalsupport to the small- and medium-scaleindustry subsector,which will be crucial in generatingemployment and private investments. Strengtheningextension services capacity to assist developingentrepreneurs to identify and prepare projects for presentation to financial institutions,and to disseminateinformation on technological developmentsvia regional out-reachunits is to be undertaken.
2. PUBLIC EXPENDITUREPROGRAM
a. Background
109. The wide-ringingprogram of support for private enterprise, especially small-scaleindustry, complements the policy reforms on state ownership,which are expected to include divestmentof most public manufacturingenterprises and commercializationof those which the State will retain. The industrialstrategy being followed is leading to adjustmentsin public expenditurein the sector. Resources are being concentratedon public generatingof informationand improvementof support services, as well as in liaisonwith the key infrastructureagencies on ports, electricity,water, roads and telecommunications.In this context, the Governmentwill also assess the viability and cost effectivenessof establishingan export processing zone to promote manufacturingexports.
110. The Governmenthas indicatedin the context of SAC II that allocationof investmentfunds to manufacturingSOEs, whether through direct investmentor net lending out of budget resources, is to be reduced as commercialviability is improved and s:.bjectedto the market test of access to commercialsources of finance. Agreement is being sought from the Governmentthat allocationof the developmentbudget for investmentsin both new and existing public manufacturingenterprises be limited to 2.5Z of the 1989 developmentbudget, and phased out entirely in five years.
b. Capital Expenditure
(1) Actual Expenditures.1987-1988
111. Detailed data on actual expendituresare scarce.Only budget releases for the period 1987 to end of first half of 1988 are available. Table 5.C.1 summarizesbudget releasesby project and quarter during 1987. No commercialprojects included in the 1987 Public InvestmentProgram (PIP) got any funds released from the budget allocation. Only support services and research institutesreceived funds from the developmentbudget. Overall, only 39.4% of the budget provisionfor industrialsupport services and research instituteswas actually released in 1987. This was basically due to the budget constraints. - 54 -
Table S.C.1 1907 End of year PIP Financial Oisbursowont Report (In"ustry) (ced is*)
0BUET RELEASE SECTOR FM T TITL1E 107 let Quarter 2n Quarter 3rd ,arter 4th Quarter Total udat Provision
Il 0on NII - Natlonal iard for So 00 2,651,649.97 2,659,404.24 5,511,314.211 Smll Sate Indutri INCR 009 Water Reaeurc' e 10.00 1,49.920. 00 2,7.2,060.00 2,150.000.00 6,402,050.001 Re.arch Institute
INDR 010 Developent of Ani_I 4.00 10,697.610.30 2.200.000.00 12,197,650,301 Research Institut I IN1R 011 Devlopment of Food 7.00 1,100,000.00 1.100,000 00| Reserek Inatit utl 11CR 012 Departeent of Acq"stic 8iology 15.00 0o1,001.01 2,102,101.09 6,108.016.46 9,037,120.551
IND1R 018 DOvelopmnt Of Soil 25.00 12,064,292.10 1,976,444.60 1,041,937.00 15,072,673.781 Research Institute INDR 014 Develcopent of Crop 717.646,61 1,840,174. 6 1,000,000.00 3,568,021.491 Research Institute (Nyakp le) ITOTAL 136.00 ! 1,547,647.82 19,606,163.24 23,371.680.08 9,081,481.24 53,578,830.331 Source: MFE
112. Table 5.C.2 shows actual budget releases for the first two quarters of 1988. Commercial projects included in the 1988 PIP had not received any budget release by the second quarter. On the other hand, only 27.95Z of the budget provision to support services and research institutes had been released by that time. It is unlikely that a high percentageof the budgeted funds will be released by the end of the y ar.
(2) Proposed 1989-91 PIP for Industry
113. The sector's project portfolio is divided into two groups: (a) support services and research projects and (b) commercial projects. Analysis of sources of funding for 1989 PIP is shown in Table 5.C.3. We have evaluatedthe proposed program in the context of the Govern-ent's stated strategy of promoting industrialdevelopment through appropriate incentivesand public investmentin improved infrastructurerather than in production facilities In line with this strategy, resourcesare to be concentratedon public generating of informationand improvementof support services. The Governmenthas also indicatedthat allocationof investment funds to commercial state-ownedenterprises, whether through direct investmentor net lending out of budget resources,is to be reduced as commercialviability is improved and subjectedto the market test of access to commercialsources of finance. Feasibilityof the proposed projects was also taken into consideration.
(a) Support Services and Research Projects
114. About 41: of the budgetary resources (net lending and budget counterpartfunds) earmarked for the industrialsector in the 1989 PIP is to be spent on support services and researchprojects. Twenty-one support services and research projects art included in the program. Expenditures on these projects are consistentwith the Government'sstated goals and intentions. However, the level of expendituresproposed for 1989, about - 55 -
3.2 times the amount approved in 1988 in nominal terms, may be difficultto disburse given limited implementationcapacity.
Table S.C.2 1906 PIP Mid Year Financial Diebure.sont.
1 2 S Budet RePIeas" Ratio of
SECTOR PR0JET TrTLE 196 Budget Proyiaion tat Quarter 2ni Quarter Total a * ib of 3 (Million cedi)/1 (a) (b)
INDUSTRY INDR 001 Lo Ltie- Support for MIST 24.00 0.00 0.00 INDR 002 C6 S erta,rit 20.00 19,90,266.06 6,700,422.40 26.606.711.38 1U .00 INIR 00 Induatrial Ressarch Inat. 6.00 0.00 0.00 INIR 004 Water e ourcea Raaarch A Dav. 14.00 3,020,000.CO 6,964,000.00 9.9064.000.00 71.30 INDR 008 Scientific Inst. Ctr. Den. 12.00 0.00 12,036,047.64 12.03U647.64 100.30 INIt 006 Bldg. & Road Reaaarch Inat. 16.00 0.00 0.00 0.00 INDR 007 Soil Reaearch Inat. 15.00 0.00 4.064.966.92 4,064,968.92 27 10 IDCR 008 Food Research Inat. 14.00 0.00 0.00 0.00 INDR 009 Inat, of Aquatic Siology 15.00 4.5238.625.12 0.00 4,338,623.12 30.20 INDR 010 Oil Pale Reearch Centre 19 00 2,457,140 00 0 00 2,487,140 00 12.90 INDR 011 AniaaI Research Inat. 31.00 0.00 0,00 0,00 INCR 012 Nyankpmle Agric. Station Proj. 15.00 0.00 0.00 0.00 INOR 013 Ohana/CIDA Proect 10.00 0.00 0.00 0.00 INCR 014 Dav. of Roo-o &TTuber Crops 16.00 0.00 0.00 0.00 INDR 015 Crop Research Inst. 19.00 2.985,000.00 2,895,000.00 15.20 IthR 016 Soallacale Induetrigs De.. 10.00 4,695,949.00 4,695,949.00 46.93 INDR 017 M8ana Standarda Board 10.00 2186194.20 6,507,000.00 6,725.194.20 67.30 INDR 018 GATIS Project S.00 2,252.777.26 6,486,316.99 8,739,096.25 58.30 INDR 019 DAPIT Project 19.00 876,216.00 1,800,216.00 2,676,432.00 14.10 TOTAL 302.00 40,859,190.65 43,589,873.95 84,419,064.51 27.95
Source: MFEP 1/ Not including not lending
(b) Commercial Proiects
115. Comm,ercialprojects are also listed in Table 5.C.3. Proposed investment in such projects in 1989 is ¢8,935 million of which ¢1,987 million is expected to come from the Government'sbudgetary resources. Only ten commercialprojects are proposed to be allocated investmentfunds from the Government'sbudgetary resources-- seven from net lerding and three from budget counterpartfunds. The proposed budgetary resourcesfor commercialprojects in 1989 is about 4.3 times the approved allocationin 1988 in nominal terms. Three projects previouslyexisting in the PIP, and for which negotiationshave resulted in Governmentcommitments account for most of this increase. Aluworks will get an allocation (about ¢600 million) from net lending in 1989 to enable it to service foreign debts incurredwhen the cedi was still highly overvalued. Bonsa .yre will receive ¢500 million, and GIHOC Pharmaceuticals¢200 million, also both as net lending.
116. The Governmenthas decided to drop three GIHOC rehabilitation projects (GIHOC Fibre, Cannery and Footwear) from the 1989-91 PIP. These projectswere in the 1988-90 PIP. The decision is consistentwith the Government'sintention to reduce public expendituresin production facilities. One project, Rehabilitationof Saltpond Ceramics,has been added to the 1989-91 PIP. However, only funds for feasibilitystudy are allocated in 1989. Below are some comments and/or recommendationson specific commercialprojects. These are grouped under (i) projects that require feasibilitystudies before implementation,and (ii) projects on which additional informationis required. - 56 -
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(c) Projects that Require FeasibilityStudies Before Implementation
117. GIHOC Steelworks. Although this is an ongoing project, its economic viability has not been established. With improvedpractice and increasedcapacity utilization,it is likely that financialviability would continue to be achieved. Many steel experts have questioned the viability of commissioningthe continuous castingmachinery which they feel would worsen the econoi4 r viability of the project. The enterprise is also facing serious technicalproblems. The Governmentis looking for a technical partner, and has approachedthe Austrian Government for financial assistance. While this project may be included in the 1989 PIP, we recommendthat further expendituresshould be contingentupon a full feasibilitystudy and finding a suitable technicalpartner or concluding suitablemanagement arrangements.
118. GIHOC Glass ManufacturingPhase II. This is the only local source for bottles for the breweries in the country. Although local manufactureof glass bottles seems intuitivelyrational, the transportcost savings are offset by high local costs due to the location of the factory and by a long history of techn,icaland managerial difficulties. Even though external funding is said to have been secured,which is doubtful, it would not be advisable to begin implementationbefore economic viability is establishedand suitablemanagement arrangements are in place.
119. NICOM Chemicalsand Paint Factory. This project also requiresa feasibilitystudy. Implementationis unlikely to start in 1989 since the sources of financing,both foreign and local, have not been identified.
120. Saltpond Ceramics. Implementationof the proposed rehabilitationshould await the outcome of a feasibilitystudy. Only an allocation for such a study is included in the 1989 PIP.
(d) Projects that Require Additional Information
121. GIHOC Foundry. Equipment and steel structureswere imported in 1978/79 and have been lying in the open air at the factory site (the containers still unopened) since that time. It would be necessaryto establish that the equipment is still in working conditionbefore project implementationstarts.
122. Promotion of Non-TraditionalExports. This is a high priority project. However, it is not clear how funds are going to be channeledto the enterprises. The rapid buildup in proposed disbursements-- 863 million cedis, 4663 million cedis, and 6,262 million cedis in 1989, 1990 and 1991 respectively-- is a concern, particularlyin view of the institutionalarrangements. The Export PromotionCouncil's role should be to assist in mobilizing resourcesfor the enterprises. The funds should be channeled to the enterprisesthrough the banking system. - 59 -
3. SPECIAL ISSUES
123. There are two key expenditurerelated issues in the proposed 1989-91 PIP for industry. First, there are a number of commercial projects in the 1989-91 PIP for which there has been no feasibilitystudy. Should such projects appearin the 1989 PIP even if there is no budget allocation for that year? Inclusionof a project in the PIP (even with only a token budget allocation)gives a false impressionto the sector ministries and other readers that the project is acceptable to the Bank. At the minimum, implementationof major projects should not commence before their financial,economic a*idtechnical viability are established.
124. Second, the level of proposed expendituresin support services and research projects in 1989 is much higher than the amounts approved in 1988. Implementationcapacity is not likely to be adequate to accommodate all the proposed expenditures.
4. RECOMMENDATIONS
125. The followingrecommendations emerge from the above discussions:
(a) Implementationof major projects should not start before their financial,economic and technicalviability are established. Inclusionof GIHOC Steel- Works and GIHOC Glass Phase II projects in the 1989 PIP should be contingentupon implementationawaiting completionof feasibilitystudies, and in the case of the Steelworks,finding a suitable technical partner or concluding suitablemanagement arrangements. NICOM Chemicalsand Paint Factory and SaltpondCeramics projects should also await completionof feasibilitystudies.
(b) In the case of GIHOC Foundry project, it is essentialto establish that the equipmentimported in 1978/79 but not installedis still in working conditionbefore project implementationstarts.
(c) Proposed level of budgetary resourcesto support services and researchprojects in 1989 may have to be adjusted downwardsin light of projectedresource availability. Some of the expendituresmay have to be spread out to the later years. - 60 -
D. MINING SECTOR
1. SECTOR OVERVIEW
126. Background. Ghana's mining sector accounts for roughly 172 of export earnings (US$ 159 million in 1987) and employs around 24,000 persons. (In addition,Ghana has an aluminum smelterwhich produced about 150,000 tons of aluminum ingot in 1987 valued at about US$ 230 million). The main mining sector product, gold, accounts for over 85Z of the value of mineral exports. It is produced currentlyby three companies,Ashanti Goldfields,State Gold Mining Corporationand Southern Cross Mining. Ashanti, which is 55Z governmentowned, is the largestmining company in Ghana and is in the midst of a major expansion to increaseproduction from around 280,000 ounces in 1987 to 400,000 ounces per year by 1990-91. This expansionwill cost about $160 million and is being funded by a mixture of internal cash flow and outside borrowing,including some funds from the IFC.
127. State Gold Mining Corporation (SGMC) is the second largest mining company. Productionat SGMC declinedvery sharply in the late 1970s and early 1980s. bottoming in 1985 at 35,000 ounces per year. The company began its rehabilitation3n 1986 with funding from IDA under the Export RehabilitationProject (1435-GH)and the Export RehabilitationTechnical Assistance Project (1436-GH). This rehabilitationprogram has managed to stop the decline in productionat SGMC and has led to a rise in output to around 50,000 ounces last year. However, rehabilitationat the SGMC mines is still at an early stage and will require an additional $110 million to complete. The SGMC rehabilitationshould be financed in part by IDA, through the Mining Sector RehabilitationProject which was approved in June 1988.
128. The third active gold mining company, Southern Cross Mining, opened the first new mine in Ghana in over forty years in mid-1988. It is owned 30X by SGMC and 70? by private investors. Southern Cross's production is currently running close to 33,000 ounces per year and is expanding rapidly. Presently its operationsconsist of a highly efficient, low-cost open-pitmine using the new heap leach technology. Two other new mines using similar technologyare expected to begin operation in the next two years. These are Canadian Bogosu Resources (partly financedby IFC) and TeberebieGoldfields, both operated by private investorsand owned 90? by these investorsand 102 by the government. Further new gold mines are in various stages of explorationand planning.
129. In addition to the major mining companies,Ghana has long- establishedsmall-scale gold mining activities. These employ around 30,000 people and has estimatedproduction of perhaps 50,000-60,000ounces per year. There is also small scale diamondmining with output of perhaps $10 million per year. Both the small-scalegold and diamond miners are unlicensed though recently a procedurehas been establishedfor them to sell their output legally to the Government. - 61 - '
130. Ghana also has a bauxite mine, a diamond mine and a manganese mine. The bauxite mine is operatingefficiently but its productionand exports are constrainedby the capacity of the railway to transportbauxite production. The diamond mine is operatingat very low levels, losing money and should either be rehabilitatedor shut. The manganesemine is presently profitable but has very limitedore reservesand a decision needs to be made on its future.
131. The key piece of legislationwhich governs the mining sector is the Minerals and Mining Law of 1986. This Law establishes: (1) the licensingprocedures required to prospect for minerals or to mine them; (2) the rights and obligationsof prospectorsand miners; and (3) the financial,ownership and foreignexchange retention framework,governing new mines. The Minerals Commission is the Government agency empoweredto work with firms to tailor an agreementwithin the frameworkof the Minerals and Mining Law. Though this Law could be significantlyimproved, by reducing the number of taxes and tax rates, it is workable, as is evidenced by the private capital entering the gold mining industry in Ghana.
132. Obiectives. The key objectivein the m;.ningsector is to increase the production of gold. Ghana in the early 1960s produced close to one million ounces per year but productiondropped steadily for two decades, hitting a low of 277,000 ounces in 1983. Over the past five years, gold output has increasedto a level of around 400,000 ounces per year. However, the country has the ore reserve potential to re-attainpast peak levels of production and even exceed them. Gold mining technologyhas advanced to the point and the price of gold is high enough, that lower grade ores, which were not economic 10 years ago, can now be profitably exploited. Ghana appears to have substantialamounts of these lower grade ores which can be mined economicallyby open-pit methods. The objectiveis to encourage the developmentof new open-pit gold mines while rehabilitatingor expandingthe existing gold mining companies (Ashanti, SGMC) to the extent feasible. A secondaryobjective is to encourage exploration for other minerals and the rehabilitationof the non-gold mines where economicallyjustified.
133. Strategy. The key strategy of the Government in the Ghanaian mining sector, fully supportedby the Bank, is to encourage the inflow of private capital and management into this sector. There are three reasons for this. First, private capital is needed to fund the explorationfor new mineral deposits and the developmentof new mines. Private capital would not be a debt of the Government and would be in addition to the concessionaryfunds provided to the Governmentby multilateraland bilateral donors. It would be very difficult for the Governmentto obtain funds for developmentof new mines from these donors and even if it could be done, it would be in part at the expense of other possible uses for these concessionaryfunds. Second, Ghana needs the managementand technicalexpertise that will come with these private investors. There is a severe shortage of skilled and experiencedmine management in the country, due in large part to an exodus of skilled personnel in the late 1970s and early 1980s. In addition,there has been a major improvementin gold mining technology over the past 10-15 years with which most Ghanaian miners are not familiar. Thus, a significantnumber of top expatriate - 62 - managers and technicalexperts will be required for the new mines, or even the rehabilitatedold mines. Recent experiencein Ghana and elsewhere indicatesthat these expatriatemanagers and technical experts perform better if they have an equity interest in the mine and thus a commitment to its long run success. Third, the Government'sexperience in runningmines in Ghana has been most unsatisfactory,with most of the government-run mines being unprofitableand requiringdirect or indirect subsidies,while all the privately operated mines are profitable.
134. Accordinglyall of the new mines in Ghana will be joint ventures with the private partners supplyingthe capital,management and technical expertise. The Government'sminimum ownershipwill be 1OZ, as specifiedin the Mining and Minerals Law, and increase from this base level dependingon the attractivenessof the prospect. However, in all cases, the goverrnent will be a minority shareholder. It is governmentpolicy also to encourage the joint-venturingof the existing government-ownedmining companies. The most active candidates for joint venturingat this point are one or more of the gold mines belonging to the State Gold Mining Corporation. It is quite possible that for these existing mines, the Government could end up a majority shareholderin the joint venture, though again, the foreign investorwould be expected to provide the management and technical expertise and a significantpart of the required funding.
135. Only part of this strategy is currentlybeing implemented. The Minerals Commissionis licensingnew companies to explore and mine in Ghana. However, decision making and implementationof decisions on the future of the existing state-ownedmines is proceeding so slowly as to endanger the continuingoperation of these mines. This delay or break- down in decision making and implementationis extremelycostly to Ghana since SGMC and Ghana ConsolidatedDiamonds together have cash losses of around US$6 million per year which are being funded by borrowings guaranteedby the Governmentor by net lending from the GovernmentBudget. A part of the problem appears to be the departurewithout replacementso far of key officials in the Ministry of Lands and Natural Resourcesand the resultant difficultythis Ministry has had in functioning.
2. PUBLIC INVESTMENTPROGRAM
136. The governmentincludes in its public investmentprogram (PIP) the capital expendituresof majority government-ownedenterprises (excludingAshanti) and governmentdepartments. Why Ashanti (55Z government-owned)is excluded from the PIP while Ghana Bauxite (55Z government-owned)is included in the PIP is unclear. In any case, below are summaries of the main mining sector capital investmentprojects included in the PIP, with comments. Table 5.D.l shows the mining investmentportfolio as proposed by the Ministry of Lands and Natural Resources,broken down by sources of financing.
a. State Gold Mining Corporation
137. The project (MNG 007) to rehabilitatethe State Gold Mining Corporation (SGMC) is quite attractiveproviding it can be executed in a timely manner. The project is suffering severely from delays. SGMC -63 -
------
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= I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I - 64 - currently has cash operating losses (excluding expatriate salaries) of about US$4 million per year which are being funded with government- guaranteed loans. Once the SGMC mines are rehabilitated, they should start to generate a positive cash flow and contribute to the economy. If progress does not improve in implementing the rehabilitation effort, the whole program may collapse and the mines are likely to close since there will be insufficient foreign exchange earnings to pay for the spare parts and other operating supplies necessary to keep them operating. A key aspect of the rehabilitation is the provision of adequate management skills. It is especially important that SGMC move quickly to hire skilled staff to replace a Canadian managem,nt team whose contract terminates in April 1989.
