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Ghana Public Expenditure Review

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Ghana Public Expenditure Review Public Disclosure Authorized FISCAL CONSOLIDATION TO ACCELERATE GROWTH AND SUPPORT INCLUSIVE DEVELOPMENT Public Disclosure Authorized GHANA PUBLIC EXPENDITURE REVIEW Public Disclosure Authorized Public Disclosure Authorized MAY 8, 2017 WORLD BANK GROUP 1 ABBREVIATIONS AND ACRONYMS CAGD Controller and Accountant-General’s Department CHAG Christian Health Association of Ghana COCOBOD Ghana Cocoa Board CSIR Council for Scientific and Industrial Research ECOWAS Economic Community of West African States EGMA Early Grade Mathematics Assessment EGRA Early Grade Reading Assessment FDI Foreign direct investment FOB Free-on-board FWSC Fair Wages and Salaries Commission GCAP Ghana Commercial Agriculture Project GET Fund Ghana Education Trust Fund GHS Ghana Health Services GIFMIS Ghana Integrated Financial Management System GLSS Ghana Living Standards Survey GNI Gross National Income GRA Ghana Revenue Authority IGF Internally Generated Funds IMF International Monetary Fund JHS Junior High School MMDAs Metropolitan, Municipal, and District Assemblies MoE Ministry of Education MoF Ministry of Finance MoFA Ministry of Food and Agriculture MoH Ministry of Health MLGRD Ministry of Local Government and Rural Development NACCA National Council for Curriculum and Assessment NHIS National Health Insurance Scheme OECD Organization for Economic Co-operation and Development PFM Public Financial Management PPPs Public-Private Partnerships SADA Savannah Accelerated Development Authority SHS Senior High School SOEs State-owned Enterprises SSA Sub-Saharan African SSNIT Social Security and National Insurance Trust SSSS Single-Spine Salary Structure 2 STEM Science, Technology, Engineering and Mathematics TVET Technical and Vocational Education and Training VAT Value-added Tax 3 ACKNOWLEDGEMENTS This report was prepared by a World Bank team led by Dilek Aykut (Senior Economist, TTL) which included Kwabena Gyan Kwakye (Macro Management and Fiscal Policy); Sebastian James and Felix Oppong (Tax Expenditure); Deryck Brown (Wage Bill); Peter Darvas and Yijun Shen (Education); Huihui Wang (Health); and Johannes Georges Pius Jansen (Agriculture). Sean Lothrop edited the report. Errol George Graham (Program Leader) supervised the preparation of the report and Sona Varma (Lead Economist) provided useful comments and feedback during its development. Overall guidance was provided by Seynabou Sakho (Practice Manager, GMFDR), Paloma Anos Casero (Director, GMFDR), and Henry Kerali (World Bank Country Director for Ghana). The team benefitted from the collaboration of many colleagues. Kirk Schmidt analyzed the public financial management issues and expenditure data in Ghana. The chapters benefited from important contributions by Sona Varma (Human Capital); Kathleen G. Beegle, Deborah Newitter Mikesell and Eunice Yaa Brimfah Ackwerh (Education); Oscar Parlback (Tax Expenditure and editing of the report) and Janine Walz (overall design of the report). Excellent comments were received from peer reviewers: Madhur Gautam; Michael Geiger; Victor Christopher Kitange; Zahid Hasnain; Leif Jensen and Waly Wane. 4 TABLE OF CONTENTS Executive Summary .......................................................................................................................................................... 10 Macroeconomic Management and Fiscal Policy ..................................................................................................... 11 Tax Expenditures ......................................................................................................................................................... 14 The Wage Bill ................................................................................................................................................................ 15 Human Capital .............................................................................................................................................................. 16 The Agricultural Sector ............................................................................................................................................... 17 References ..................................................................................................................................................................... 22 Chapter 1 Strengthening Fiscal Policy and Improving Macroeconomic Management ......................................... 23 Background ................................................................................................................................................................... 24 Recent Macroeconomic Trends ................................................................................................................................. 25 Fiscal Policy and Public Financial Management ...................................................................................................... 27 Public Expenditures by Sector ................................................................................................................................... 33 Revenue Management ................................................................................................................................................. 34 Budget Management And Execution ........................................................................................................................ 38 Conclusions and Recommendations ......................................................................................................................... 41 References ..................................................................................................................................................................... 44 Chapter 2 Reforming Tax Expenditures to Boost Domestic Revenue Mobilization ............................................ 45 Introduction .................................................................................................................................................................. 46 Ghana’s Standard Tax Regime ................................................................................................................................... 47 Estimating Tax Expenditures in Ghana ................................................................................................................... 49 VAT Expenditures ....................................................................................................................................................... 51 Trade-Related Tax Expenditures ............................................................................................................................... 56 Corporate Income Tax Expenditures ....................................................................................................................... 58 Recent Policy Developments...................................................................................................................................... 61 Conclusions and Recommendations ......................................................................................................................... 62 References ..................................................................................................................................................................... 65 Annex 2.1: Calculating Tax Expenditures ................................................................................................................ 67 Annex 2.2: Tax Expenditure Estimates in the OECD 2013 Report ................................................................... 67 Annex 2.3: Customs Exemptions (2014 and 2015) ................................................................................................ 69 Annex 2.4: Summary of the Principal Taxes in Ghana .......................................................................................... 69 Annex 2.5: Tax Expenditures in 2013 under the Income Tax Act ...................................................................... 72 Annex 2.6: Tax Expenditures on VAT on Domestic Value Addition ................................................................ 73 Chapter 3 Managing the Public Sector Wage Bill to Maintain Fiscal Stability ........................................................ 74 Background ................................................................................................................................................................... 74 5 The Implementation of the SSSS ............................................................................................................................... 76 The Coverage of the SSSS .......................................................................................................................................... 83 The Growth of the Wage Bill ..................................................................................................................................... 84 Reforms Undertaken Since 2014 ............................................................................................................................... 89 The Political Economy of Public Sector Pay Reform ............................................................................................ 90 Conclusion and Recommendations ........................................................................................................................... 91 References ....................................................................................................................................................................
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