138. Completing the rehabilitation at the three SGMC mines will require additional US$110 million, this rehabilitation program as a whole has attractive financial and economic rates of return at expected fold prices. The relative attractiveness of the three SGMC mines, however, differs greatly. Dunkwa is very attractive, Prestea is moderately attractive and Tarkwa, with present plans, is questionable.
139. Dunkwa is the most attractive of the three SGMC mines with both financial and economic rates of return from rehabilitation of well over 20Z. The total cost of rehabilitating the mine is about US$19 million which would increase production from around 6,000 ounces a year to over 30,000 ounces a year. Dunkws is very unusual in that it is a gold dredging operation, of which only one sximilaroperation exists in Africa and perhaps less than a dozen in the world. The skills needed to operate such a type of mine are quite scarce. The World Bank and the government have both agreed that Dunkwa should be joint-veitured since its rehabilitation can be financed commercially and the skills required to run it are rare and generally unavailable in Ghana. Two firms which have such skills have already expressed interest in acquiring an equity position in the firm. These firms have each been expressing interest for more than a year, but SGMC and the government have not begun discussions. A decision needs to be made and implemented as soon as possible on this issue, since the failure to rehabilitate the mine is costing Ghana about US$6 million a year, taking into account the mines current cash losses and the dividends and tax revenue that Ghana is foregoing by not rehabilitating it.
140. Prestea is a moderately attractive mine which will cost abou.. US$45 million to rehabilitate. The financial rate of return from rehabilitating it is acceptable, but probably not high enough to attract a serious outside investor, while the economic rate of return is much better because of the large labor force at the mine and high lay-off costs associated with closing it. Adequate funds to finance the rehabilitation are available from IDA and EIB and rehabilitation should proceed as soon as possible. Adjacent to Prestea is what appears to be a very attractive open-pit mining prospect called Buesichem. It is currently being investigated by the U.N. Revolving Fund. Outside investors have expressed interest in Buesichem and it can probably be financed commercially. Given that SGMC does not have the funds to develop this prospect and will not have these funds for some years, the Bank strongly feels that SGMC should obtain a joint-venture partner (as was done with Southern Cross at Konongo) - 65 - and proceed with explorationwork for proving ore reserves,feasibility studies and eventually,assuming the studies prove positive, develop Buesichem.
141. Tarkwa,which will cost about US$50 million to rehabilitate, appears to be a marginal mine based on a re-evaluationof its reserves carried out by RTZ consultantsin the summer of 1988. The financial rate of return from rehabilitatingthe mine is low though the economic rate of return is higher and may be acceptable. If the mine is rehabilitated,its cash flows will probably not be sufficientto service the debt that would have to be taken out tc pay for the rehabilitation. Interesthas been expressed in Tarkwa by one potential joint venture partner who envisagesa totally differentapproach to rehabilitatingthe mine. This approach could well be more economic than the current approach and the Bank has encouraged the governmentto enter discussionswith this potentialpartner about joint-venturingthe mine.
b. Ghana National ManganeseCorporation
142. The key issue for this company is the limited reserves of its main product, manganese oxides. The company has large reservesof manganese carbonates,a secondaryproduct, but reserves of oxides are only four to five years of current production. This problem has been known for sometime and in the early 1980s, the company had a large kiln (nodulization plant) built to convert manganese carbonatesto oxides. The kiln was, however, never completedand has never been used. The company'smine is moderately profitable and employs about 1,400 people. The company has three projects which are reported in the PIP. These are a minor rehabilitationproject (MNG 002) to keep the mine operating for the next four to five years, a search for additionaloxide ores 8NG 001) and a project to complete and start up the kiln (MNG 003). Comments on these specific projects are given below.
- The minor rehabilitationproject, which is estimated to cost US$4 million, is probably justifiedin that it serves to keep the mine operating. This project can be financed from the unutilized remainderof an EIB loan and the company's own cash flow. If a decision is made that the mine will remain oper after the oxide ores are largely exhausted,then a larger rehabilitationproject will be required. The current project is a holding operation.
- The search for additionaloxide ores, is clearly justified. However, the contractingfirm which is carrying out the explorationhas not been successfulso far in finding any significantamounts of additionaloxide ores though there are indicationsthat gold is present. We encouragethe company not only to continue its search for oxides in those areas not already drilled, but also to see if a gold prospect can be developed.
- The project to complete and start up the kiln estimatedby the governmentto cost about US$9 million, should only be undertaken - 66 -
after a feasibilitystudy is completed,showing that the financialand economic rates of return from rehabilitatingthe mine, includingcompleting the kiln, are acceptable. Under the Mining Sector RehabilitationProject, funds have been made available to carry out this study. In fact, the study will be divided into two parts, and the total cost will be about US$200,000 (not the US$2.5 million shown in the government's report on this project). The signing of contractswith consultantsto carry out the two parts of this study has been greatly delayed and needs to be carried out as soon as possible. Our estimates are that if the mine is to be rehabilitatedand the kiln completed, the total cost will be significantlyhigher than the US$9 million estimatedby the government.
C. Ghana ConsolidatedDiamonds
143. This company began a rehabilitationproject in 1983 which it was unable to complete for lack of funds. As a result,diamond production rose sharply between 1983 and 1986 and then began to fall. Currently, the mine is very unprofitablewith cash losses of over US$l million a year, and production is declining. A decision needs to be made about whether to rehabilitatethe mine (at a cost of around US$16 million) or to close it. In order to make such a decision,a feasibilitystudy has to be undertaken of the mine. The current project to rehabilitatethe mine (MNG 004) is premature,until such a feasibilitystudy is completed. Getting government agreement to hire a consultantto undertake this study has taken an extended period and has been quite expensive since the mine has probably lost over US$1 million while this issue has been under discussion. If the feasibilitystudy indicatesthat the mine is worth rehabilitating,as is expected, it is recommendedthat the governmentoffer the mire to potential joint-venturepartners. d. Ghana Bauxite Company Limited
144. The PIP contains a small (US$3 million) self-funded rehabilitationproject at Ghana Bauxite Company (MNG 006). This project will largely serve to help maintain the existing production capacity of the mine. However, as the descriptionof the project provided by the government of Ghana correctlypoints out, the main problem with the mine is not its ability to produce bauxite but rather the capacity of the railway to carry bauxite production. The mine currentlyhas capacity to produce more bauxite than the railway can carry. The key to improvedperformance at Ghana Bauxite is thereforeto improve the transport system for bauxite. e. TechnicalAssistance to GovernmentMining Sector Agencies
145. The main project in this area is the assistanceprovided to these agencies under the IDA financedMining Sector RehabilitationProject (MNG 009). This projectwould provide about US$4 million total to the Mines Department,Minerals Commission,Ministry of Lands and Natural Resources, and Geological Survey Department to strengthen them, to promote the mineral sector of Ghana to foreign investorsand to assist them in setting up a technicalassistance program for small-scaleminers. - 67 -
Initially, a gold explorationcompany was planned. However, the time limit for setting up such a company has expired and it is uncertain at this point whether the company will be established.
146. In addition,the PIP contains two additionalprojects which the Geological Survey Departmentwould like to carry out. These are the rehabilitationof certain of its buildingsand laboratories(GSD 001) and an enhanced explorationprogram (GSD 002). The Bank has not evaluated these projects but tours of the GeologicalSurvey's laboratoriesindicate that these needed to be rehabilitated. However, technicalassistance will be -equiredfor this since some very sophisticatedequipment obtained from the German DemocraticRepublic is involved.
3. RECOMMENDATIONS
147. Main recommendationsemerging from the above review are summarizedas follows:
(a) the Government should continue encouragingincreases in production of gold, and in mineral exploration (para 131);
(b) the Government should continue encouragingprivate investment and management into the mineral sector (para 132);
(c) the Government should proceed more actively with implementation of its policy to joint venture existing state owned mining companies, focusingparticularly in mines of SGMC (paras 133 and 134); and
(d) the SGMC should move more quickly to hire skilled staff for replacingCanadian managementwhose contract ends in April 1989 (para 136). - 68 -
E. WATER SUPPLY SECTOR
1. SECTOR OVERVIEW
148. Background. The water supply and sewerage sector of Ghana is managed by the Ghana Water and Sewerage Corporation (GWSC). GWSC is a corporationwholly owned by the Government,as establishedunder the Ghana Water and SewerageAct of 1965. GWSC operates under the general direction of the Ministry of Works and Housing. It is governed by a board of directors appointedby GOG. GWSC is also responsiblefor rural water supply.
149. The economic crisis of the late 1970s and early 1980s severely constrainedthe Government'sability to adequatelymaintain water supply facilities. In some areas, entire systemswere rendered inoperablebecause of lack of inputs and maintenance,causing complete failure of piped water supplies to smaller towns and villages,and severe reductionof supplies to larger conurbations. Sharp increasesin urban population levels continued, thus widening the substantialgap betweenwater supply and demand. Revenue collection in the water supply sector fell to a fraction of its previous level.
150. With the recent marked improvementsin the national economy, the Governmenthas made serious efforts to improve essential services in the water sector. GWSC has recently improvedmaintenance levels and to some extent checked the rapid deteriorationof water supply facilities. However, many of the systems are old. A large rehabilitationprogram is urgently needed to replaceworn componentsand restore the systems to their former capacity and to an acceptable level of reliability. Simultaneous efforts are urgently needed to further strengthenGWSC, and to ensure its financialviability. Achievementof these objectiveswill require many years of sustainedeffort.
151. The population of Ghana is estimatedto consists of 32Z urhan and 68Z rural dwellers. From the 1984 census,which assumes that the whole of the population in each area served by a piped system receiveswater, 85Z of urban and 192 of rural dwellers receivepiped water, and a further 23Z of rural dwellers are served by wells equippedwith hand pumps. However, preliminary results from the Ghana Living StandardsSurvey show that less than 40Z of the populationhave access to public water systems. The apparent discrepancyis because many of the GWSC systems operate below design capacity. In addition,even in areas where piped water is available,not all of the people use the system. A significantportion of the served populationhave poor access to the systems. Most carry water over long distances or purchase it from vendors. In addition,because of poor maintenance,deterioration of equipmentthrough age, shortage c' replacementparts and electric power cuts, a large proportionof the water systems are extremelyunreliable. Many operate at only a fraction of their rated output. Water quality suffers severely from the effects of these deficiencieswith serioushealth implications. - 69 -
152. The total installedcapacity of GWSC's piped water systems is about 450,000 m3 per day. This is quite low for a total estimated population served of 5.3 million. About 70Z of the installedcapacity is in the larger urban systems of Accra-Tema,Kumasi, and Sekondi-Takoradi. These three systems serve about 2.3 million people or 43Z of the total population receivingpiped water.
153. In addition to thp piped water supply systemswhich mainly serve urban and semi-urban areas, GWSC is responsiblefor the operationsand maincenance of some 6000 water points fittedwith handpumpswhich serve rural communities. This highly centralizedapproach is inefficientand contributesto GSWS's financialdifficulties. Both GOG and GWSC acknowledgethe need to extricateGWSC from its current role in operating and maintainingrural water supply schemes. Increasedcommunity participation,including village level operationand maintenance and local contributionto the capital cost of improvedwater supply and sanitation facilities,is essential. This is the case if there is to be a significant increase in the level of access by rural dwellers to safe water supplies. This will involve a major restructuringof the rural water supply sub- sector.
154. Thus the water supply sector has large needs in rehabilitation, in institution strengthening, in new supply systems to connect potential consumers who still are unconnected to a water supply system at present. Finally there are large, long-term needs for capacity additions in response to population growth. The totality of these needs are well beyond the financial and institutional Dossibilities of the sector in the medium term. The sector will require a long term strategy to meet these needs.
155. Sector Obiectives. One of the elements of GOG's economic recovery program is to reform public enterprises by increasing their autonomy, with the objective of creating effectively managed, financially viable institutions. For the water sector, the GWSC strategy is its development to a level where by it can provide access to reliable supplies of water of acceptable quality and at affordable prices for both urban and rural consumers. GWSC is striving to reach these goals, and on its part, GOG is now studying proposals for the increased autonomy of GWSC.
156. Sector Strategy. The principle components of GWSC's strategy are:
(a) Maintaining existing systems tc a satisfactory level to prevent further deterioration;
(b) The rehabilitation of existing systems and limited capacity additions if such additions represent limited marginal costs to rehabilitation costs. Their maintenance to satisfactory levels once rehabilitated;
(c) The connection of all potential consumers to a water supply system; - 70 -
(d) The constructionof long term capacity additions to the system in line with (c), and with the population growth;
(e) Strengtheningof demand management through preventingwater wastage and through the practice of a tariff structurethat is generallybased on marginal costing;
(f) Strengtheningof revenue recovery from users; and
(g) Further institutionalstrengthening to build up GWSC as an effectivelyfunctioning organization.
157. IDA has recently completedappraisal of a proposed Water Sector RehabilitationProject (WSRP),comprising limited capacity addition and technicalassistance, which is fully in line with the above statementof objectives. The 1989 PIP is evaluated in accordancewith this strategy.
2. PUBLIC EXPENDITIREPROGRAM
158. The 1989 multi-year PIP for the sector (excludingcommercial borrowings and own funds) shows the followingamounts:
Cedis USS billion million
Pre-1989 expenditures 14_4 57.6 Projected1989-91 PIP expenditures 32.7 125.7 Projectedpost-1991 expenditures 84.9 320.3
Total package 132.0 503.6
159. This level of proposed investments,especially for the period 1989-91 does not reflecta realizableprogram either in terms of the funding likely to be availableor GWSC's implementationcapacity. GWSC's proposed PIP is characterizedby overly optimisticphasing of large projects, a large number of sub-projectswhich are not economicallyviable and, if completed,may well increaseGWSC's operating losses. In addition, the PIP includes a proposed rural water supply program which, in view of the present low level of rural water supply services,is clearly justifiable,but would neverthelessplace a tremendous demand on GWSC's staff resources during implementationand would be a permanent liabilityin terms of operation and maintenance.
160. Although presentedas eight 'umbrellawprojects, several of the projects comprise a large number of sub-projectswhich are being implementedindividually, resulting in the inefficientuse of GWSC's limited staff resources. As proposed,GWSC's investmentprogram would spread both human and financialresources too thinly over too many separate operations. It would be more cost effective to concentrateon and complete a more limited number of projects and, thus, realize the intended project benefits at a much earlier point in time. The sector portfolio also - 71 -
contains considerablework volumes on account of long term capacity additions.
161. GWSC plans to finance the large increase in project investment chiefly through an increase in overseas donor lending. The 1989 multi- year PIP shows such lending increasingby a factor of 4.3 by comparison with 1988. And yet, in the total post-1988package of US$446 million in the 1989 PIP, only US$38.0 million is secured. For the 1989-1991period PIP US$32.4 million of needed funding is unsecured.compared with US$27.7 million secureddonor financingfor the same period.
162. For detailed informationon the increase in project cost estimates between the 1988 and 1989 multi-yearPIP, see Table 5.E.l. While the need for large investmentsin the water supply sector is not disputed, the investmentlevel envisaged in the 1989 PIP 0oes considerablybeyond financialassistance possibilities and sector capabilitiesin project implementation.
Table 5.E.I WeSe, 5.0lY See%* P-oject Coat., Pnding GAPArE"eion end Cast I,.latin In the 1"9 it;i.Year PIP
PROJECTNAM D iTTUT4IN _4E ATMAWATER & WVT S.PPLY 15E.L U4AAVIL f.L UM II MA. 2 10 TOTAL 5UFPWT FET SA0 MIW,AL DIIRC' KMOR WAT7 OtILLlD HAID MT MOD MC PROJECTS EWOFICSWO Re" CAPITALS CAPrTALS SUPP.LY ruP WELLS I PNOAJ PROJECThP4 WT1001 V7N002 VnOCOS4 VT5 VOUWS WTh007 VTIOS VTn09 1. Toi Coat, al e; 15.i 13,1 116.2 18i; 41.0 29.1 102i6 10.9 503 6 2. Totel Coat, C. ia li o,nnI 948.0 8,27. 29,066.0 J869,2.0 15247.0 7,271.0 28,390 0 2,732.0 125,9G 0
S P.ojent E,e..tiwn, 6 TIogh, 198 80.2 4.4 11.1 0 0 4.2 39.6 14.1 4.0 e 4
. L6 i I oI- 10.7 1O.9 67.0 1".6 54.S 1U.0 68.8 10.4 3%0 3 5 P....nt of To.l Coat 67.9 6L * 67.6 06 69.0 51.6 61.2 95.1 77 5 6 Totel Coot. a in 196bUtdea 7.6 . 4.0 42.3 61.9 22.7 24.0 76.9 13.1 262 7 A4j.at.d to 1983 P'iCe" end e-hunga Rat. UU.i I I ien 7. Coat Escatltion 14da (1/6) 2.0 0.4 2.7 2.6 2.7 1.2 -. S 0.2 1 6
So e NFEP,:- PIP, and Be sta ff eatietas.
163. The usefulnessof includingprojects in the PIP whose feasibilityhas not been adequatelytested is debatable. Their inclusion, even without a full assessment,is useful in that they would show broad sector prioritiesand the directionof the sectors development. However, if such projects appear in the PIP in excessivenumbers they clutter it up and a clear sense of direction is lost. The isrue is where the line can be drawn between these two opposingviews.
164. In the 1989-91 PIP a number of new projects of untested feasibilityhave been includedunder the disguise of projects already appearing in last year's PIP. The bclance of projects for executionbeyond 1991 representsover 50Z of proposed investmentsin the sector.
Proiect Evaluation
165. ProlectWTRO01 - InstitutionalSupport to GWSC - This project would finance technicalassistance, training, technical studies for - 72 - evaluationof water resourcesand staff redeploymentwithin GWSC. The project'scomponents are critical to the institutionalstrengthening of GWSC.
166. Proiect WTRO02 - Rehabilitationof GWSC Fleet. Workshop, Communicationsand Buildings - This projectwould finance vehicles, consumer meters, workshops, laboratoryequipment computers and spare parts, all of which are essential to support GWSC's operations and would be financed under WSRP. The project also includes 02,081 million for staff housing, which would financeapproximately 160-200 housing units for GWSC staff. While it was agreed to finance some 50 units of staff housing undes the WSRP, in view of the very difficulthousing situationin Ghana as an inducementto attract high calibre staff to GWSC, it must be recognized that building and maintaininga large stock of staff housing will divert financialand other resourcesfrom GWSC's majo:-function, the production and distributionof potablewater. Whereas it is reasonable for GWSC to undertake a modest, initial program of staff housing, there is no indicationthat this incentivewill result in a commensurateimprovement in GWSC's staff recruitment. In any event, GWSC should explore other less costly alternativessuch as hiring bonuses,more generous housing allowances,etc. as incentivesto staff recruitment. Furthermore,based on a review of GWSC's projected financialperformance over the next three years, it is unlikely that GWSC will be able to afford an investmentof ¢1,321 million of internallygenerated funds for staff housing. It is recommendedthat GWSC's local currency contributionto staff housing be reduced.
167. Proiect WTRO03 - ATMA Water Rehabilitationand Completion- External financinghas been secured for Phases III and IV of this project from the Government of Italy and AFDB, respectively. Approximately 1OZ of project costs are to be borne by GOG/GWSC. Although the three-year implementation period proposed by GWSC appears extremely optimistic, it accords with the implementation schedule presented in the AFDB appraisal report. Proposed extension from the Accra system to supply water to rural towns in the surrounding area should be undertaken only if capital costs are fully financed and unrecoverable operating costs subsidized by GOG, until such time as GWSC is able to fully recover costs.
168. Phases V - VIII of the ATMA project were identified under the Water Supply Sector Rehabilitation Study. They should remain in the future investment program, but firm budget allocations should not be made for construction until Phases III and IV have been conmpleted and a more detailed study assessing other priorities and phasing of the remaining components has been completed.
169. Proiect WTRO05 - Water Supplies for Regional Capitals - The project content has been revised and now comprises only rehabilitation and limited capacity expansion in accordance wi:h agreed sector strategy based on the rankings in GWSC's Five-Year Rehabilitation and Development Plan. External financing has been/will be secured from KFW (Germany), ODA (U.K.), CIDA (Canada) and donor agencies participating in the WSRP. Approximately 15? of project costs are expected to be borne by GWSC. The mission recommends that the project be supported. - 73 -
170. Proiect WTRO06 - District Capitals Water Supply - This project grouping comprises 48 sub-projects, of which 16 will be financed under the WSRP. Many of the on-going sub-projects have been under implementation for an extremely long time, some as long as 15 years. Only six of the 48 sub- projects are scheduled for completion within the next three years. Several will require seven to ten years additional to complete. It is apparent that GWSC's investment program suffers from spreading its resources too thinly over too many individual efforts, while it would be more cost effective to concentrate resources to complete a lesser number of projects and realize the intended project benefits at a much earlier point in time.
171. Two of the new projects proposed in the current PIP h.'ve benefit/cost ratios (BCRs) of less than 0.50 (Kpandu and Nkoranza Water Supplies) and should be deleted. Three other projects (Sefwi-Wiaso, Half- Assini and Tarkwa) have had only minor expenditures to date, have very low BCRs (0.12 - 0.29', and require substantial sums to complete. It is recommended that these sub-projects be deferred to enable GWSC to concentrate on completing higher priority investments. All sub-projects with BCRs less than 0.40 should be carefully reconsidered. Government should, in particular, review the advisability of undertaking certain projects with BCRs under 0.20 and requiring a relatively large input of local funds. Bole, Walewale, Nalerigu-Gambaga, Sandema and Navrongo fall into this category.
172. Project WTRCO7 - Rehabilitation and Development of Minor Water Supplies - This project grouping comprises 21 sub-projects, il of which would be financed under the WSRP and three of which are included in the next phase of the CIDA Assistance Programme. Only five of the sub-projects are not supported by some form of donor financing. Three--Vakpo, Kumawu and Likpe-involve relatively small investments needed to complete on-going construction. Two others--Rehabilitation of Local Council Systems and Minor lmprovement and Rehabilitation--primarily support emergency repairs which cannot be financed by the respective water agencies. As above, it is recommended that those sub-projects requiring large amounts of local fundc to complement grant financing be carefully reviewed. BCRs should be calculated for all of the sub-projects in this group.
173. Prciect WTRO08 - Drilled Handpump Wells Programme - The Water Supply and Sanitation Conference held in Accra in September 1987 endorsed the strategy of conununityparticipation and village level operation and maintenance of boreholes equipped with handpumps. The meager tariff charges for operation and maintenance of these schemes render it impossible for GWSC to recover costs. Furthermore, GWSC's continued involvement in rural water supply development detracts from its major activity of supplying potable water to urban areas. Every effort should be made, therefore, to limit GWSC's involvement in rural water supply and to identify an alternate agency to co-ordinate rural water supply development. The proposed new sub-projprt entitled Building of Rural Water Supply Department for Superviticn and Monitoring should, therefore, not be undertaken by GWSC, as it would further increase GWSC's involvement and responsibility in the rural water sub-sector. The mission recommends that this sub-project be deleted from the PIP. - 74 -
174. In the meantime, the responsibilityfor repaymentof foreign loans should be borne entirely by GOG. The local costs of rural water supplies should be financed by GOG and/or the communitiesbenefiting. Given recent implementationexperience in rural water supply, the scope of the proposed project is unrealistic,both in terms of GWSC's implementation capacity and available financing. It is recommendedthat the rural water supply sub-projectsfor the Eastern, Volta and Western Regions, for none of which financinghas been confinmed also be deleted from the PIP.
175. Proiect WTROO9 - Hand-dug Wells Programme - For the reasons outlined above, GWSC's involvementshould be limited to providing technical advice to GOG in implementingthis pro-ram. The level of GOG financing proposed for the sub-projectGJSC Nat.c..l Hand-dug Well Programme appears completelyunrealistic, particularly a: there were no budget releases for this project in either 1987 or the first half of 1988. It is recommended that the provision for this sub-projectbe reduced to 030 million for foreign costs and ¢20 million for local costs in each of the years 1989- 1991.
3. SPECIAL ISSUES
176. Project Execution Schedules. Overall, the budget contains items that are not ready for the programmedexpenditures. This means that they still require detailed engineeringand contracting. In some cases, GWSC is still to announce tenders for the detailed engineering. In some others, the adequacy of the engineeringwork done to date is still in question. Several donor agencies are involved for each project, each with its own set of practices. This only complicatesproject preparationand slows down the project pipeline. GWSC needs to realisticallyreview all projects as to their schedulesfollowing which it should make suitable revisions in them.
177. Contract Tenders and Project Financing. In some cases GWSC is expecting to announce tenders during 1989 for projects whose total financing it has still not fully secured. In view of the rather large proportionof unsecured financing,the GWSC schedulesneed to be reviewed with the appropriateODA agencies to firm up whether the timetablefor project execution is appropriate.
178. New Proiects. The nine projects appearing in the budget are identicalin name and numbering to the nine appearing in the 1988 PIP. Ostensiblyno new projects have been added in the 1989 PIP. However,when adjusted for price escalationand devaluation,the 1989 PIP projectionof the multi-yearpackage representsa 63% real increaseover the 1988 PIP estimate. This increase in cost of the investmentprogram is due to enhanced standards for projects and/or the latchingon of new projects to existing ones without explicitlydescribing them as such. Examples of this procedure are shown in comments on individualprojects.
179. Priorit Rating of Projects. Three major projects ir the portfolio each representclusters of about 8-10 sub-projects. Each sub- project can be consideredas a project in its own right, whose executionis often entirely independentof the total cluster. In such cases there are practicallyno techn_calor benefit linkagesbetween the clustermember and - 75 - the total cluster. In a PIP presentation,the merit of keeping such clusters together as representingone single project is debatable.
180. Individualproject files should contain minimal quantitative indicators as to what each project is trying to do. For example, if a particularproject is for conservation,capacity addition, the project file should state the capacities involved,the principal quantifiablebenefits, and their magnitudes.
181. Feasibilityand Planning Stages. One issue is whether adequate feasibilityand planning work has been done in satisfactorydepth and detail before a particular project is incorporatedinto the PIP and allocated funds. An investmentthat stands out in this respect is the Koforidua sub-projectof the Water Supply for Regional Capitals Project (WTRO05). This project was costed at US$39.5 million. GWSC intended to fund it through Italian bilateral assistance. The project purports to serve the long-termwater supply needs of a populationvariously estimated at only between 85,000-250,000. However, the originallyproposed sub- project represented26Z of the funds to be allocated to the total project of which it is a member.
182. Following discussions,the proposed Koforidua expansion project was scaled back to a rehabilitationof the existing system. The Bank's position is that the originallyproposed expansioncannot be justified in view of GWSC's other unmet investmentneeds. Under the proposed Water Sector RehabilitationProject the existing Koforiduawater supply system would be rehabilitatedat a cost of US$2.3 million. This would enable GWSC to double production from the current level of about one million to nearly two million gallons per day, which would considerablyimprove the level of service in Koforidua and surroundingcommunities.
4. RECOMMENDATIONS
183. The review of the water sector comes to the followinggeneral recommendations:
(a) Phasing of project implementationand projected disbursementsshould be based on GWSC's actual recent performancerather than theoreticalachievements;
(b) A strategy should be formulatedfor completing new projects which have been under implementationfor protracted periods, of which there are approximatelyten in the PIP. GOG/GWSC should concentrateon completingthe highest priority systems and suspendwork on all others;
(c) Given the large volume of competingpriorities and unmet investmentneeds, GWSC should not undertakenon-viable schemes, such as rural towns and small district schemes for providingpiped water supply to several villages;
(d) Until appropriateinstitutional arrangements for rural water supply can be put in place, the investmentprogram in - 76 -
this area should be limited to those operations for which grant or very soft loan funds can be mobilized. Due considerationshould be given to the demands the program makes on GWSC and the resultingimpact on GWSC's urban water supply operations;and
(e) The priority of all projects with low benefit-costratios should be carefullyreviewed. In particular, serious considerationshould be given to deleting from the investment program those projects for piped water supplies with BCRs less than 0.5. Annex 5.E.1 PUlLICINVESTIEHI PROGRAMI 1989 - 1991 FULOING STATUS- ANALYIS OF SGUJRCESOF FUHOING fOR 1969 (IN MILLION3CEDIS)
I I I I OV~ ~ ~~~fl ~~~~~~~~~~~~~~ABUDGETARYRESOURCES fl oTHERtSOuItCES Of fulolmG II I I
I I I I I~~~~ fl ~~~~~~~~~~~~~61GEV j MET ~~ FOREIGNCOP6VRCIAL OWN DESTIC I WATER I SEICURED I FISH IIC,pA* FUNDS5 LENDING SECURED I 9Fla FIElS I WE3IUG I I ~~~~~~~~~~~~IPROJECIIPRJECTI------I------I .I------I------ExehageRlateUSSluZ 60Cedls IM F 1C0ST19091 FCIt LC I Fg I LC FC I CI FCI LC FC I LC I FC I C g FC I LC IPC LCt S
linstitutioaliSupport for GUSt fVI 001/861 953 19 I it I II 126 I I I I I693 I I 5 IRitab- of GWSCFleet, W/shop IL Corn, JITR002/86 1 246 1 3 I112 1 42 I I DvI8 I I I 2469 JAINAWater £ SewerageRehbel. lUTE003/86 I 272I1544 126 3"39 II I 50 1II 1230 I I I I I 411 I 2721
UmiterSupplies for RegionalCapitals UIWR005/86 181146 1045 I 65 12 II I 709 I I If I I I I I is I ISla" I .. j IRehabkIL0ev. of majorUWaterSuppties IUWROO06/86I 5391 1391 I 57' 12Ž11 1200 1 I I 11Iaj I I I I 139I I II Si 'I JRehab.ILDev.ofN0inorUWaterS.ppties 1W1R007/86 1 320 1 75' 1 7"I 9I 11501SO I II I I I I I 9 1 I 11 3201I IRuratWater Supply Scheme II (Nandpump)lUWl 008/8.6 1 849 I 413 I I 5196 fl 18 1 11 53 I I I I I I I I 49 I (RuratUWaterSupply Schem 1II(HandwetI)9JUTI009/8651163J1 Z3IsoI 150 f 54 36~1 I I I I I I I I 1 1631
UWATERSECTOR TOTALS I 89 1637 122611 12611025 1 3311f54 11500 1 I 11 14011 I I I 11237 1 I 117?6371 - 78 -
F. TRANSPORT SECTOR
1. SECTOR OVERVIEW
184. The transportinfrastructure, which is essential for tLe movement of key traded goods and farm production to market, faced virtual collapse during the late 1970s and early 1980s due to prolongedneglect of maintenance and rehabilitation. Since 1983 this situationhas been turned around with a program emphasizingrestoration of export capacity as part of its basic strategy. Under the Economic Recovery Program, Ghana undertook emergency repairs and rehabilitationof parts of its transportnetwork, and has initiatedgenerally sound and pragmatic institutionalreforms. While these measures averted the complete breakdownof the transport system,much remains to be done to restore its capacity to meet current and future needs, and to strengthenthe management of the transportsector and rebuild its institutions. This chapter reviews the investmentproject portfolio of the Ministry of Transportand Communications(MTC) in the transport sector affecting railways,ports, and aviation.
185. Railways. The railway system is operated by the Government- owned Ghana Railway Corporation(GRC). The railway network serves only southern Ghana, covering the triangle between Accra, Kumasi and Takoradi, with a connection from Accra to Tema port. While the total length of the system is only about 950 km, it serves the richest,most productive,and most populated region in Ghana.
186. The ongoing Railway RehabilitationProject addresses the main shortcomingsthrough the physical rehabilitationof the principal export corridor, the Western line (Takoradi-Kumasi),some rehabilitationof broken down locomotivesand wagons, and some essential institution building. The success achieved so far with the project is encouraging, though it faced many implementationproblems, delaying the achievementof traffic and financialobjectives. This project, now completed,has raise the capacity of the Western line to a level adequate to carry the traffic expected by 1990. The GRC would, however, need some additionalinvestmenis to sustain and consolidatethe rolling stock rehabilitationalready done under the ongoing project and to provide continuedmanagement support and training.
187. GRC is regaining financialautonomy after a period of heavy subsidization. It continues to receive annual revenue subsidies,but the subsidy level has declined from 716 million cedis in 1986 to about 250 million cedis in 1988, despite increase in wages and other costs. GRC's operating costs, particularlystaff costs, are still high and constitute the principal reason for the heavy operationalsubsidy. Under the ongoing IDA project, GRC has reduced its staff strength from 11,000 to 7,300. rurther reductionsare necessarybut will have to be phased to take account of heightened public sensitivityto the nationwide retrenchmentof civil servants. GRC would also have to take a series of complementarymeasures to reduce operating costs through increasedoperating efficiency, tariff increases, lowering the turn-roundof wagons, and implementingcommercial - 79 - strategiesto attract more traffic. These are being addressedthrough the Transport RehabilitationProject started in 1988.
188. Ports and Shippini. In early 1986, the Ghana Ports and Harbours Authority (GPHA) initiatedcritically needed physical rehabilitationand institutionalrestructuring of Ghana's main commercialports at Tema and Takoradi. The rehabilitationand reorganizationof both ports will be complete by 1990, providing adequate capacity to meet Ghana's port requirementsup the mid-1990's. The IDA credit agreementprovides for substantialinstitutional reforms, includinga larger role for the private sector in port operations.
189. In lake transporton the Volta, facilitieshave been improved with financial assistancefrom the Federal Republic of Germany. Additionally,investments in fuel tankage and pumping facilitiesat the lake ports of Akosombo and Buipe are being supportedby an IDA-supported project for PetroleumRefining and Distribution,which started in 1988.
190. The national shipping line, Black Star Line (BSL), has operated unprofitablyfor years. The Governmenthas stopped subsidizingBSL, except in meeting past debt obligationsfor ships bought from Korea. BSL has recently undertaken drastic reorganizationmeasures, reduced its staff by 65Z and sold off its old ships. Further, the Governmenthas recently appointed a new management team. The Government is actively exploring BSL's joint operationwith interestedforeign ship owners.
191. Civil Aviation. The state-ownedGhana Airways (GA) operates profitably on its internationalflights, but cross-subsidizeslosses on its domestic operations. Overall, it produces a nominal profit. A study financedby the Canadian InternationalDevelopment Agency (CIDA) is examining the feasibilityof strengtheningdomestic air transport, includingthe option of a separateprivate sector operation. The PEP would provide technical assistancesupport to GA to prepare corporateplans to guide its future operations.
192. In 1986, the Governmentconverted its Departmentof Civil Aviation into an autonomousbody, the Ghana Civil Aviation Authority (GCAA), to maintain and operate civil airports on a commercialbasis. This agency is yet to establisha proper organizationalstructure, operational procedures and financialand project planning. Present income from airport users' fees is inadequateto cover GCAA's annual operationcosts, requiring a Government subsidyof about US$700,000 equivalent during 1987, the first year of GCAA's operation.
193. Sector Planning. To provide support for sector planning, the Government has implementeda phased program with financingfrom ongoing IDA and UNDP projects. The program has provided technicalassistance and other support to strengthenplannring units in MTC, as well as agencies involved in road infrastructure. The planning units of these organizationsare preparing coordinatedinvestment plans for their sub-sectors,conducting project evaluation,improving collection and analysis of statistics,and conducting studies and analysis of transportproblems. The Planning Department in MTC needs further support and strengtheningduring the next - 80 - two years. It has increased its staff to 18, mostly young graduates,and continued training and technicalsupport is essential so that it can produce investmentplans, feasibilitystudies and other studies on its own. Until recently,both the planning work and project and policy implementationfunctions of MTC were handled by the Planning Department staff, resulting in poor specializationand partial neglect of the planning work. To remedy this, the Government, in September 1987, restructuredthe Planning Departmentas a Planning and ImplementationDivision (PID) with separate units for planning and implementationfunctions.
194. In all sector agencies,there is a shortage of qualified personnel at middle and higher-levels,and a surplus of unskilled staff at the lower levels. The Government'smanpower and training policies emphasize incentivesfor qualified Ghanaians living abroad to return to Ghana, phased reductionof unskilled surplus staff, and local and foreign training to improve the quality of existing personnel, along with the use of expatriateexperts in key areas of project implementationand institutionalmanagement. Manpower developmentand training received little attentionuntil the early eighties when Bank/IDA projects for highways, ports, and railways included programs for the training and upgrading of personnel at most levels. Ongoing projects in these sub- sectors included manpower studies and institutional strengthening through some reorganization, technical assistance, and in-service training programs for staff at all levels.
195. Transport Sector 'ssues and Strategy. A Transport Sector Strategy Note nrenared by the Bank and agreed with the Government, focased on the country's main transport problems and policy issues, and presented a strategy for tackling them. It proposed a coordinated approach linking necessary policy and institutional reforms to a phased program of IDA assistance to rehabilitate the transport sector. Since the economy is highly dependent on the production of export commodities and food crops, adequate land transport service and efficient ports are vital.
196. Government intends to implement basic policy and institutional reforms in the following areas: (a) Government's three-year transport investment plans and public expenditure programs; (b) reorganization of public sector port agencies on commercial lines, adequate cost recovery in ports, and an increased role for the private sector in port activities; and (c) phased reduction of excess staff in the rail and port agencies.
197. The main issues facing the transport parastatals are inefficiency, overstaffing and, in many cases, financial losses and Government subsidies. Apart from GPHA and GA, the transport entities are running at a loss, although direct revenue subsidies from the Government are being given only to GRC and GCAA. The State Enterprise Commission is addressing parastatal reforms as part of a national program and will cover the reform cf a numuer of transport parastatals (Black Star Lines, Ghana Airways, State Transport Corporation, Omnibus Services Authority, City Express Services); reforms needed at GRC are being addressed through the Transport Rehabilitation Project. - 81 -
2. PUBLIC INVESTMENTPROGRAMME FOR 1989
198. MTCbudget covers meteorological services, the Civil Aviation Authority, airports rehabilitation, the Ghana Railway Corporation, Ghana Ports and Harbours Authority, Ghana Airways, TEMAShipyard and Dry Dock Corporation, and three state-owned bus companies. (It also covers ports and communications (PTC), which are reviewed separately.) The MTC originally submitted 60 projects for the 1989-91 PIP, but after discussions with the PIP Task Force, eight were dropped for lack of feasibility studies, project details, etc. For the remaining 52 investment projects (37, ex-PTC) in the draft PIP, the MTC has done excellent work in producing the profiles. However, some of the investment proposals require cutting or stretched phasing of costs.
199. Budget demand for all MTC projects for 1989 add up to about 2.4 billion cedis (0.9 billion cedis in foreign and 1.5 billion cedis in local costs). This compares with a total 1.3 billion cedis provided in 1988, and 1.4 billion cedis estimated for 1989 in the last PIP. The investment proposals which need review and possible trimming are discussed below.
200. RMA001-Regional Maritime Academy. This is a new project for renovation and expansion of facilities. The initial MTC submission was for a total cost of 4.9 billion cedis over 1989-92, of which 1.6 billion cedis in 1989. Expansion is not a priority, however, and only renovatio.a should be considered at this time. Even if only renovation is to be undertaken, it should be preceded by an assessment of demand for the Institute's services and a site plan and cost estimate. Pending such a study, the PIP Task Force has made a provision of 62 million cedis for renovation in 1989.
201. CAA003-Airport Freight Terminal. Project costs are estimated at 2.2 billion cedis. The project should be subject to viability being established through an upcoming study, and after formulating preliminary operational arrangements for private sector management of the facility.
202. CAA006,007,008-Kumasi, Tamale and Other Domestic Airports Rehabilitation. The combined projects' costs are about 3.5 billion cedis. Until these are subject to a viability study in progress, only amounts for urgent needs should be provided in 1989. The allocation in 1989 for the Kumasi airport could be reduced to minimum needs of about 300 million cedis, from the 1.1 billion cedis asked for in the main project. Allocations for the other airports should await completion of the feasibility studies.
203. CAA002-KIA Runway Rehabilitation. This is a high priority project and should be included in the supercore of the budget.
204. RLY 001 and GRC 002-First and Second Railway Rehabilitation Proiects. Both these are justified and conform to GRC understandings with IDA, which is providing funding. The IDA technical expert who recently inspected the tracks on the Western Line was of the view that sleeper renewal on the Northern part is urgent as current conditions pose a safety- hazard. The mission proposes, therefore, that urgently needed sleeper - 82 - renewal at the cost of 107 million cedis equivalent in foreign exchange and 67 million cedis in local costs be added to RLY 001 profile for 1989. This work can be executed easily if funding is available. This item corresponds to Item 2.2 in Project RLY 003, where this work 3tarts in 1990 as a phased program. This 1990-91program may be retained in RLY 003.
205. RLY 003-WesternLine ConsolidationProiect. This is a follow- up project for GRC, to form part of the proposed IDA-financedSecond TransportRehabilitation Project. All proposed investmentsshould be subject to feasibilitystudies for which an allocationhas been included for 1989. This provision should be increasedfrom 20 million cedis equivalent in foreign costs and 1 million cedis in local costs to 30 million and 2 million cedis respectively. The studies are expected to be financed under a World Bank PPF advance. The project profile also proposes the purchase of 30 coaches in addition to those recently purchased. As noted in IDA comments during last year's PIP review, the economic case for purchasing these coaches is not clear. The need for additionalcoaches, if any, will arise only from 1991.
206. It was recommendedthat one more project be added under MTC to initiate studies for the Second TransportRehabilitation Project. This has been done (MTOC 003).
207. STCOO1. 002-StateTransport Corporation Fleet Rehabilitation/ AcquisitionProgram. The STC001 investmentproposal is for US$5.9 million over 1989-91 to rehabilitateSTC's buses and trucks from own funds or borrowing. This proposal appears justifiable. However, STC002 proposes US$16 million for 15 new trucks, the purchase of 30 SETRA buses of the model now in use, and 60 buses of a new, more economic type. New truck investmentsare not justified since the private sector firms can meet the need more efficiently. Since SETRA buses have proved too expensive,STC has decided to switch to other buses. Therefore,buying more SETRA buses in the meantime is not advisable.
208. Ports Proiect. The Project POR 001/86 is ongoing ports rehabilitationproject. Discussionswith GPHA by Bank supervisionmission in early 1989 indicatesthe possibilityof includingabout US$3 million for staff housing and other components,which were not included in the original Ports RehabilitationProject appraisalby the World Bank. If such componentsare included they should be excluded until project justification is provided for their economic merit, and regardingimpact on GPHA's financial situation.
209. Fishing Harbour Project. The total cost of 4.3 billion cedis estimated for this project PORT 002/89 is too high. The project should be cut down to about US$8 million, as recommendedin last year's review of the 1988-90 PIP.
210. Omnibus Services Authority. Rehabilitationof buses (OSA001) and building/logistics(OSA003) are well justifiedprojects. However, proposed replacementof buses (OSA002)should be postponeduntil after the ongoing study on the corporate financialplan and financialviability of - 83 - investmentneeds is completed. The only possible exception is the first lot of 60 DAF buses, and 40 TATA buses already ordered for 1989.
211. City Express Services. The rehabilitationand workshop facilities (CESOO1,003) deserve support, even to support existing fleets, and operations. New bus purchases (CES002)should be postponeduntil the ongoing corporateplan and financialviability studies are completed.
Comments On ParastatalInvestments (no direct budget imvact)
212. AIROO1-GhanaAirways. The proposal is to sell or trade-inGA's one existing DC-9 on a lease-b*ckbasis for 2 years until early 1991. The sale price of this plane is US$9 million. The proposal is also to purchase two units of the more modern DC MD-83 aircraftwhich will cost US$72 million gross, and US$63 million net after deducting trade-in value. One of these will be ordered immediately. The purchaee of the second will be implementedonly if the findings of a feasibilitystudy on the Ghana Airways Corporate Strategy and Action Plan supports such a decision. This study has been commissionedunder the Public EnterpriseReform Project (IDA). Ghana Airways staff have made an internal study which indicates that MD-83 is the right choice.
213. This major investmentproposal to choose a new type of aircraft has major consequenceson GA's future operation. Before a decision is made, Ghana Airways should make a proper evaluationof differentaircraft options available so that Government is satisfiedthat the decision is right. The Consultant'sstudy on GA to start early 1989 should review and evaluate such aircraft options as a first priority, and submit a report to Governmentwithin 3 months.
214. IDA has already proposed to MTC and SEC a revision in the TOR of the study to reflect the above. This process will delay matters only by about 6 months. If essential, the sale and lease-backarrangement can be made earlier,without commitmenton the choice of the new aircraft until the study is completed.
215. The project file states that the acquisitionof the second MD- 83 should be subject to review by the above mentioned GA corporate strategy study. The decision on the first aircraft also should be brought into this study's purview in view of the "locking in' nature of this decision.
4. RECOMMENDATIONS
216. In summary, the general recommendationsfor the transportsector are:
(a) To the extent that capital expendituretrimming becomes necessary, the focus should be on slower phasing of those projects for which feasibilitystudies have yet to be developed into detailed project documents. Such is the case for the secondaryairports rehabilitation,the regional maritime academy, and the purchase of new buses for the three bus transportcompanies. - 84 -
(b) High priority projects are the resurfacingof the KIA runway, and the two ongoing railroad rehabilitationprojects. These should be included in the supercoreof the budget.
(c) The viabilityof an airport freight terminal needs urgent review,but initiationof works made contingentupon preliminary formulationof operationalarrangements by private sector management. - 85 -
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G. POSTS AND TELECOMHUNICATIONSCORPORATION
1. SECTOR OVERVIEW
217. Sector Backaround. All public investmentsin the sector are managed by the Ghana Posts and Telecomunications Corporation(GE'), an autonomousgovernment-owned corporation established by decree in November 1974. GPT provides all public telecommunicationsand postal services in Ghana. In addition to the public telecommunicationservices, dedicated networks exist to meet the specializedrequirements of the police, military, railway and civil aviation services. Private users also operate radio link services in areas inadequatelyserved by the public network, upon obtaininga license issued annually by GPT. GPT also carries out some regulatoryfunctions such as settingequipment standardsand granting of equipment type approvals. Managementof the radio frequencyspectrum is carried out by the Ghana FrequencyRegistration Board.
218. Sector Performance. The quality of service is poor. On average, less than 50Z of the connected lines were working a. any time during 1987. Of the 413 manual exchangeswith capacity of 10,900 lines, only 46 of them (3,300 lines) were in service; the rest have been out of service for more than thre3 years mainly due to the lack of spares for power supplies and faulty overhead trunk transmissionroutes, leaving the areas served by these exchangeswithout telephoneservice. The telephones work intermittently. On average, each telephoneis down for more than six months a year anc fault clearancetime averagesmore than 30 days. While the average call completionrate of 60Z for local service is barely acceptable,the rates for subscribertrunk dialing (STD) and international are low at about 2OZ and 12Z, respectiv2ly. Outgoing intecnational telephone serviccŽis manual and waiting time for calls usually exceeds six hours. On average, 401 of all calls are cancelledbecause of the long waiting time. Currently,the call completion rate from England, Ghana's main internationalcorrespondent, is only about 12Z resultingin loss of potential foreign exchange revenue to Ghana.
219. The main constraintsto sector developmentare:
(a) lack of management capacity and trained manpower to operate and maintain the existing facilitiesefficiently and to plan and implementdevelopment programs; and
(b) lack of funds (lecal and foreign)which limits GPT's ability to procure essential equipmentand materials for maintenanceand expansion.
220. To overcome some of the current institutionaldeficiencies and to develop an informationbase for detailed planning and implementationof the proposed project, GPT will hale to appoint consultantsto carry out these tasks and assist in training to build in-house capacity.
221. Due to poor financialperformance, GPT has been dependent on GOG subsidies for its ope'ationsand developmentwork. Delays in obtaining _ 89 - local funds from GOG was one of the main constraintsto timely completion of the First TelecommunicationsProject. In addition,GPT has had virtually no access to foreign exchange for essentialspare parts and routine operationalrequirements due to the severe shortage of foreign exchange in general and the relativelylow priority accorded, until recently, to the telecommunicationssector by the GOG. The PIP would provide urgently required services,equipment and materials for rehabilitationand maintenance.
222. GPT falls under the supervisionof the Ministry of Transportand Communications(MTC), which is responsiblefor approval of investment programs,budgets and changes in tariffs. Under the decree, GPT enjoys considerableautonomy in financialand administrativematters, but has limited control over staff remunerationwhich have to fall within the frameworkof all parastatal organizations. However, GPT's continued dependence on financialsupport from the governmenthas eroded GPT's autonomy and made it function as if it were a governmentdepartment. This has not been conduciveto efficientoperation of GPT, especiallywhen there is lack of consistentdevelopment and operationalpolicies from the government. The lack of a Board of Directorsbetween 1982-Z8hag a'lso contributed to weak management.
223. GPT's organization structure and procedures are inadequate to manage the current assets and the vital rehabilitation program, or to administer a viable and sustained growth of the sector. GPT's present management systems are not only inadequate, but also fragmented. Because of the lack of management information systems, management is unable to obtain pertinent information when needed. Planning is virtually non- existent in GPT at the mpoment. The poor quality of services is partly due to the lack of proper operations and maintenance systems. Substantial improvements are required in management information systems, p'.anning, operations and maintenance, finance, billing and collection, procurement and project implementation.
224. GOG has recognized the need to strengthen GPT's operations and organization, improve efficiency to maintain and operate the existing network, undertake rehabilitation, and plan for future expansion. GOG has decided to split SPT into separate legal entities for postal and telecommunications services and to strengthen these entities to make them more respensive to the needs of individual sectors. Consultants are now working on the modalities for the split.
225. Sector Objectives. A well functioning communications network has been identified by the GOG as being strategically crucial to the success of ERP. The GOG is aware of the need to optimize the utilization of existing assets through the execution of effective rehabilitation programs and installation of appropriate maintenance systems. The main sector objectives are to:
(a) improve the quality of service and operational efficiency through network rehabilitation and expansion, installation of an effective operations and maintenance program, and improved management and staff development programs; - 9o -
(b) ensure that installed assets are optimaily utilized through installation of complementary assets; and
(c) improve sector financial performance to eliminate existing GOG subsidies and eventually generate revenues for GOG.
226. Sector Strategy. Given the sectors' goals and constraints, the Government's strategy, which is being supported by IDA, is:
(a) to finance urgent equipment rehabilitation and maintenance needs including spare parts;
(b) to coordinate donors so that available funds are initially directed towards priority rehabilitation needs rather than pure expansion; and
(c) to use technicalassistance for institutionbuilding including supporting sector reorganization,setting - policy framework, designing and implementinga managemer% maprovementprogram, planning and training.
2. CAPITAL EXPENDITURE PROGRAM
227. Telecommunications. The 1989-91 PIP is shown below. It differs somewhat from the Second TelecommunicationsProject (Credit 1946-GH),which had earlier defined the annual capital investmentsover the next five years. The GOG anu GPT have agreed that any investmentsexceeding US$1.0 million outside this program has to be agreed with IDA. The 3 year investmentprogram from the project document is presented in Annex 5.G.1, while the PIP breakdown is shown for the Ministry of Transportand Communicationsin Annex S.F.1 of the TransportSector review.
228. Posts. Except for the mail distributioncenters (PTCOB) the projects included in the PIP are on-going and are urgently required to improve the poor quality of service. The mail distributioncenters project is a large expansionproject (US$13.0million in the initial proposal) which needs feasibilitystudies before implementation. It is therefore unlikely that the project can take off before 1992. No resources should thereforebe allocateduntil the feasibilitystudy has been completed. A Bank-financedpostal expert was to arrive in Ghana at the middle of April 1989 to assist GPT to draw out a medium term developmentstrategy and to propose the most realistic investmentprogram for the "postal' sector. The main issue with the postal sector is the poor organizationand management capacitymainly due to low calibre of staff. 402 of all staff are unproductive,untrainable, and should be retired. Unfortunately,GPT does not have the financialresources to pay for their terminal benefits. Possibilitiesof government lending for retiring these people should be investigated. There is a need for extensive training of the few capable staff and recruitmentof trainablepersonnel. There is also a need for a comprehensiveplan to improve organizationand management;this will partly be taken care of in the reorganizationstudy currentlybeing carried out by consultants. _ 91 -
229. Costs. The total cost of the three year telecommunications program is estimated at 019.7 billion (US$76million), of which ¢17.9 billion (US$66.9million) is the foreign component and 02.2 billion (US$8.7 million) is the local component. The total cost of the three year postal program is estimatedat ¢1,744 million (US$6.7million) of which ¢1,099 million (US$4.2million) is the foreigncomponent and ¢645 million (US$2.4 million) is the local component.
The annual costs ir million cedis are summarizedbelows
ITEM 1989 1990 1991 1989-1991 ------__------__- L F T L F T L F T L F T ------__--__- Telecom 622 6398 7020 725 6779 7504 914 4264 5151 2261 17441 19702
Postal 104 53 157 256 386 642 285 660 945 645 1099 1744
Total Program 726 6451 7177 981 7165 8146 1199 4924 6096 2906 18540 21446
L - local costs, F = foreign costs, T - total costs
3. SPECIAL ISSUES
230. Availabilityof Funding. Almost 95Z of the foreign cost componentof the telecommunicationsinvestment program is secured from bilateral sources and IDA. Some of the local cost component is also being funded from these sources. GPT will requiregovernment lending for part of the local costs during FY89 and FY90. Beyond that GPT should be in a position to finance the local portion of its telecommunicationsinvestment program. For the postal developmentprogram, no foreign funding has yet been secured but is being sought from bilateral sources; France, Britain and the Netherlands. However, the governmentwill have to meet all local costs for the postal program. Estimatedgovernment contribution for the program (in cedis millions) is tabulatedbelow:
ITEM 1989 1990 1991 TOTAL
TELECOM 45 303 - 348
POSTAL 119 211 200 530
TOTAL 164 514 200 878
Note: Telecom Debt Service 850 900 - - 92 -
231. ImplementationCapacity. GPT needs substantialmanagement improvementin order to implementthe proposed program and to operate the assets to be installed. The telecommunicationsprcject includes technical assistancefor consultancyservices and training. The consultantswill assist GPT to: (a) plan and implementthe project; and (b) carry out on- the-job training of Ghanaians. The calibre of staff in the postal sector 's low and there is a need for extensivein-service training and recruitmentof trainablepersonnel.
232. Debt Obligation. GPT has not been able to fully service its debt because of poor financialperformance. Although GPT's financial performance is expected to improve substantiallyfrom 1991, it would still be unrealistic to expect GPT to service all its existing debt in addition to the new debt acquired to finance its new developmentprogram. Therefore,in addition to financingthe local costs of the ongoing telecommunicationsinvestment program the Governmenthas also to provide funds for servicingGPT's foreign debt, through 1991. These should be provided as part of a financial restructuring.
4. RECOMMENDATIONS
233. The size of the postal and telecommunicationsPIP should be limited as discussedabove to avoid further accumulationof debt and drain on meagre governmentfinancial resources.
234. Investmentsin the postal sector must be associatedwith a comprehensiveplan to improvemanagement.
235. Governmentsupport should be extended to GPT for telecom investmentsonly for 1989 and 1990. Beyond that date, GPT should be in a position to finance its telecom investmentsprovided an appropriate financialrestructuring is carried out. - 93 -
ANNEX 5.G.1
QiANA POSTS AND TELECOMMUNICATIONS CORPORATION (CPT) PUDLIC INVESTMENT PROGRAM (1919-1991) TELECOMULNICATIONS (Codis Mi lions)
____i-.e.9|------1990------1991 ------By Item/Year Local For-ign Total Locai Foreign Total Local Foreign Totel
1. Telephone Exchang-s 1.1 Intoernational 2 123 125 0 0 0 0 0 0 1.2 42,000 Lines for Acecra, 0 633 633 90 1,281 1,371 SO 7se 806 Tnsa, Kumasi, Kofurdus, Tamale and Cape Coast Rehab. and Expn. 1.3 4,100 Lines for Rural 0 103 103 25 252 277 20 216 216 Automati Exchanges 1.4 Acera North Tertiary 0 379 379 11 368 379 8 216 224 Roplacseent 1.6 Spero Parts for Exchangeo 0 349 349 0 0 0 0 0 0 2. Tolox Exchange Expansion 0 41 41 4 84 8S 4 6s 69 3. External Network 400 3,239 3,639 360 2,310 2,660 300 972 1,272 4. Subscriber Instruments, 0 216 215 0 0 0 0 0 0 PMSX A PABX 6. Radio and Transmission 30 719 749 60 946 996 6o 648 708 Equipment inciuding Spares 6. Satellite Earth Station 3 226 229 0 0 0 0 0 0 7. Teleprinters 0 0 0 0 0 0 0 0 0 S. Power Equipment and 0 61 S1 13 273 286 2 32 34 Air-conditioners 9. Vehicles and Spares 0 256 2s6 0 0 0 0 0 0 10. Flood Protection Works 21 186 206 21 189 210 0 0 0 11. Buildings 96 297 392 84 0 84 84 0 94 12. Training 32 297 319 32 294 326 32 302 334 13. Consultancy 13 820 833 13 840 853 8 486 494 14. Miscellaneous (Computer, 3 62 6s 10 le 178 1 65 66 tools, etc.)
Base Cost of Project 699 7,982 8,481 703 7,004 7,706 s69 3,758 4,327 Physical Contingency 6o 394 464 70 360 420 57 18S 245 Price Contingency 1'1 376 647 288 6es 853 298 452 750
TOTAL PROGRAM COST 830 9,e63 9,482 1,061 7,919 8,980 924 4,399 5,322 So=c ur=e=i SecoP==o= T eo u ==--= =(======d==i
Source: Second Telecommunications3 Project (Credit 1946-GH). _ 94 -
H. HIGHWAY SECTOR
1. SECTOR OVERVIEW
236. Background. Ghana's road network comprisesabout 28,300 km of classified roads, of which about 6,000 km are paved, and the reminder are gravel or earth surfaced. The road system is further classifiedas about 14,130 km of trunk roads (including3,780 km of primary roads, 9,580 km of secondaryroads, 770 km of town roads) and about 14,160 km of feeder roads. Additionally,there are 6,000 km of village tracks and private mining and timber company roads. About 70S of trunk roads and 802 of feeder roads are located in the southernhalf of the country where populationand economic activitiesare concentrated.
237. Public roads come under the jurisdictionof the Ministry of Roads and Highways (HRH),which operates through two agencies,the Ghana Highway Authority (GHA) for trunk roads, and the Departmentof Feeder Roads (DFR) for feeder roads. In 1988, the Governmentset up a third agency, the Department of Urban Roads (DUR), under MRH to look after urban roads.
238. The Government establishedGHA in 1974 as an autonomousbody with its ow,.Board of Directorswhich the Government appoints. GHA carries out the majority of routinemaintenance and part of periodic maintenanceof trunk roade through its own work force. Contractorsdo all other periodic maintenance,and constructionand reconstructionworks under GHA supervisionand administration.
239. Because of inadequatemaintenance road conditions in Ghana have deterioratedto such an extent that some importantroad sectionshave become practicallyimpassable. Road transportcosts are high all over the country. According to data GHA has compiled,the conditionof trunk roads is 15Z good, 40Z fair, and 452 poor, ranging from moderate to severe failure. Average vehicle operatingcosts are estimated about 15Z higher for 'fair',40Z higher for 'moderatefailure", and 652 higher for 'severe failure',compared to 'good' roads.
240. The main factors responsiblefor Ghana's poor road conditions are:
(i) Past neglect of road maintenance,causing huge backlogs to be cleared;
(ii) Insufficientforeign and local inputs. This is due to the critical financialsituation of the Government;
(iii) Delays in payment to contractors,particularly before the proper functioningof the Road Fund in 1988;
(iv) Institutionalconstraints at MRH, GHA and DFR, in planning and executinglarge programs; and - 95 -
(v) low wages for Governmentworkers, resulting in lack of incentivesfor attractingprofessional staff at middle and senior levels.
241. All these constraintsare being addressed,since 1984, through various measures and projects being implementedunder the SAP. Rehabilitationof the transuortsector should receivehigh priority in allocationof resourcesin view of the dilapidatedcondition of the basic transport infrastructureand its key role in helping economic recovery.
242. Sector Obiectives. Sector objectivesfollow on directly from the state of the sector describedin the previous section. The Government of Ghana has adopted the followingas its sector objectives:
(a) Implementa road rehabilitationand backlog-clearance prugram which will stabilizeroad conditionsat acceptable levels by 1993;
(b) To arrest the further deteriorationof the highway network from its present much deterioratedcondition;
(c) To rehabilitatethe network as fast as possible while observing financialpossibilities and constraintsof managementcapecity, and criteria of cost effectiveness;and
(d) To reduce user costs while improvingthe level of service the sector suppliesto the productivesectors of the economy, especiallyto the export sector.
243. Sector Strategy. The main componentsof the strategy the Governmenthas developedto achieve the above stated objectivesare as follows:
(a) To increasemaintenance expenditures on the existing system to the point where no further det>-iorationoc,!urs in the road network;
(b) For those sections of the networt.which have deterioratedto the point where they can not be maintainedat a reasonableeconomic cost, to invest in their rehabilitationas a first step and to maintain them adequatelyonce rehabilitated;
(c) To strengthensector institutionsin all managementareas, planning, programingimplementation and in projectmonitoring involvingboth the capital maintenanceand other current expenditures. The aim is to enhance efficiencyand cost effectiveness;and
(d) To promote policies that encouragea more efficientuse of resourcesin the sector. Such policies include enhanced cost recovery from users, privatization,increased use of contract work, and steps to strengthencompetition in the sector between the suppliersof transport services. _ 96 -
244. IDA has been actively involved in the developmentof the above mentioned strategy and has provided financialsupport for its implementationin two recent operations. The first is the Roads Maintenanceand RehabilitationProject (Cr. 1601-GH),and the second is the TransportRehabilitation Project (Cr. 1858-GH). Both projects are going well and are making a substantialcontribution towards the implementation of the strategy and achievingits objectives. The TRP-I covers the first two years (1988-89)of the 7-year Road StabilizationProgram; a follow-up TRP-II, under preparation,will cover the next three years of this program.
2. PUBLIC EXPENDITUREPROGRAM
245. The Multi-Year PIP Packaae. The highway sector has commanded the largest share of Vhana's capital budget over the last years. The reasons for this high proportionwere explainedin the previous sections. The multi-year 1988 PIP package consistedof 42 projects for a total of cedis 199.3 billion in 1989 prices. By comparison,the multi-year 1989 PIP has 43 projects totallingcedis 226.8 billion. In real terms there has been an increase in the total works value of about 102; in relative amounts the escalation is within tolerable limits. In the 1989 PIP the Task Force dropped five projects and added eight new ones by comparisonwith the 1988 PIP.
246. Like its 1988 predecessor,the 1989 multi-year PIP package closely reflects the strategy described in the previous section. Project content mostly consists of increased maintenance outlays and rehabilitationi works. Feeder road development, though still modest in amounts, has increased three and a half times, this also reflects the bringing of cocoa- roads, previously financed by Cocobod, under the responsibility of MRH/DFR for execution within the scope of Government budget.
247. The three year investment package for 1989-1991 adds up to cedis 87.0 billion, consisting of US$207 million in foreign currency costs and cedis 33.1 billion in local currency costs. The annuel spending average is thus about US$69 million in foreign exchange and cedis 11.0 billion in local currency.
248. The 1989 PIP Program. For 1989, the total investment budget is cedis 25.0 billion consisting of US$47.9 million in foreign costs and cedis 12.6 billion in local costs. The following table summarizes project financing details shown in Annex 1: - 97 -
1989 Budget Summary by Financing Source ------.------Codis billion
Total Works 25.0 of which
ODA, secured foreign costs 7.2 local costs 2.4 9.6
ODA, unsecured foreign costs 0.3 local costs 0.2 0.5
Govt budget foreign costs 4.9 local costs 7.5 i.2.4
Other local costs 2.5 ------
249. Actual spending out of the Government budget was on target during the first six months of 1988, at 56Z of the year's allocation. The flow of road funds for road network backlog clearance program is good, and budget topping up is proceeding in a satisfactory m.;nner although with some delay. MRH expects to receive full topping up by year-end. Road maintenance activity in 1989 will be at an all-time peak, with volume about three times annual volume in past 15 years. Seventy percent of this activity, which is ready for implementation, is funded from foreign aid and provision of counterpart local funding from local budget as a supercore item will be essential.
250. The Government has awarded many contracts since August 1988, and about US$50 million worth of additional contracts are in the bidding process. However, 14 out of the 36 projects listed in the 1989 PIP as continuation from 1988 are de facto new projects. These will incur expenditures in 1989 for the first time in their history.
Conments on Individual Proiect Files
251. DFROO1 Maintenance of Feeder Roads DFRO02 Development of Feeder Roads DFR003 Development of Cocoa Roads DFRO04 Logistic Support and Building
All the four are much needed projects. IDA is participating in the financing of three out of the four projects. - 98 -
252. HWYOO1 Road Rehabilitation and Maintenance Proiect and HVYOO4 Backlog ClearanceProiect. These projects are being financed by a consortium of donors includingIDA. They have a high ERR, exceeding30Z, and fit in very well with the Government'sstrategy for the sector. A recent IDA Mission has found that the project is progressingin a satisfactoryway. The planned level of the works to be execul-edover 1989 is US$ 14.0 million. Project preparationis highly advanced, and bidding processeshave started. Though the volume of wcrk for 1989 is high, if local funding for matching the foreign funding is provided, the chance of full achievementis high.
253. HWY002 Reconstructionof the Nsawan-AnvinamRoad. This project originally containeda US$8m component,consisting of a road-and-bridge diversionaround a residentialarea, whose priority is questionablegiven the cost. Also, the Ministry agreed to take out the Nsawam-NkrumaRing road from the project profiles and to include it in a separate project. The Ministry instructedGHA to revise the project file accordingly. This added sectionwas ori3inallypart of the IDA-financedAccra District Rehabilitationproject. The sectionhad a satisfactoryERR but was kept out due to cost over-run on other components.
254. HWYOO9 Reconstructionof Soaakofe-AflaoRoad. The funding of this road is still to be secured from EEC. The financialand implementationaspects of the project, and an economic assessment,are still to be finalized. Project implementationwill begin in 1990 at the earliest.
255. HWY013 Reconstructionof Kaneshie-MalemRoad. The draft proposal submitted for this project shows a sharp cost increase compared with project estimates submittedlast year. This is due to the inclusion of a high standard ring road section. An understandingwas reachedwith the PNDC Secretaryto reduce project costs and scope, and to separate out the new section as a new project. A cost range of US$2-3m would seem reasonablefor the new project, but revised details need to be worked out by GHA.
256 HWY021 Reconstructionof the Kumasi-MampongRoad. The funding of this project is not secured. It is recommendedthat the start of this project be postponed to 1990.
257. HWY022 Kumasi-KintampoRoad RehabilitationProiect and HWY023 Reconstructionof Tamale-PaRaRoad. Detailed engineeringfinanced under IDA is proceeding on the basis of very high design standards,resulting in a possible doubling of cost estimates;GHA was requestedto instruct the consultants(Kocks and BCEOM) to conform to general specifications recommendedin the feasibilityreport, and reflected in the World Bank's staff AppraisalReport for TRP. This component,under TRP-I, is to be financed by Japanese Credit; IDA will find it difficultto supportmajor cost increasesas a result of higher specificationsnot supportedby adequate economic justification.
258. HWY033 GHA Building Project. The multi-year cost of this project has escalatedby a factor of about seven, even though the initial - 99 - allocationwas small. The project is funded by GOG, IDA and EEC, and covers stores and warehouses for parts, some office improvements,and limited housing for staff which is essentialto attract and retain qualified technical staff. However, the implementationof this project could be stretchedto four years instead of the scheduledtwo as part of an effort not to overtax QHA's implementationcapacity, and to reduce the burden on the budget.
3. SPECIAL ISSUES
259. The most outstandingissue concerningthe highway sector is the need to provide sufficientlocal funds, as Road Fund and budget topping up, to finance the large road maintenancebacklog clearanceprogram that is ready for acceleratedimplementation in 1989. These funds are essentialto match and complement financingcommitted by foreign agqncies;local fund availabilityshould be assured in advance, so as to invite and award contracts on time.
4. RECOMMENDATIONS
260. The preparationof the investmentportfolio reflects the strengthenedplanning and implementationcapacity of the Ministr- and the Ghana Highway Authority. The portfoliois balanced and addressesthe sectoral objectives. The followingare general recommendationsresulting from a project-by-projectreview:
(a) The substantialreal increaseof intended expenditureand nimber of de facto new projects for 1989 will require close supervision to ensure that contractsare executed on schedule and according to specification.
(b) Particularattention will be required in project management to avoid the potentialbottleneck of slow translationof secured donor funding from commitmentsinto actual disbursements.
(c) Very high design standardscontribute to excessivecosts for a number of projects. A review is necessary to ensure that, where requirementsdo not justify such design standards, revisions will be made to reduce costs. 3 ! a 3 :j Z°:ZR8 Zw 3 5- 3- - - - ~-i- - - - o ------
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.oi;8§$*,°'; - -;
- 001 - Annex 5.H.1 (Cont.) PUBLIC INVESTMENT PROGRAMIE 1989 - 1991
FUNUING SIAIUS -ANALYSIS Of SOUR(ES Or FUNDING fOR 1989 (IN M4ILLION CEDIS)
I 9 9 ~~~~~~~~~~OA l BUDGETARYRESaJiRCES II1 OTHER SOQECESOr FUNDING I1I I I I I------* - * ------I ------…------…99------0-- -9 I I 9 I 9~~~~~~~~~~~~~~~BDET I NET 99 fOREIGN COMERCIAE OWN 9 SOESYIC 99 1 ROADS £ HIGHWAYS I SECURED I Seat IlC'PARE FUNDS I LEND!NG 99 fEliNES I ffN I FUNS I OWWING 99 £A I PROJECT 9PROJECT I------I----- 1I------I------9 ExchangeRate U)311= 260 Cedis I NUMBER5 ICOS719891 FC ILC IFC I LC 9 FC I LC f C I LCFt 99 FCC ICLC FC 9 LC fC LC 99 5
ProjectfStudliest9Preparation1111Y 020/88 1 2319120991 221 I 99 I I I II I I I I I 2319 Reonas. IIlehab.of Kumasi-Mauyng"fd.9NWY021188 I 165 1 I 409 II I 1251 I 9 I I I I I 9 9I 65 Rehab.of EKatasmKsntaaqpo td. HIlT022188 I I I I II I I I I I I I 9 9I Recons.of Tamale-PagaRtd. 9HUY 023/88 1 188 I I20 9 168 91 Ij I I I ' BridgeDev. Prog. - WIN HmWY025/88 I 35- 9 175 9 l8a? I I I I II I I 35?9
Bridge Recons.- Fu.b,siValley IHWY 026/889 311ir I I I Z3? 9 90 9 I I I I II 31? 9 Elubo-Asemk.oi Rd.Cons- 916WY02718891 90 9 50 I 40I I II I 91 9 I9 9 9 9 9 I9' 909 Awaso-Sibian,-NobekawRd.Rehab. 9MWY 028/889 70 9 40 30 9 III I I 9 I I I 9 9 9I Netbekas-Nim-BedmakolkramRd.BRehab.1HWY 029,88I1 5591 309 251 I I I I I I I 559
AgonaJuanction-larkwa Rd.Rehab. HIlT030/88 I 236 9 152 9 84 9 If I I I I II I I I 9I I 236 9 Accra-YamoransaRd.Rehab. 9HWY011/88 I I I I I II I 9 I I I 9 I I 9 I II I LogisticSupport Proj. IHWY032/8891 3161 9 I I 112?511 65 1 9 II I I I I 9I I 31169I GOA£Building Proj. HIlt033/88 I 423 I 100 9 144 9 9 II I i58 I I II I I I I 9 21 9 I I 23 9 Dabala-Srogboe-KetaRdfRehab 9HWY034/1889 3531 I I 2141 1399 I 99 I I I I I 9I I 3539I
AccraCity Centre Improvement Proj. IHtWY031/88 9 376 9 9 III 199 178 9 9 II I I I I9 I Wideningof LiberationRoad INSET038/89 9 45 9 I 9 9 II 9 45 9 I I I I I I I I I 99 4s I RoadSafety £ MarkingProg. IHWY039/89 I 27119 146 9 9 I 99 9 125 1 I I II I I I I 2*1 I BaileyBridge Becons.Prog. PP'.2 9'WY 040/899 ~ 33 9 I I I II 303 9 130 I I II I I I I I I II 433 9 SecondRoad TransportSector Rehab.PriNWIfY 041/89 I 41 9 9 I 3 19 8 I 91 I II I I I 9 I I I 1I1 Ring RoadVWestRecons.Proj. 9NW1 042/891 312I I I I 1 II 189 125 I I II I I I I I I I I 31291 Rehab.of lema-Aksa.botRd. 9HuY04318991 1271 I 359 II 15 s 9 1 I I I It~2 I I4 1 II 112791
6G4ASUB-SECTOR TOTALS 9 36 9 19699 96328I 1260 9 218 1 214 II 4329 9 518? I I II I I I I 42 I 1521 I 9 II ¶9199
ROADSL1NIGHWAYS SECTORIVOIAES 1 4391 2503717212 12375 1 328 1 245 11 467117445 11 II I I 9 I '2I 1 z I I II 250379 - 102 -
I. W0RKS AND HOUSING SECTOR
1. SECTOR OVERVIEW
261. Background. The Ministry of Works and Housing (MWH) has responsibilityfor the initiation,formulation and coordinationof policies and programs with regard to housing (includingpublic buildings),water supply, sewerage and sewage disposal,and drainage. In addition,the Ministry is responsiblefor carrying out preventivemeasures against coastal erosion, maintenanceof public and governmentresidential buildings, coordination and supervisionof the activitiesof governmentagencies and private constructionaland engineeringorganizations involved in the executionof public projects. These governmentagencies are the Water and Sewerage Corporation (reviewedseparately), the Tema DevelopmentCorporation (TDC), the State Housing Corporation(SHC), Technical ServicesCentre (TSC), the Architecturaland EngineeringServices Corporation(AESC), the State ConstructionCorporation (SCC), the Public Works Department (PWD), and Pre- fabricatedConcrete Products Limited (PREFAB).
262. Housing. Rapid populationgrowth and increasingurbanization have made housing cne of the most critical problems currently facing the country. Constructionof houses is undertakenby both the private sector and the public sector comprisingSHC, TDC, BHC, SIC, SSNIT, and Rural CooperativeHousing (accountingfor the remaining202). The failureto meet effectivedemand over the years has created strains on the existing housing stock especiallyin the urban areas where occupancy rates are higher than the recommendedaverage. In the rural areas, although the housing problem is a qualitativeone, there is nonethelessthe need to improve and increase the housing stock to reduce the high occulpancyrate, improve living conditions,sanitation and the environment.
263. The Government'smain goals in the housing sub-sectorhave been to ensure the provisionof adequate and affordablehousing with improved infrastructuralfacilities for the population. It is in the process of formulatingpolicies directed at promotingthe long term developmentof a sustainablehousing delivery programme. The strategywill include the following:
- the establishmentof a National Housing Board to coordinatethe activitiesof all the various organizationsinvolved in housing developmentand to formulateand supervisethe effective implementationof housing policies and programs;
- the provisionof incentivessuch as tax holidays and concessionary interest rates to the private sec or to stimulateinvestment in housing;
- a shift of emphasis by the Governmentfrom the constructionof houses to the provisionof infrastructureand serviced sites;
- ensuring easy access to housing land, securing of tenure and effective land-usemanagement; - 103 -
- encouragementof the developmentand use of local building materials through researchand pilot projects. Selected building material Industrieswill be rehabilitated;
- in the case of abandonedhousing projects in the public sector, an appraisalwill be undertaken,and feasibleones completedwithin the planned period;
_ in improvementof housing standardsthrough the orderly growth of settl3mentsbased on effectiveplanning and control;
- upgrading of slum areas;
- preservationand upgrading of existing housing stock in the urban and rural areas to prevent furtherdeterioration.
264. In housing, the Government'spast policies have not succeededin either maintainingthe current housing stock in the public sector, or in meeting the increase in housing demand. According to a Government estimate, about 70,000 units are needed annually to keep up with population growth alone. The 1984 census indicatesthat, on average, about 19,000 units were constructedeach year between 1970 and 1984. Inadequatehousing takes the form of overcrowding. Persuns per dwelling rose in every region between 1970 and 1984. Rent control is a major disincentiveto private sector housing. About 402 of the urban shelterunit stock is rented. Consumer prices rose tenfold between 1970 and 1985 but controlledrents remained constant. Households in rent-controlled properties in Kumasi are paying only 41 of their incomes in rent while in Tema, the figure is 10. These are very low figures by internationalstandards. Yet the State Housing Corporation'scheapest unit is only affordableby the top 5? of the income distribution.
265. Works. The works sub-sectorconsist of the administrationand supervisionof constructionalworks in the public sector planning, design and constructionof drainage and seweragenetworks in cities and towns, constructionof flood control systems, protectionof coastal lands against sea erosion and the establishment,operation and maintenanceof hydrological stations for collectionof data, and maintenanceof Governmentbuildings includingcivil servicebungalcws.
266. The Government'sobjectives for the sub-sectorare to:
- ensure the developmentof effectivedrainage, sewerage and flood control systems in all cities, towns and villages;
- ensure the maintenanceof high standardsof sanitation;
- protect the country's 350 miles of coastlinefrom sea erosion.
- provide adequate services at Government-maintainedbuildings. 267. To be achieved,this ambitious set of objectivesin works and housing would require a substantialincrease in budget funding, and a significantstrengthening of the administrativeand supervisorycapacity of - 104 - the Ministry. The investmentplan proposed by the Ministry reflects the objectives. However, the program proposed by HWH comes at a time when the Government is beginninga significantinitiative in the urban sector which will have importantconsequences for the future role of the Ministry. This initiativeinvolves decentralizing financing and planning for such urban services as sewage and waste disposal and drainage,and also involvesnew directionsin housing policy. Coordinatedactivities of many agencies will be a part of this urban initiative,and it is not clear that the MWH will continue to have the centralmandate in all the areas cited in the above objectives.
268. Rehabilitationof urban infrastructurehas begun under the World Bank supportedAccra District RehabilitationProject and the PriorityWorks Project. The Urban II project which is currentlyunder preparationwould assist continuedrehabilitation of urban infrastructure,improve solid waste management,undertake a program of sites and services development,and extend the program of housing consolidation. In the housing sector, major initiativesto establish a housing finance company and to reform existing housing institutionsare being prepared. Finally, there are reforms underway to improve revenue mobilizationand undertakeproperty revaluationin Accra, and in the planning stage in Tema, Taboradi-Sebondi,Tamale and Kumasi.
2. PUBLIC EXPENDITUREPROGRAM
269. 1989 PIP Package Overview. The 1989 PIP consists of 24 projects, all of which are ongoing from previous years. The projects fall into two broad categories.The first, housing, includes a range of projects from rehabilitationto new construction. The second category comprises infrastructureprojects mostly for coastal defense and drainage to enhance protectionof urban settlements from flooding either from the sea or from inland waterways.
270. The 1989 multi-yearpackage representsan investmentcost of cedis 65.4 billion (US$251.5million equivalent)with a foreign exchange component of US$127.7 million. The fundingof most of the foreign exchange component is unsecured. The largest projects over 1989-91 are the Keta coastal defense project (28Z), the Accra District Rehabilitationproject (5Z) and the Public Housing project (16Z).
271. Compared to the 1988 multi-yearPIP package, there has been an escalationof about 142 in real terms of project costs. As was noted in the review of the program last year, the proposed level of annual spending is unrealisticeither in terms of financialpossibility or institutional capability. These limitationswere eminent during 1988, during which only 12? of the MWH investmentbudget had been spent through the third quarter.
272. 1989 Budget Overview. The capital budget for 1989 proposed in the PIP totals 5.5 billion cedis, includinga foreign exchange component of US$8.5 million. About 70X of the amount in foreignexchange is funded. By comparison,the 1989 budget appearing in the 1988 PIP, when adjusted to the 1989 price level, totals 3.6 billion cedis. In real terms, the 1989 budget has escalated from the last PIP by 44Z. However, only 2? of 1989 funding is unsecured,with almost 77Z funding coming from budgetary resources. - 105 -
273. Nevertheless,performance during 1988 and institutional constraintsput in doubt the feasibilityof the proposed level of spending. While the importanceof the sector to the economy is not in question, the proposed 1989 budget requires substantialscaling down. Such a scaling down would not prevent an increase in the level of capital spending in subsequent years based on well prepared and economicallyjustified projects. Future increasedspending levels require also a matching institutionalcapability for efficient implementation.
274. Recommendationsfor the scalingdown of the 1989 budget are spelled out below. The proposed scaling down takes into account sector prioritiesand strategy as outlined above.
275. WHOOl ACCRA District RehrbilitationProiects. The project is financed by an IDA credit. 1988 disbursementssuggest that the project is on schedule. The project has a high ERR. There is no other project in the Works and Housing Sector that would command equal priority,when applying both ERR and state of readinesscriteria.
276. WHOO2 Secondary Cities Rehabilitation Project. This project is proposed to begin in 1990, but it remains unfunded. The Ministry hopes that part of this project will be financed under the Urban II project under preparation with ID... Feasibility work to define project scope is underway. The Ministry expects the feasibility work to be completed at the end of 1989. Pending its results, it is recommended that only its costs be included in the 1989 PIP.
277. WHOO3 Expansion of Slum Communities WHOO4 Infrastructure Services for Housing Development WHOO5 Rehabilitation of Government Bungalows and Buildings
These projects are to be entirely funded out of the Government budget in 1989, but parts may be included in the Bank's Urban II Project in subsequent years. The projects stage of preparation is similar to WH002, anJ significant funding beyond preparatory work is not advised.
278. WHOO6 Acquisition of SSNIT Flats and Completion of Ongoing Public Housing Projects. This project mostly comprises the completion of 5400 units of abandoned shelter units, and/or units whose construction is incomplete. The proposed implementation rate, about 100 units per year, is much lower than implied by the number of units it includes. The State Housing Corporation is carrying out an inventory to establish precise rehabilitation needs. The project financing plan assumes IDA support of US$12 million as part of Urban II, which is currently under preparation.
279. The Ministry had not spent any of the 550 million cedis budget allocation for this project in 1988 through September, yet the 1989 proposal shows a 40Z increase in the capital Ludget. It is recommended that the budgetary allocation for 1989 be limited to 300 million cee4.s.
280. WHOO7 Serviced Land for Industrial Proiect WHOO9 Resource Mobilization And Development Project WHO10 Urban Low Cost and Rural HousinR ProRram - 106 -
WHOll InstitutionalStrenrthening of MWH WHO13 Rehabilitationand Completionof State Buildings and Monuments WHO14 OperationalStudies for the Shelther Sector WHO15 Rehabilitationof Stream Gauging Network.
Each of these projects is costed in the range of US$l-3 million. Projects WHO10, WHOll, WHO13 and WHO14 are institution-buildingprojects involving studies and technicalassistance. The 'JNDPand ILO are being solicitedfor assistance. For WHO10 the Governmentplans to seek assistancefrom IDA under Urban II. Project WHOO9 is a trainingproject for brick layers combinedwith the establishmentof a pilot plan for the productionof bricks, under UNDP technical assistance. Project WHO15 has as its objectivethe rehabilitation of over 200 gauging stations in order to ensure that hydrologicaldata in the country is adequatelycollected for use in hydraulic structuredesigns in all types of engineeringprojects.
281. Each one of the above projects addresses itself to a particular institutionalweakness in the sector and involveknow-how transfer. Project objectivesare in line with sector strategyand consistentwith sector priorities. These projects are supported,but close supervisionis recommendedfor quality control and cost effectiveness.
282. WHO16 Keta Coastal ProtectionProject. This project represents about one quarter of the Sector's PIP project portfolio for 1989, and a total cost of US $26.6 million for the next three years alone. The Governmentis planning to solicit foreign assistancetotalling US $9.8 million, none of which has been secured. The project has been in the books of the Government capital budget for many decades and considerablesums have been spent in studies.
283. The project addressescoastal erosion problems and aims to protect the coastline from the encroachmentof the Atlantic Ocean which is slowly but steadily eroding the sandbar to ultimatelyflood the lagoon and the township of Keta. In addition the project aims to open up large tracks of agricultural land reportedlyof high fertilityin the Avu-Keta basin.
284. The Ministry has submittedthe project on the basis of a brief feasibilityreport which lists ten prior feasibilitystudies made on various aspects of the project between 1959 and 1985. The report provides brief descriptionsof what each one of the previous studies has accomplished. These mostly concentratedon the agriculturalaspects of the project rather than its coastal protectionaspects.
285. Following a study executed by NEDECO some work was done on coastal defense. However the Ministry has since consideredthis approach to have been unsuccessful. Available data on agriculturalaspects are not sufficientto evaluate whether this project should be given priority as part of the country'soptions for agriculturaldevelopment.
286. For this project to be included in the PIP it is crucial to determinewhether it is technicallypossible to protect the coast from the inroads of the ocean by means of an affordableinvestment. Negotiationswith - 107 - an Italian consultanthave taken place recently on coastal defence aspects of the project and are going on with SOGREAH which has been asked to submit a proposal on the technicaland cost aspects of coastal defense.
287. The SOGREAH effort is expected to be brief. Apparentlythe Ministry does not intend to carry out hydrographicmodel work, and thinks that constructioncould start during 1989. The 1989 PIP budget has been set up accordingly.
288. Any work on agriculturalproject aspects without solving the coastal defense issue is equivalentto putting the cart before the horse. For works of this complexityinvolving coastal defense against an ocean, extensive model testing is an essentialprerequisite. All alternativesto this course of action are fraughtwith peril. It is strongly recommendedthat this project be taken out of PIP except for coastal defense studieswith adequate terms of reference.
289. WHO17 Coastal ProtectionWorks WHO18 Accra Drainage Proiect WHO19 Regional Drainage Schemes WHO20 Korle Lagoon Re-DredgingScheme
All these projects are for financingstudies and doing minor drainageworks. The amounts in the 1989 PIP are under US$1.0 million for each project. The Ministry is not solicitingODA financingfor them. The areas effected are in most cases densely populatedurban areas. In some cases the projects will improve environmentalquality also. The Mission supports these projects.
290. WHO21 Logistic Support for AESC WH022 AESC Building.
The recipient of the proposed budgets is a parastatalunder the Ministry's oversight. The budgets are for office aids like drafting tables and for some improvementsin their office building. The budget requested for the two together is about US$0.75 million equivalent. The AESC is further discussed in Section 3 below on special issues.
291. WH023 Connectionof GovernmentProperties to the Accra Central Sewerage System WH024 PWD Building and Logistic Support project WH025 Constructionof Elubo Border Post
These are small projects all locally financed. The Mission does not have any comments concerningtheir scope or the amounts entered in the 1989 capital budget.
3. SPECIAL ISSUES
292. Three parastatalsare key in the sector.Each reflects some of the structuraldifficulties the sector faces. The first one of these parastatals is the DevelopmentCorporation (TDC) the second the Architecturaland EngineeringServices Corporation (AESC) and the third the State Housing Corporation (SHC). - 108 -
293. The TDC is a state-ownedcorporation established in 1952 to develop an area of about 680 sq miles as a new town in 1967 with a population expected to reach 200,000 over fifteenyears. Its 1988 population is about half that number. TDC owns about 17,000 shelter units and a small shopping center in its concessionairearea.
294. Due to the workings of the rent control act presently in force it charges the equivalentof between US$1.60-18.00per month for shelterunits ranging from one to four bedrooms. TDC succeeds in collecting 85-90Z of its rent income althoughwith arrears of up to six months. It is doubtful if the rent covers collectioncosts, let alone maintenancecosts. With 650 employees on the payroll, TDC is able to cover only a fraction of its current costs while its assets, namely the shelter units, are in a very poor state of repair.
295. The future of TDC as a corporationthat can play a meaningful role in the housing sector and survive in a competitiveenvironment requires urgent attentionover the 1990 PIP period.
296. The second parastatal is the AESC. This is a large consulting company in the Ghanaian context,with a workforce of about 1000 staff. It is active in practicallyall engineeringdisciplines. It enjoys a quasi- monopoly for those works which are not tendered to internationalconsultants. It is to be reorganizedunder the Urban II Project. Terms of referencehave been completed to begin studies on options for reorganization;these studies will be completedby October 1989. The Justificationof its retentionas a state owned parastatalwith quasi monopoly rights is not compatiblewith ecoromic efficiencyor with the developmentof local professionalresources. The future of this parastatalunder its present status requiresurgent attention.
297. The financialcondition of the State Housing Corporationis similar to the TDC. In addition,there is no coordinationwith PWD which is responsiblefor maintainingthe Corporation'sshelter units out of the Government budget. The Corporationitself is confined to collecting rent from the occupants of the same shelter units.
298. The 1989 project file portfoliofor MWH reflects some of the institutionalconstraints the sector faces. The constraintscover all main facets, includir.gproject preparationand definition,scheduling, budget reporting,project costing and financialplanning. Due to the limitations apparent in each one of the above, it is difficult to review in meaningful detail most of the projects included for this sector in the PIP.
4. RECOMMENDATIONS
299. Achieving the right mix of investmentprojects to supportthe new initiativesbeing prepared in the works and housing sub-sectorswill take some time to put in place. Some restructuringof the project portfolio is likely, and in the short-run, it will be importantnot to devote substantialresources to on-going or new projects whose objectivesmay become peripheral. Sluggish performance in implementingthe sector strategy also suggests caution in embarking upon too ambitiousa program for the near term. _ 109 -
300. Strengthenedplanning and implementationcapacity is urgently needed in anticipationof, and as a complementto, a more active investment program in the sector. Decisionspertaining to the issue of decentralization for financingand planning of urban servicesneed to be taken in order that a coherent program for improvingsuch institutionalcapacity can be designed.
301. The Keta Coastal ProtectionProject warrants critical attention because of its technicalcomplexity and its importantshare (25Z) of total sector investmentover 1989-91. It is recommendedthat, apart from additional studies, expenditureon the project only proceed if feasibilityis demonstratedon a technicallevel, and if the costs are justifiable. - 110 -
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J. EDUCATION SECTOR
1. SECTOR STRATEGY
302. Background. During the first two decades after independence Ghana had one of the most developed school systems in West Africa. However, concomitantwith the collapse of the economy in the second half of the 19709 and early 1980s, the school eystem has progressively deteriorated. In the 1970s, educationexpenditures averaged 3.42 of Ghana's GDP, compsred with an average of 5.2Z for Sub-Saharananglophone countries. In 1983 and 1984 when Ghana euffered from the worst drought in history and a sudden inflow of one million returnees,tkis ratio became as low as 11 of Ghana's GDP. In the face of serious budgetary constraints, qualified teachers throughoutthe system left in unprecedentednumbers, to be replaced by even larger numbers of untrained and inexperiencedteachers. Instructionalmaterials all but disappeared,and the physical infrastructureof primary and secondaryschools and at the universitieswas not maintained. Dropout rates steeply increased. As a result, graduates poured into the job market, largely untrainedand unequipped to respond to the changing demands and economic opportunitiesavailable in the late 1980s.
303. To overcome decay, the educationsystem requiredurgent rehabilitation;restructuring of the prioritieswas needed for the system to respond to the current demands. As a part of its overall effort for economic recovery and development,Government embarked in 1986 on a sector- wide program of educationalreforms. Implementationof this program required a steep increase in the budgetarycosts of educationwhich was beyond the Government'smeans. Supplementalbudgetary supportwas thereforeprovided by IDA to enable the Governmentto launch the refo-ii program at the primary and secondaryschool level during its first three years (1987-89)of implementation. The second three-yearphase (1990-93) of the reform program is currentlybeing prepared, inc'ludingreforms of the university system.
304. Obiectives. The reform program has three main objectives:to improvepedagogic effectiveness;to make education financingmore efficient and equitable;and to ensure that the reformed system can be sustainedwith national resourceswithin modest growth expectations.
305. Strategy. A key element in the restructuringof the educatisnal system is the phased introductionof a Junior SecondarySchool system and a consequent redaxctionin the length of pre-universityeducation from 17 to 12 years. This will allow scarce pedagogic resourcesto be concentrated more effectivelyand will reduce considerablythe private and public investmentin the education of each child. This program is being supported by developmentof a revised curriculum,teacher training,and examination system.
306. The Government is also developingstrategies to ensure that primary school intakeswill eventuallygrow by at least 62 per year. This - 112 -
is to be achieved through.media campaigns,greater curriculum relevance, increasedteacher accountabilityand adequate suppliesof educational material.
307. Policies addressing the secondary level are to double throughput,with increasingemphasis on science and technology. To improve the effectivenessand holding power of basic education,enrollments at in- service teacher training programs will increase significantlyso that all untrainedteachers will be eliminated from the system by 1993. For technicaleducation and vocational training to play a direct role in promotingnational development,curricula and program will be directed at preparing the youth for productive "self-employment"and work in the informal sector.
308. At the higher education level, priority will be attached to improving the management of financial,human, and physical resources; to integratetertiary education firmly into the naticnal educational structure;and direct curriculaand programs so that graduates play an active role in national developrment,especially in rural and technological areas.
309. Finally, to ensure a maximum level of public participationin the political as well as the development process, the Government has decided to reduce the 70Z adult illiteracy rate. It plans to complement the education reform program with a massive functional literacy campaign that will be extended to full nationwide coverage by 1992.
310. The first phase of the Government's education reform program is concentrating on (a) reducing the length of pre-university schooling from 17 to 12 years; (b) improving pedagogic efficiency and budgeting procedures; and (c) effecting cost savings mainly through reducing staffing levels, and cost recovery by removing boarding subsidies and charging economic fees for the use of books. 'hile the second phase of the reform program will continue to seek strengthening of these policy objectives, there is expected to be a greater emphasis on (a) rehabilitating higher education, with further progress in cost recovery; and (b) expanding primary school enrollments and upgrading the primary school teaching force. In the PIP, the focus will continue to be rehabilitation of facilities, with a priority given to non-tertiary education. Non-aid financed capital expenditures on higher education will await establishment of a university rationalization plan on the basis of the recently completed study.
2. PUBLIC INVESTMENT PROGRAM 1989-1991
311. Background. The first draft of the MOEC PIP included sixteen projects (almost all of which were umbrella projects), and a total 1989 PIP financial requirement of Cedis 13 billion, most of which was to come from local budgetary resources. After considerable work with the Ministry of Education and the PIP T.sk Force the number of projects was reduced to fourteen, and the total PIP financial requirement to Cedis 7.5 billion, of which only Cedis 3.6 billion is to come from local budgetary resources (See Table 5.K.1). The Ministry of Education and Culture initially proposed a Table 5.1.1 PUEtIC INVESYMENI PROGRAR4t 1989 19Q91
FUNDING SIAIUS - ANALYSIS Of SOURC'S OF FUNDING FOR 1989 (IN MILL.ION ClOtS)
I I (~~~~~OA RWIGFIARY RESOUIRCES D1INER SaUNCES Of FUNDING
I I I I I ~~~~~~~~~~~NET ~~~fl IOREIGN~~~~~~~BUDGETCCNflERCIAI. I OWN DOESlIC fl IEDUCATION II I SECURED I fieN IIC'PART FUNDS I LENODING fl SECUREDo FTrEE FUNDS I NORONRNING fl IPROJECT IPROJECT I .---.- - - - - I-I.--1 - - - - -I --.-- - -- II -- - --. - I------I------I -.--- - - iC JOYAtS ExchNnge Rate US$1 260 (edist NWBOER ICIlS?19891 FC ItL Ft ItL 1 Ft ItI FC I C 11 C j LC j Ft ( tC I LCC ILC IFC 11
IrcducationRehab. Proi. IED001/86I1 6521 6151 91 II 28) i 6521 i30 jSecondtCycle lnst.RBid.Rehab. 1(0 0021M 1 11010 1 4271 I l mlIl3ll 1 33 Zfl I2tulCycle Inst. Equip. etc. 3ED 003/88 73 I 110 I I III 3 125 I I I1 I I I I I I I i Ii-. IJSSImt.0Development p11 00(4/881 18471 797 110501 I It I I I II I I I I I I I I1I KI 69I ISuspendedProj. toepi. lE O00/88 I 6519 230 1159 I f 3001 I I I I I
:1st Cycte Inst. Rehabh. lED 00~6i88 606 j I 253 I II I I II I I I I I 606 372 ILogistics£ RId. Proj. lEO 001/88 I 3721 f 83 12891 1 1I I I I I I IDipI"wInstitutions JE 008/Sf. I SilI I II I 1I I II I I II II1 SI I IfnAridicsppedErg. Inst. jED 009/88 I 7' I I I I I I 7' I II I I I I I ?I IlogisticSupport for GES jED 010j88 420 I 13?1 38 I I II 2451 I I II I I I I I I I
INinistryof Education lED011/88 I 168 I 121 I I I 4? I I I 6 luniversityof Ghanas IlD013/88 J 249 I I I ''I I I I I III I II 249I jUniv.of Sc.A iTech. lED 014/88 4651 I 109 13561I I I I II 465 I (Univ.of Cape-Coast IEDDiva/88 3201 I 109 I 211i I II I I I I I I II 320
IEDUCAIION SEC70ORTOTALS 141 7-526I12010I119371 I i413I13166I I I I I I I I I i 75261 - 114 - large PIP, since 1988 actual expenditureswere much higher than the allocation,with many projects spending twice or more of the budget approved. In the revisionof the original 1989 PIP proposal the greatest reductionstook place in the two largestumbrella projects (ED 002 and ED 005) and in the projects of the three universities(ED 013, ED 014, ED 015). For example ED 002 was reducedby 552, and ED 013 by 772.
312. In the revisedPIP (includingforeign aid resources),302 is for basic education,402 for second cycle education,and 152 for the three universities. The remaining152 is for cultural activities,and administrativeand logisticalsupport services. Of the Cedis 3,579 million to be financed from budgetaryfunds, 342 is for second cycle institutions, 33Z for the three un.versities,132 for basic education;and the remainder for culture and administration.This overall balance among education levels is much more in line with Government'sstated policies than was the case with the 1988 PIP, where for example 212 of total PIP resources,and 542 of budgetary fund resourceswere allocatedto the three universities. The balance and size of the PIP allocationand distributionfor 1989 are also acceptablein terms of EdSAC conditionalities.
313. General Comments. A project or program should not be included in the PIP merely because it is foreignaided. In general it is recommendedthat projectswhose resourcesare used largely for recurrent items, even though financedwith foreigndonor support, should not be included in the PIP. In many sectors foreign aid is being used to support recurringcosts, especiallywhen funds are provided for policy-basedor adjustmentlending. In the social sectors foreignaid funds are at present being used to support operationalexpenditures for items such as the printing of text and exercisebooks, provision of drugs, and vaccinations. The Bank's Health and EducationRehabilitation Project funding text and exercise books and is includedunder the PIP (ED 001), whilst fundingunder EdSAC for similar items is not included. Thus in future years it is recommendedthat project ED 001 should not be included in the PIP.
314. The vast majority of projects in the educationPIP are umbrella projects,especially the following:
- ED 002 150 sub-projects - ED 003 9 sub-projects - ED 005 236 sub-projects - ED 006 2 sub-projects - ED 007 17 sub-projects - ED 008 6 sub-projects - ED 009 10 sub-projects - ED 010 49 sub-projects - ED 011 11 sub-projects - ED 013 18 sub-projects - ED 014 17 sub-projects - ED 015 12 sub-projects
Total 530 sub-projects - 115 -
It should be noted .hat there are no precise details on the number of active sub-projectsunder ED 005 - the number might be greater than 206. Obviously it is neither possible for the Ministry oi Educationand Culture (MOEC)nor the Architecturaland EngineeringServices Corporation(AESC) to effectivelymonitor and supervisesuch a high number of activities throughout the country. In addition,with so many active sub-projects, very few actually get completed in any one year, since whatever resources are available are spread thinly amongst a huge number of sub-projects.
315. Planning involves choosing prioritieson the basis of rational criteria. Since the Planning and BudgetingDivision in the HOEC is currentlybeing strengthenedwith both add't;onalGhanaian staff and with technicalassistance it is suggestedthat before any funds are released in the 1989 fiscal year for the Education PIP, for each project the sub- projects are grouped into three categoriesnamely:
- One third (First Priority). Projects that are nearest completion,and that can definitelybe completedin 1989, if sufficientfunds are allocated.
- One third (SecondPriority). Projects that can be completed in one year or at the worst in two years.
- One third (Third Priority). All other projects.
During the 1989 fiscal year, funds would initiallyonly be released for the first priority sub-projects,with all other sub-projectseither put in suspense,or allocated the minimum amounts necessary to keep them from being suspended. Whenever a sub-projectis completedthe MOEC would have the right to activate a project from the second priority list. In this way never more than about 175 sub-projectswould be active at any one time. No constructionsub-project should be approved for financingin 1989 unless there is a proper contract with the contractor,specifying precisely the quantities of work to be done, and includingdetailed bills of quantities and pricing. No change in either the scope of work, nor in the bills of quantities should be allowed without the prior approval in writing of the MOEC, and perhaps even the MFEP. In addition,before any second priority sub-projectis reactivatedthere should be an agreementbetween AESC and the contractor,which would include the agreed price for completingthe project as well as a work plan. Penalty clauses for late completionof projects should be strictly enforced.
316. Not all incompleteconstruction projects should necessarilybe completed. In many cases so little work has been done that there is no advantage in continuingthe work, in other cases the initialbuilding has been over designed or badly designed,and in yet other cases the building is not needed. Before any allocationis made to complete a building there should be an evaluationas to whether this is cost effective,and functionallyjustified.
317. The MOEC is having substantialproblems with cost overrunswith its constructionprojects, which are designed,tendered, monitored, and certifiedcomplete for contract payment by the AESC. To remedy this the - 116 -
MOEC should have a small building unit staffedwith professionalengineers and architectsto monitor the progress being made with building projects under the Ministry. No variationof more than IOZ in a contract should be accepted without the prior approval of this building u:iit. A system of sanctions,involving a reductionin AESC's fees should be imposed for any variation in the initial contract price of more than 50Z in one year.
318. In future years the PIP Task Force should provide all ministries and other agencieswith indicativeplanning figures for the investment budget, just as is now done for the recurrentbudget. This will obviate the need for these organizationsto do a lot detailed preparationwork for no purpose. For example for the 1989-91 PIP the initial submissionfor the 1989 PIP by the MOEC was Cedis 13 billion when only about 3.5 billion cedis was likely to be available. The indicativeplanning figures should be related to the figures in the previous year's PIP for that year. For example for the 1990 PIP the indicativeplanning figures should be roughly the same in real terms as included for that year in the 1989 PIP. In addition all agencies should be informed that from next year onwards no allocationwill be made for an umbrella projectwithout a brief description,phasing, and financingplan for each and every sub-projectsto be financed in that year.
319. There is currentlyno attempt to calculatethe recurrentcost implicationsof each investmentproject. This shortcomingneeds to be resolved quickly, or the current surge in investmentwill founder on insufficientrecurrent budget support. If for example a new stream is being added to a school this has implicationsfor the number of teachers to be employed,the learningmaterials needed and so on. There should also be an attempt to relate the maintenanceand repairscomponent of the recurrent budget (Item 4) to any new constructioncompleted. In the 1989 budget less than 1Z of the recurrentbudget for educationare allocated for maintenance,repairs and renewals,and even this is often diverted to other purposes.
320. 1988 PIP Expenditures. On the basis of returns for the first three quarters of 19d8 fiscal year there seems to be very little relationshipbetween PIP allocationsfor 1988, and budget releases.
321. 1989-1991Project Proposals. The original project submissions were not well prepared,often had little justification,and had insufficientdetail for subsequentmonitoring and evaluation. Through a collaborativeeffort between tileMOEC, the PIP Task Force, and the Bank, more realisticproject profiles have been developed. Though the existing profiles are still far from perfect, since the Bank assisted in their preparation,and was aware of data problems,of the lack of effective mechanisms for supervisingAESC, of what is happening in the regions, and of what is happening in certain institutions,the current output is an acceptable effort. - 117 -
The followingbrief comments are made on each of the PIP projects:
ED 001. In future years this project should not be included in the PIP; it in essentiallyrecurrent expenditure.
ED 002. The number of active sub-projectswill have to be further limited. A much clearer definitionof rehabilitationis needed, since on many sites visited new buildingswere being constructedto replace those in a poor state of repair.
ED 003. This project is of relatively low priority in 1989 since the new Senior SecondarySchool curriculum will not be elaborateduntil late in the year. Substantialallocations will be needed in 1990 and 1991, to support the introductionof the new secondary school curriculum. Currentlyno allocationshave been made in 1990 and 1991.
ED 005. This was the one project under which it has proved almost impossibleto identify even the approximatenumber of sub-projectsthat might be eventuallycovered. There is a potential for up to 600, though it seems only about 200 are currently active.
ED 006. The role of local communities in the implementationof this project, and its relationship to the decentralizedcommunity initiativeproject has not been worked out in any operationaldetail.
ED 007. Only one year's program is included,when this is in fact a program that will require allocationsfor several years to come. In addition there is no selectivityin the rehabilitationwork planned for the cultural centers.
ED 010. Work should not start on constructing educationoffices in all 45 new districts in 1989. 15 offices should be constructeda year over the next three years.
- ED 013-ED 015. There is a problemwith the GDR barter deal for equipment. Universitieswere unable to provide the necessary cedi cover in 1988, thus a significantproportion of their PIP allocationsin 1989 and 1990 is being devoted to paying off the costs of this barter agreement (Universityof Cape Coast 34.02, Universityof Science and Technology35.4Z, and University of Ghana 37.2Z). In addition the university submissionsare not consistentwith the - 118 -
Government'spolicy on higher educationnor vith the findings of a special task force set up by Governmentto look at the rehabilitationneeds of the tertiary education sector.
ED 012. Only two years of figures are presented,and in most respects only a one year program has been prepared. Obviouslyuniversity rehabilitation work will have to continue for many years to come.
ED 013. Somewhatmore attentioncould be devoted to prioritizingthe constructionwork planned.
ED 015. Several sub-projectswhich definitelywill not be completed in 1989 have no further allocationin 1990. Only two years (1989 and 1990) have been covered, and only 1989 has been included in any detail.
3. 1989 RECURRENT BUDGET
322. Background. The MOEC for the first time attempted to use a composite budgeting system throughobtaining detailed proposal from institutionsand regions and combiningthese together for the overall Ministry Budget. After the initial internalhearings in the MOEC a recurrentbudget of approximatelyCedis 48 billionwas presented,very significantlyhigher than the indicativebudget figure for the MOEC of Cedis 35 billion. A further set of hearings were held in the MOEC, and the draft budget was again slashedby about Cedis 8 billion to approximately Cedis 40 billion (of these cuts Cedis 1.5 billionwas from higher education and the remainderwas from the Ghana Education Service - GES). In the preliminaryhearings that took place in the Ministry of Finance and Economic Planning, for the first time in many years, the submission presented by the MOEC was hardly cut at all, with the tentativelyapproved figure of Cedis 39.9 billion only being about Cedis 300,000,000lower than that submitted. Subsequentrevisions upwards for personal emolumentsand downwards for subventionsresult in an overall recurrentbudget of Cedis 43.6 billion, or a 41.52 increase from the 1988 budget allocation(See table 5.J.2). However in this 1988 allocationthere was an unreasonably low allocationto higher education,one third lower than 1987 actual expenditures. 1988 higher educationexpenditures have been around Cedis 4.3 billion comparedwith a budget of Cedis 2.3 billion. Assuming a more realistic1988 allocationfor higher educationof 4.3 billion, the approved 1989 budget involves a 32.92 increaseover the 1988 budget. This growth is marginallygreater then inflation.
323. Despite the fact that considerablework has been done on developingcosting norms for educationover the past two years, there is no evidence that these norms have been used either in the initial composite bu.dgeting,nor in any of the processesof budget cutting carried out by the MOEC and the MFEP. However the process of developingthe norms, of discussingthem with GES and MOEC officials,and in training officialsin their use, has at least created an awarenessof the importantrelationship - 119 -
between planned activities and budgets, an awareness that has been lacking during the past decade or so.
Table G.J.2 t4in isty of b**et,* ied CuI9u,' su 40 t4_ing for 1o, 6"inot
ev T.eL Lvlo Thaw umnw t4
MD4DI$ThYew 140 99Q 7.62 8.1.6u2.000 u8,o e,ooo u.161000 40.93L000 18.646000 50.000.000C 2,964, 2s,000
141 eCTIOt4 3C U3.75 8.062,1.000 84,264.0D e 4. 7110001 215.751.000 S*2?2.0t0 4.t074.00 CHAN 11 EXICATIO.
142 EDUC4TN 61.6 24,620,211,000 23.044.29.00 7011e7,000 423,1o,000 1.M14.000 427,000m- EDUCATION
143 SOVICE 1.82 e,M31,00 464.101,000 34,041,000 39,483.000 9.4". 000 41,61,000 IP~AL
NATItAL 144 ACIVES 0.11 8364,0S,OO 20.991.000 2.121,000 2.473.000 1.2J7,000 1,646,000
145 EXATIO4 13.61 s,791,51q,000
OLTtRE 145 DIVISION 2.33 931,160,0 - 14,000,000 s,60,ooo - 267,7ee,000 643,711 000
TOTA.. MINISTRY OF EIXD1ATOIO 44,a34,584,000 30.134.478,000 903,716.000 707,373.000 398.112,000 4,864,118,000 7,399,3S,000
CUTLJRE PERCENTAE TO TOTAL EDrJCATION (3.CT) loo U7.89 2.04 1.89 0.67 10.94 16.67
324. Though there has been an attempt to prepare a composite budget for the whole of the MOEC, including schools and colleges, universities, and cultural institutions,this recurrent budget has not been treated as a composite whole in the MFEP. In addition to the Budget Task Force, there are two different units involved in budget scrutiny, one for school education, and the other for higher education. These two units tend to deal with their respective responsibilitieswith varying degrees of severity. Within the MOEC, there are also too many actors involved for there to be a really rational budget; there is the GES Planning and Budget Division, responsible for preliminary analyses of all budgets for GES; and in the Ministry itself there is a budget wing of the Planning Division; a separate budget officer; and the Higher Education Division, all looking at different parts of the MOEC budget.
325. Comparing the approved budget in 1988 with the tentatively approved budget for 1989, the following rates of growth by item can be shown: - 120 -
- Personal emoluments (Item 1) +43.0S - Travel and transport (Item 2) +33.7Z - General expenditure (Item 3) +21.62 - Haintenance (Item 4) +98.82 - Other current expenditures (Item 5) +5.0S - Subventions (Item 6) (excluding Higher Ed.) +33.841 - Subventions - Higher Ed. +105.1 (+10.61 if actual 1988 expenditures are considered as the budgeted figure)
Subventions, especially for Budget head 140 (HOEC General Administration) and the newly created head 146 (Culture Division), split from head 140, have been growing rapidly. Of the total of Cedis 1.9 billion for subventions under heads 140 and 146, Cedis 1.7 billion is for the National Service Secretariat, and almost all of this amount is for personal emoluments. Compared with the 1988 budget, allocations to higher education have grown extremely rapidly (+105.12), but compared with 1988 preliminary actual expenditures have grown at 10.62, which is one of the slowest sectoral rates of growth. Of the higher education subventions of Cedis 4.8 billion, Cedis 3 billion are for personal emoluments. Thus in the budget of the MOE&C there is at least a further Cedis 4.7 billion of personal emoluments that will be effected directly by any new salary policy.
326. The total 1989 recurrent budget for education (heads 141, 142, 143 and 145) of Cedis 41.2 billion is 41.01 more than the 1988 allocation (only 32.1S more if a reasonable 1988 allocation for higher education is included). Thus growth in recurrent budgets for education are just keeping up with inflation. However as actual expenditures in 1988 appear to be running some lOS lower then budgeted (excluding higher education) the growth in 1989 budgets over actual 1988 expenditures are likely to exceed by a considerable margin the rate of inflation. Of this total education budget, approximately 43.21 is for primary education, 26,0S for JSS/Middle education, 19.12 for second cycle education and 11.5? for higher education. This compares (using a reasonable allocation for higher education in 1988 of Cedis 4.3 billion) with the previous year's 35.6Z for primary, 28.52 for middle/JSS, 22.22 for second cycle education and 13.72 for higher education. Between 1988 and 1989 the share of primary education in the total budget has increased, whilst that of JSS/Middle and second cycle and higher has reduced. There appears to be little justification for some of the increase in the allocation to primary education which is largely due to an increase of 66.51 in personal emoluments, caused by a rapidly, and unauthorized increase in employment of teachers.
327. General Comments. There have been some changes in the structure of the budget of the MOEC. For example for the first time a head specifically for non-formal and adult education has been created (140-03) with a significant allocation of Cedis 38.4 million. Less justifiable is the creation of two new GES HQs sub-heads, one (141-17) for Accra Technical Training Center, and the second for Kumasi Technical Institute (141-18). It is not clear why specific institutes should warrant a particular sub- head, and even less clear why these institutions should fall under GES HQ - 121 - services. Finally a new head has been created for the Culture Division (146), with a budget allocationof Cedis 203.1 million.
328. There is a rapid increase from 1988 to 1989 in the allocations to subventionsin the budget of MOEC. For example in the 1988 budget only 12: was allocated to subventions(albeit an unrealisticallylow figure) whilst in the 1989 budget this has increasedto (15.2Z),almcst two times the 1988 allocation. It should be considerednecessary to scrutinizethe plans and budgets of organizationsreceiving subventionsin as much detail as is the case for all other institutionsand organizationsfinanced directly by MOEC.
329. There needs to be considerablygreater control over the release of budgeted funds. For example in 1987 29Z more than budgeted amountswere released to higher educationinstitutions, and in 1988 (where the allocation for higher educationwas surprisinglyreduced by 13.3Z) 85Z riore than the budgeted amount for higher education was released. Similarly, with personal emolumentsunder GES, 8,000 more staff than budgeted for were employed in 2.988and the additional funds needed to pay for these extra staff were released automatically.
330. Despite very substantial increases in allocations for Items 2,3, and 4 compared with 1988 figures, the overall allocation for these items, especially for maintenance and repairs (Item 4) is inadequate for any regular maintenance of school facilities and other educational buildings. About 42 of total recurrent budgets should be allocated to regular maintenance activities to avoid expensive rehabilitation. The allocations for travelling and transport are too low, especially for certain key Divisions such as the Inspectorate, and the Curriculum Divisions, if there is to be adequate supervision, monitoring and feedback of the reform program. Again, something of the order of 41 should be allocated to this item, with available resources concentrated on the key Divisions. Such increases in items 2 and 4 could only be financed if staffing levels could be reduced to agreed figures.
331. There needs to be greater concentration and control of goods purchased by GES under Item 5. Currently almost every GES HQs Division purchases substantial quantities of similar items of educational materials. For example both the Central Administration and the Supplies Division purchase text books, and both the Central Administration and the Budget Division purchase chalk and other educational materials. This scattered purchasing authority means that the most advantageous prices are not obtained, that effective storage, and distribution is almost impossible, that monitoring proves to be very difficult, and that the potential for leakage is very great. It is strongly recommended that there be only one organization in the GES responsible for procurement, storage, and distribution of all major purchases of teaching learning equipment and materials, and text books. This organization would then distribute goods to the different operational units who would no longer be responsible themselves for any purchasing.
332. The 1989 recurrent budget for education is largely consistent with the Government's education policies, as expressed in the education - 122 - sector adjustmentprogram, and in the policy speech by the PNDC Secretary for Education of December ;5 1988. However, there is still an allocation under Sub-Head 141-05 for feeding subsidies in second cycle institutions, which are supposed to be eliminatedas a conditionof EdSAC third tranche release. In addition three items mentioned in the PNDC Secretary'spolicy speech are not budgeted for; namely:
- Cedis 3.6 billion for primary school furniture; - Cedis 300 million for electricityand water charges for second> cle institutions;
- The interest rate subsidy for the student loan scheme. The Social Security and National InsuranceTrust is asking for a Cedi 1 billion up-front payment to cover the first five years of interest rate subsidies. At least Cedis 94 million is required for 1989 alone.
If educationalpolicies and policy statementsare tc have any meaning, then budgets must be allocatedconsistently with these sthtements.
333. Expenditureand BudgetingNorms. Since around 75Z of educationalbudgets and almost 90Z of actual expendituresare allocatedto personal emoluments,the preparationand enforcementof staffingnorms are likely to have a much more significantimpact than norms for Items 2-5 in achieving a desirablebalance in the recurrentbudget. For example in Ghana the student-teacherratio at the primary level is 23:1, when in most African and developing countries35:1 or even 45:1 is common. It is thus considered importantthat the Budget Task Force develop staffing norms as part of its extensionof the norms concept.
334. Prior to the work of the Budget Task Force, a consultantto the MOEC worked on 'Developmentof RecurrentExpenditure Norms for the Ghanaian Education Sector' (October1986). Considerahleattention was devoted to analyzing the historical relationshipsbetween Budget Item 1 and 2-5. He had argued strongly for financialnorms as opposed to physical norms (i.e. so many cedis per pupil for educationalmaterials as opposed to so many of this or that kind of book). This approachmay be worth consideringby the Budget Division.
335. The approach followedby the Task Force has several shortcomings,the most importantof which is that the applicationof the norms involvemoving instantaneouslyfrom an imperfect situationto one that is consideredideal. It is unrealistic,f r example, to expect the system to move within a year from a position where no studentshave any text books or exercise books, to one where all studentshave individual copies of all the text books and all the different exercise books. There is always a choice of what one might do, depending on the resources available. For example, one could have text books in the library,we can have sets of text books shared amongst groups of say three students,or each student can have a complete set of text books. It is the availability of finance that determineswhich of these options is appropriate. The Task Force, in developing its norms for education, inadequatelyanalyzed the financialor pedagogic implicationsof alternativenorms, prior to proposingwhat it consideredmost appropriate. It essentiallyaccepted what GES said it needed as an absolute. In other words it created a norm - 123 - on the basis of an inflated budget request,before any trimming had taken place. A great deal more work thus needs to be done by the MFEP before any viable norms are developedfor the sector.
336. Even when one has developed the physical norm (i.e. number of text books per student) it is still not easy to turn this into a financial norm, since there is no standardizedproduct (an English text book for Primary Grade Six c'n have any number of pages and be printed in any number of colors) and even if there is, there is no standard pricing. Prices of the same book have varied by a factor of 2 dependingon vhich Government agency buys it.
337. In some respects the developmentof norms for the Universities, carried out by the UniversityRationalization Committee is in advance of work done by the Budget Task Force for the other levels of education. It should be possible to use these norms for preparationof the 1990 recurrent budget for higher education.
338. A great deal more work needs to be done by the Task Force before norms exist which are more than a list of what people say they want. Up to now the task force has only succeededin recreatingan awarenessamongst those who prepare budgets that the funds they need should be related directly to the facilitiesthey already have (Traveland Transportbeing related to the number of vehicles and their condition,maintenance to the number, type, age, and value of buildings)or to the services they provide to students. It is still necessary to create an awarenessof the financial implicationsof alternativeways of achievingsimilar results.
4. RECOMMENDATIONS
339. The 1989 PIP for the education sector is substantiallymore in line with Government'sstate objectives than in previous years. The followinggeneral recommendationsfocus on further improvementsin preparing tue investmentproposals, and also in the recurrentbudget:
(a) Recurrent expenditureitems that are currentlyrecorded under the invsstmentbudget should be identifiedand reclassified under the recurrentbudget, even if funded by foreign donor support.
(b) The vast number of sub-projectswhich are contained in the 12 wumbrellawprojects in the sector are not possible tw implement effectively. Priority should be given to completions,with work on sub-projectsthat cannot be completed quickly or with available funds halted until subsequentphases of the umbrella project.
(c) Reliance by the MOEC on tie AESC for management of construction projects has not had acceptable results. A small unit in the Ministry comprisingengineering and architecturalprofessionals is recommendedto monitor the klinistry'sbuilding projects being managed by AESC. - 124 -
(d) Preparationof the compositerecurrent budget needs to be strengthenedthrough reducing the number of groups within the Ministry that are involved in preparing the draft budget, and through more consistentuse of the new budget norms. In addition, the concept of budget norms can be extended to staffingnorms in the education sector, and this is recommended.
(e) Allocationsfor Items 2-4 are still insufficient. Although additional resourcesare called for, strict applicationof the budget norms is impracticalin the near term given resource constraints,and there are options for imperfect solutions during a transitionperiod to improved recurrentallocations. The existing norms thus need to be reviewed and revised prior to preparationof the 1990 budget. - 125 -
K. HEALTHSECTOR
1. PUBLIC INVESTMENTPROGRAM
340. There have been astonishingincreases in actual expenditureson health frou the domestic capital budget in both 1987 and 1988 (more than twice the budget allocation in each year). On the one hand, they can be interpreted as evidence of higher Governmentpriority for health. On the other. the returns on so much investment-- in terms of increasedhealth service delivery -- appear very modest. Contractorshave been the main beneficiariesso far. This is largelybecause the spending is spread over a multitude of small projects, very few of which ever get completed.
341. The comments made below are based on the February 1989 version of the PIP made available to the Bank at the ConsultativeGroup meeting.
342. It is recommendedthat MOH take a new approach to the PIP. This approach would be based on the adoption of specific targets and timetables fox the two most importantcomponents:
i. primary health care (PHC): completionsand new facilities, to expand access/coverageto 80? of the rural populationby the year 2000; and
ii. hospital rehabilitation: to be completed in all MOH general hospitals -- teaching, regional and district -- by the year 2000, with targets for the different levels (based on relativenumbers of clients served) of 1995 for district hospitals, 1998 for teaching hospitals and 2000 for regional hospitals.
It is good to see that these two broad categoriesnow account for about 70? of the PIP.
343. The appropriatesize of the health PIP, and hence its share of the total PHC, would then depend on agreed service targets (quantityand quality), temperedby ability to find financing (especiallyforeign financing)and to implementthe investmentprogram. The implicationsof the above targets are that the size of the health PIP should increase considerablyover the next few years, but its share of the total PIP need only increase a little after 1989. The proposed total expenditureof ¢17.3 billion for 1989-91 representsa small increase in real terms, compared with the 414.0 billion in the 1988-90 PIP, when account is taken of the devaluationof the cedi and local inflation between the two allocations. The share of health in the total PIP would rise from 3.9? in 1988-90 to 4.4% in 1989-91. The health PIP could be increaseda little further (anywhereup to 02 billion, or about 101) if resourcesbecome available,with the increase devoted to additionalPHC expendituresas discussedbelow.
344. The PHC share of the 1988-90 PIP was 542. But the 1989-91 PIP has a PHC share of only 45? (See Table 5.K.1). It is true that the share of PHC in the PIP is much higher than the share of PHC in the recurrentbudget (which - 126 - is too low and should be increasedin future years). However, there is no obvious justificationfor a reductionin the PHC share in this period, and there are justifiedadditional PHC investmentsto be made. Provided MOH demonstratesits ability to complete projectswith the resourcesso far included in the PIP, additionalamounts should be put into PHC in the two outer years.
Table s.K.1 Pubite Inevet_mt Progra In Health
PIP 19ts-s PIP 199-91 Proj act PHC - Number X TotaI PHC TotaI PHC
MED 1 IGO 1,8M 1,385 1,S07 1,687 MED 2 0 567 6 088 0 MED 3 196 1,630 1,586 1,458 1,458 MED 4 196 444 444 ase 386 MED 8 19O 1,696 1,66 969 969
MED e 1SO M65 860 1,314 1,814 MED 7 19O 1,136 1,136 782 762 MED 8 l 1,781 176 2,461 246 MED 9 le 870 87 8se Be MED 16 1s 981 9g 1,071 107
MED 11 e 48 6 8a84 a MED 12 6 02 6 94 o MED 18 25 468 118 660 163 MED 14 * 701 e 656 a MED 16 e a 0 5o 6 MEDl6 1660IS 6 6 6 MED 17 196 496 4se 438 488 MED 18 46 ess 296 e89 861 MED 19 o 120 6 o o MED 20 6 896 e o MED 21 l 856 85 MED 22 e 203 6 MED 23 o 1,620 e Total 14,046 7,588 17,384 7,761
Health X of Total 3.9 4.4 PHCX of Health 54.6 44.6 Source: MFEP, World Bank.
345. PHC investmentsfall into three main categories:rehabilitation, completionsand new health stations. The announcementin the 1989 budget speech, that the PNDC has initiateda three-yearprogram to rehabilitateand equip all existing health stations,is most welcome and should substantially improve the quality of servicesprovided there. An allocationof 0400 million (presumablyfor civil works) to continue the rehabilitationof 30 health stations and another of ¢355 million for equipmenthave been made.
346. PHC facilitiesincluded in the 'umbrella"project MED 005 for completionand rehabilitationof health stationswill only be completed if the - 127 - number under construction(125 in 1988) is cut drastically. Selectingthe more advanced projects and favoringunderserved regions would permit both completing 38 projects by end-1989, and fully funding 1989 needs for projects in underservedregions which can be completedin 1990, for ¢325 million, according to the regions' detailed suF-nissions.The final allocationis ¢500 million. MFEP has been responsivet_ the principleof concentrationof resourcesand the Bank understandsthat work on this subject is continuing; this is welcome. The amounts allocated for 1990 and 1991 (¢300million and ¢169 million) seem rather less than will be required and could be increased per the discussionabove.
347. As for extending servicethrough co~nstructionof new health stations,this is of second priority to completions,but funding has been secured in principle.There are two issues. First, the 100 new health stations have been allocated10 to a region; it would be better if all 100 were located in the five underservedregions. If this change is not made, these regions will remain much more underservedfor much longer than is desirableon grounds of equity. Second, the proposed design (about 13 rooms) is unnecessarilylarge and expensive;a design for a basic facility with 5 rooms, recently developedby MOH, would suffice and would permit much greater coverage for the amount of funding available.
348. As for hospital investments,the priority of rehabilitationhas already been noted. Within this category, for which needs are huge, MOH needs to determine prioritiesat each hospital, startingwith Korle Bu for which alone full rehabilitationhas been estimated to require 06 billion.
349. The PIP contains a compositenew project for Korle Bu (MED023, which subsumesparts of MED016, MEDO19and MED020 but adds other new items). It combines rehabilitationof operatingtheaters with an intensivecare unit, unit of vascular and chest surgery, diagnosticunit and laboratory,and electronicmaintenance workshop, at a total cost of ¢1.8 billion in 1989-91 (10-112of the health PIP) compared to the ¢1.0-1.1 billion for the predecessorprojects in the 1988-90 PIP (7-8Z of the previous program). There still appears to be a need to review carefullywhether all these new items should go ahead, when there is much that needs to be done to rehabilitate Korle Bu and all other hospitals,as well as improve PHC.
350. The proposal to constructa new Cape Coast Regional Hospital (total cost ¢8.7 billion or close to $40 million, although only 10? of this is allocatedfor 1989-91),possibly w,th Italian concessionalaid, should be subjectedto a full feasibilitystudy (as MFEP proposes)before entering into any commitmentr,to find the best way to deal with the area's needs for hospital care (especiallyto consider less expensivepossibilities for rehabilitationor use of existing buildings). The proposed agreementwith the foreign contiactorsappears disadvantageousfor Ghana (price negotiationonly with one consortiumon the basis of their design for the hospital). This project is so huge that it could become a major drain on domestic financingto cover what any foreign financingevent.ally made availablewould not cover.
351. The choice of health prvjects for the supercorefor 1989 is appropriate: completionand rehabilitationof health stations (MED 005) and rehabilitationof district hospitals (MED 008). ! 128
352. Finally, with respect to control of health investment expenditures, MOH (and MFEP) urgently needs to get a grip on actual expenditures: spending on health investments has exceeded twice the PIP budget allocations in both 1987 and 1988, yet no one knows what these ¢5 billion plus paid to contractors have produced by way of completed facilities or improved health services, and the impact has likely been very modest. Changes are needed in a number of areas, for example: careful prioritization and concentration of expenditures in PIP "projects' which now have many sub- projects; early announcement of what is provided for in the budget, all the way down to the contractors; a procedure to prevent contractual commitment of unavailable funds; AESC certification only of work for which budgets exist, and only within existing contract limits; a tighter procedure for approving amendments to contracts to increase total payments; an earlier and greater role for regional directors of health; and MOH HQ and MFEP monitoring both of individual payments and of cumulative total expenditures, with rejection of both ineligible items and expenditures which would breach budget ceilings.
2. RECURRENT BUDGET
353. There was a distinct and encouraging change in the budgetary preparations this year. MFEP's very positive statements at the budget hearing for he<h, to the effect that Government policy was to meet the justified needs of the three priority sectors, and to ensure that actual fund releases approximated budget allocations (the latter a sore point in the recent past), were most welcome. The news in the budget speech, that recurrent expenditure on health is expected to increase by 82.51 over the provisional 1988 out turn, showed that these statements have been put into practice.
354. Two features of the budget hearings for health were particularly commendable: the involvement of the MOH regional directors, which should become a standard feature of the process under decentralization; and the open- minded effort to use the recently-evolved budget norms, but to modify or replace them where necessary. These norms are intended to provide a rational basis for expenditure allocations for vehicle use and maintenance, building maintenance, drugs and laboratory chemicals, etc. The Bank suggested during most of 1988 that MOH retain its 1988 share of the total Government recurrent budget (almost 10Z) through 1990. However, the late-1988 drug needs estimate, which includes a doubling of stocks to reasonable levels, was for up to ¢4.5 billion in 1989 (versus ¢2.0 billion allocated in 1988) and justified a one- year increase in MOH's share.
355. MOH's initial proposal was clearly excessive (¢26.3 billion including subventions, against ¢9.8 billion in 1988). This was mainly because of item 5: the drugs allocation had been set at ¢10 billion (against the mission's recommended ¢4-4.5 billion) and another ¢7 billion had been added for other supplies and miscellaneous expenditure (¢2 billion last year). The salary bill probably did not reflect any significant redeployment. The absolute amounts requested for travel/transport and maintenance (¢0.4 and ¢0.3 billion respectively) showed a welcome doubling from 1988. The quadrupling of item 3 (general) to ¢1.3 billion) needed further scrutiny. Subventions luoked reasonable. There was scope to cut, with focus on item 5 (drugs, etc.). - 129 -
356. The latest version of the budget availableto the Bank shows a realistic total of ¢15.8 billion, of which 06.5 billion (41Z) for personnel (Item 1); hopefully this fully reflects the 1989 general salary increaseand any decompression(See Table 5.K.2). The ¢8.4 billion for Items 2-5, which maintains HOH's requestedincreases for Items 2, 3 and 4 while holding Item 5 to ¢6.3 billion, looks enough. There should be a highly positive impact on MOH's perennial problems of mobility and breakdowns. The amount for drugs (and other medical supplies)is tight, but with aid funds expected to be forthcoming(EEC and World Bank), it will hopefully suffice,otherwise the rebuildingof stocks to the required prudent levelswill be delayed and risks of shortageswill remain for longer.
357. The most notable changes in the budget from 1988 are in the size (up ¢6.0 billion, or 61Z) and share of the Government'stotal recurrentbudget (almost142 in 1989, up from almoet 10? in 1988). Both increasesare appropriatefor 1989. The structureof the budget by main programs has remained remarkablysimilar in this scaling-up. The PHC share too has changed little (up from 23Z in recent years to 24? in 1989). Within broad headings there have been big and desirable increasesfor planning and within PHC for health education and maternal and child hea;.h. By item, the absolute increaseshave made for a doubling or more of planned expenditureon travel/transportand on maintenance.
358. For 1989, the absolute increase in the size of the health budget make possible substantialimprovements in services,if MOH can plan and implementthem successfully. For future years, when this kind of budget growth is unlikely to be repeated,there will need to be changes in the structuresof the budget to give higher shares to PHC, travel/transportand maintenance in particular.
359. Savings are possible in the 1989 budget from:
- personal emoluments (from redeployment,little if any of which appears to be built in so far) - institutionalfeeding(from reduction of subsidiesto recipientsand of the present waste/loss, possibly through contracting-out)
It is recommendedthat MOH reach agreemer.twith MFEP on "retaining"the savings achieved,e.g. by automatic increasesfor items 2 to 5 of amounts equal to the monthly payroli savingsachieved.
360. It is further recommendedthat MOH secure formalMFEP agreementin advance to levels of actual releases,either specific amounts or percentages of budget allocations,for Items 2 to 5 (non-salaryrecurrent expenditures) that reflect the Government'sstated priority for health, and that permit MOH to plan activitieswith confidence. This could help remedy the tendency fur actual MOH expendituresto lag far behind budget allocations,especially for Items 2-5 (about one-third "unspent"in 1987 i.e. about ¢l billion). A particularlyimportant case is drug procurement,where the availabilityof large sums needs to be assured up front to permit entering into major procurementcontracts. - 130 -
361. It would be useful if the principlesused in deciding budget allocationsfor 1989, whether use of the original budget norms or some modification,could be recorded for future analysis and use. For 1990 there should be a more solid basis in service delivery plans for deciding on allocations,but many of the rorms will still be useful.
Table 5.K.2
MOH Recurrent Budget, 1989
______..______MOH-Submitted Approved Item Budget Circular Draft Budget Budget (O m) (t m) (¢ bn) ------
1 5169 6503 2 198 409 412 3 368 1284 1345 4 178 275 275 5 4279 18023 6333 6 1002 965
Total 26162 15833 ------Source:MFEP
3. RECOHMENDATIONS
A. Public InvestmentProgram
362. The size of the health PIP should be based on agreed service targets (coverage,quality), financingand ability to implement. The present size and health's share of the 1989-91 PIP (about 4Z) look reasonable;if additionalresources become available,the size could be increasedby up to 10Z.
363. The drop in PHC share, from 542 in 1988-90 to 45Z in 1989-91, has no obvious justification;if the balance can not be changed now, any additional resourcesshould be devoted to PHC.
364. Investmentsin PHC and in hospital rehabilitationare rightly recognized as the most important. The supercoreitems (completionand rehabilitationof health stations,MED 005, and rehabilitationof district hospitals, MED 008) are appropriate. Such 'projects'should be based on targets/timetables.Sub-projects should be specifiedindividually, emphasizingthose which can be completedwithin the year.
365. Rehabilitationof health stations car probably be limited to emergency situationsand water supplies. Completionsare crucial to extend - 131 - coverage; resourcesshould be concentratedon 40 or fewer sub-projectsnear completion,and on undeserved regions. The decision to locate more of the planned new health stations in undeservedregions is commendable.
366. Hospital rehabilitationrightly gives higher priority to district hospitals than to higher-levelfacilities. MOH should determinepriorities at each hospital, especially Korle Bu.
367. The priority and justificationof new hospital units (Korle Bu, large part of MED 023) or whole new hospitals (Cape Coast, MED 021) do not seem established,given the -eeds for PHC and hospital rehabilitation.
368. Implementationof the health PIP needs substantialimprovement, in contracting,supervision and monitoring/controlof expenditures.
B. Recurrent Budget
369. The budget processwas commendable(involvement of regional directors; flexibilityin applicationof norms) and the outcome satisfactory, as regards both size and structureof the 1989 budget.
370. Savings are possible both by serious efforts at redeploymentof unskilled staff and on institutionalfeeding. MOH should be allowed to 'keep' the savings by matching increasesin allocationsfor items 2-5.
371. MFEP should implementits stated priority for health by agreeing to high levels of releases for items 2-5 in advance, so MOH can plan its activitiesand purchases. Assurance of the large sums needed for drug financingwhen required is particularlyimportant. Annex 5.K.1
PUB3LICINVESTMENT PROGRAIEE 1969 - 1991 FUNDINGSTATUS - ANALYSISOF SOJEtCESOf FUNDINGFOR 1989 (IN MILLIONCEDIS)
I I I I W~~~~~~~~~~~~~~~~~~OA11 BUDGEARY RESQJRCES 11 OTHERSOIJCES Of FUNDING 11 I I I I~~~~~~~~~~~~~~------II.I------11 0 I I I I I II ~~~~~~~~ ~~~~NET ~~ ~~~~~~~~BLAFICFOREIGNC(NIERCIAL C0. OGIESTIC!I T HEAITM tPRJEC SECURED I FYBIJ IIC'PAATFUNDS I LENDINMG fl SECURED FY1N FUNDS UMORRING A IPROJECT ICOSTI------I ------L I Exchangelate USSIl.260 Cedis tMSER 6989IFCIILCIFCJILCIIFC ILCIFC ILCIIFC ILC FC ILCIFC ILCIFC EC S
'PrimaryHealth Care Strengthening INED001/86 1 482 1 462 1 20 1 I II I I I I I I I I I I 82 lInst.Streng. of Health Services IMEDO002/861214 I 1871 271 I II I I I I I I I I II2l1I INCH/FamilyPlanning Prog.Supiport 1I4E003/86I5 92IS~56 I I II 30 1 1 II I I I I I I I 192 1 IHutritionCentres Rehb- INED004/86 j 40 I II I 40 j I I I I I I ' I HNealthStationts Rehiab.& CovpI. Prograimme INED 005/86 I SO0 I I I ISOO I I I I I I I I III 50O
lEquipmentfor Heatth Stations IMED006/86 f SO8 I 410 1138 1 40 II I I I I I 8 ICons.of NewNealth Stations INED007/86 1 50 1 I I I so I I I I I I I so5 IoistrictHospitats Rehab. Project INED008/86 1 9001 3501 1001I I II I 4501 I I I I I I I9O I lRegionalHospitsls Rtehab. INED009/86 1 320 I I I 1 11 I 320 I I320 1 ileachingHospitals Rehab. INED010/86 I 571 I I I I II I Sri I I II I I I I I I I I571I
IPsychistricHospital Rehab. INED011/86 1120 1 I I 120I I I I I I I I I I II120 ILepirosariaRehab. INED012/86 I ?I I I I 1I 6 1 15 I 1 I I I I I I I I 211 IRlehab.of Health Irsining Institutioms IN~ED013/86 1200 I II20I 1I I I I 200 II I HNealthSupport Service Rehab. INFO014/86 j ZO00 I I 11 2001 I I I I I I I I I I M lResearchCentre Into Plant Medicine INED0S1586 j 17 1 I I I 12 ~ IF1
iSolarPotter Project for H4ealth Stations INFED017/86 I 20 I II I1 20 1 I I I I I 20 ILogistic Supportfor RNH ImNF018/88 ISO15 IIII ISO I I I I I I I I I I IIISOI INew RegionalMospital.Cape-Coast INFO 021/89 1 10 I Ij 10 I I I I 0I IRehab.of Hospitallifts INFO022189 I 203 1 I I 1I I 203 1 1 I I I I I I I I203I IRevitalisation9 Rehab.ofK'buj Teach.Nosp.INFO 023/89 1625 I 11 575 1 SO I I 1I I I I I I I I I625
INEALIN SECTOR TOTALS j 20 15823 11971 1285 1 I 11 586 12981 1 I 1I I I I I I I I 1158231 L.
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